17 Oct 2011  Research & Ideas

How ‘Hybrid’ Nonprofits Can Stay on Mission

As nonprofits add more for-profit elements to their business models, they can suffer mission drift. Associate Professor Julie Battilana says hybrid organizations can stay on target if they focus on two factors: the employees they hire and the way they socialize those employees. Key concepts include:

  • In order to avoid mission drift, hybrid organizations need to focus on whom they hire and whether their employees are open to socialization.
  • Because early socialization is so important, hybrid firms may be better off hiring new college graduates with no work background rather than a mix of seasoned bankers and social workers.
  • The longer their tenure in a hybrid organization, the more likely top managers may be to hire junior people.

 

For those who like to view things in black and white, it's tempting to divide the working world into two camps. There is the for-profit sector, primarily driven by the prospect of financial success. And then there's the not-for-profit world, which eschews the almighty dollar in the pursuit of curing societal ills. In reality, though, the line between the two is growing blurrier.

"In the not-for-profit sector, a number of organizations are trying to be less dependent on donations and grants," says Julie Battilana, an associate professor at Harvard Business School. "In the meantime, facing increased public pressure to help address societal problems, for-profit firms have adopted social responsibility policies, which have pushed them to focus more on social initiatives."

"Some of them have been accused of losing sight of their social mission, or even having a negative impact on the populations they were trying to help"

In the wake of this evolution over the past decade, more organizations have adopted a hybrid business model in which a social mission is the primary goal, but they still aim to generate enough commercial revenue so they can survive and thrive without depending on charitable donations like a typical nonprofit would. Commercial microfinance organizations often adopt a hybrid model, for example: they provide business loans to poor people who wouldn't traditionally qualify, but they still depend on the loan recipients paying them back with interest.

The main problem with the model is that hybrid organizations run the risk of suffering from so-called mission drift—meaning that they stray from their original goals—usually by focusing on profits to the detriment of the social good, but sometimes vice versa.

"Mission drift has been identified as a potential problem among microfinance organizations," says Battilana, who has been studying hybrid organizations for several years. "Some of them have been accused of losing sight of their social mission, or even having a negative impact on the populations they were trying to help."

According to Battilana, there are two key questions that leaders must address to keep the mission on course while still making enough money to sustain that mission: One, whom should you hire to strike a healthy balance between idealism and the bottom line? And two, what's the best way to socialize new hires to stay focused?

Lessons from Bolivia

In a recent Academy of Management Journal article, Battilana and Silvia Dorado from the University of Rhode Island tell the true tale of two Bolivian microfinancing organizations, Banco Solidario and Caja de Ahorro y Préstamo Los Andes. Both were hybrid orgs created in the early 1990s as spin-offs from existing NGOs. Both set out to avoid mission drift. But each took a different tack in hiring new employees.

BancoSol hired employees based on their previous experience and proven capabilities. Because the mission required know-how in both profit making and social work, the organization ended up hiring a mix of social workers, sociologists, anthropologists, bankers, and economists. The idea was that these seasoned employees would complement each other with their disparate backgrounds, after training them to work together toward the common good.

But the reality was that their single-purpose backgrounds made it hard for them to adjust to the hybrid model. Those with social work experience and those with a financial background ended up resenting each other to the point of constant fighting, such that the organization could hardly operate. Loan officers quit left and right, the number of active borrowers plummeted, and the profit margin dropped, too.

"They basically had to deal with conflict that became intractable," Battilana says.

Los Andes's launch in 1995 came three years after that of BancoSol's, meaning that Los Andes would learn from BancoSol's hiring woes. Los Andes took what Battilana and Dorado call a "socializability-focused" approach to hiring. Rather than looking for job candidates with experience in either social welfare work or finance, Los Andes hired people with essentially no work experience at all—recent college graduates—and then trained them specifically to be microfinance loan officers. The idea was that it would be easier for the employees to adhere to the hybrid mission if they were not hampered by their preexisting work logics, be they either social-based or profit-based. Whereas BancoSol was more focused on the dual end-goal of helping loan applicants while still making a profit, Los Andes was more concentrated on the means to an end—the process of training and managing the novice employees.

Because it took longer to train newbies than it would take to coach seasoned professionals, measurable progress was slow, but steady at Los Andes. "Instead of relying on commitment to the end pursued by the organization (i.e., its mission), Los Andes's approach to socialization thus relied on commitment to the means used to achieve this end," Battilana and Dorado write.

"You might be better off hiring blanker slates"

In the end, in addition to avoiding interpersonal strife, Los Andes was more successful than BancoSol in avoiding mission drift. By the turn of the century, Los Andes had both lower average loans and a lower percentage of delinquent loans than its predecessor. (Higher values on either are signs of mission drift.)

"So what we found was that in the early days, you might be better off hiring blanker slates and then try to socialize them in the way that you want them to work in the hybrid organization," Battilana says

Managers have baggage, too

Be that as it may, top managers at hybrid organizations may find it difficult to make the best hiring decisions because of their own preexisting biases. Battilana explains the problem in a yet-to-be-published paper, tentatively titled "Neither Corporations Nor Not-For-Profits…But a Combination of the Two: The Challenges of Sustaining Hybrid Work Contexts."

"In the same way as new hires' work habitus influences the way in which they will enact the market and social welfare logics within hybrids, the work habitus of top managers influences the way in which they enact both logics in their daily practices," the paper states. Thus, even knowing the importance of the hybrid mission, a manager with a strong background in the nonprofit social sector is likely to be drawn toward candidates who also have a social sector background. And a manager with a background in finance is more likely to hire a financier over a social worker, all else being equal.

Firms can address this inherent bias problem by enacting strict and scientific hiring mechanisms. For instance, rather than vetting possible hires via job interviews, Los Andes both hired and promoted its employees almost solely on the basis of how the candidates performed on written exams. This prevented the possibility that hiring managers would be swayed by their own backgrounds, meaning that sporting either a finance degree or a social work degree didn't result in preferential treatment for a potential candidate.

But Battilana's research also suggests that managers are likely to learn from experience; the longer their tenure at a hybrid organization, the more probable it is that top managers hire junior employees.

"What we expect is that the more time they spend in a hybrid context, the more likely the managers are to become familiar with the problem of hiring, say, both bankers and socially minded employees," Battilana says. "The more experienced they are, the more likely they may be to hire blanker slates, especially in the early days of the organization when its hybrid culture is not yet strongly established."

About the author

Carmen Nobel is senior editor of HBS Working Knowledge.

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Comments

    • ajit jhangiani
    • NA, NA

    Marvelous! Someone had to address this aspect, and I am glad you did. In my experience, other than maybe in the USA, and especially so in India, people get upset if you dont take one side or another, immaterial of how effectively you get to impact. Also, once an effort gets into a groove established by the social entrepreneur it is difficult to then change the culture. This is especially true from non profit to any form of profit. And should this become necessary then one has to get more creative like establishing clubs with dues etc.

     
     
     
    • Hughe
    • HR manager, non-profit

    Co-operatives might be another useful field of study in this area. They combine social missions like providing affordable housing or food with a focus on good fiscal management. I have worked in a small business organized as a worker own co-operative. Social values were as important to us as having a profitable business ( which meant we contined to have jobs). We did tend to hire untrained people and then train them in the business, and at the same time "socialize" them to the mission of the worker cooperative. Members who had too much of a focus on one or the other aspect tended to get frustrated and quit.

     
     
     
    • Abdullah Bin Zarah
    • Executive Director, Sultan City

    As you said in the beginning it doesn't have to be two campuses white and black, purely profitable vs. Not for profit. There are definitely wide spectrum within the grey area between white and black. Through this diversity of schools of thought we can draw best practices and continue our endeavor to seek best range of models with certain level of flexibility in an ever changing business environment. In

     
     
     
    • Adriana Valtierra
    • highschool student, Centro Escolar Los Altos

    In Mexico there's a university called Universidad Panamericana, which is ranking higher because of the social responsability they transmit to their students, besides a good academic education. Nowadays, companies are hiring these graduates, because entrepreneurs besides caring about their experience and knowledge, they're also interested in people who see farther not only financial profit. Companies search for those who are honest, responsible, and who could take them to the top without neglecting the social and ecological areas.

    I hope most universities instruct their students with this ideology.

     
     
     
    • Robert Hart
    • Banking/Microfinance Consultant, Self-Employed

    This is for all companies. I first came across the concept in the writings of Jeffrey Pfeffer from Stanford.

    Hire for fit.

    This is another excellent reminder.

     
     
     
    • Maria Granados
    • University of Westminster

    UK Social Enterprises are another example of hybrid organisations that are trying to manage the tension between their social and economic objectives. I am now researching knowledge management on this type of organisation and found that this tension affects not only the culture, but also the organisational structure and their members' motivations. All these resulting in difficulties for sharing knowledge within the enterprise and weaken their organisational performance.

     
     
     
    • Bhimashankar shetkar
    • consultant, Myrada

    Its not just about hiring, core issue of mission drift depends upon kind of work culture organization is maintaining. Also depends on leadership of organization.

     
     
     
    • Sherpa

    If I were a board member of either a for-profit or not-for-profit and my management team could not initiate the hybrid model that you speak of, the only people that I would replace are those with O's in their title. Communication is communication and business is business. Always has been and always will be.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    The mission of a not-for-profit organisation is distinct as this utilises its resources for the good of the identified community without deriving any profit. Usually these are organisations which get donations and grants and utilise the same for the clearly defined goals. If the planning is proper and it is implemented by those who have no by-hook-or-by crook axe to grind, the hybrid nonprofits can stay on mission.

     
     
     
    • Pamela Hawley
    • Founder and CEO, UniversalGiving

    Dear Julie, what a fascinating article! So many rich points, both about hybrids; culture; hiring. We actually do hire a lot of young people and not just because of the blank slate. It's also because some of them are so smart and quick they can take on multiple projects and a have a prolific, hungry, work ethic.

    One note is that we are a nonprofit, and yet we operate as a hybrid because we have UniversalGiving -- a public marketplace allowing people to give money and volunteer, and then UniversalGiving Corporate, which generates revenue through CSR consulting services. So nonprofits can face the same issue of a bifurcation of cultures/services, even if their structure is nonprofit.

    Thank you again for the great article!

    Pamela Hawley Founder and CEO UniversalGiving http://www.universalgiving.org

     
     
     
    • Anonymous

    The author tells us not to see the world in black and white, but then divides it completely between seasoned workers and what they call blanker slates. Also, is really studying two organizations with different approaches enough? I have an MBA, am a financier, work with experienced social workers and the organization is very successful, but I cannot attribute it to the mix of people only. There are so many other factors.

     
     
     
    • Pardhasaradhi

    Good article - Mission and purpose are paramount. Seasoned managers / professionals do carry thier own baggage. They are moulded in that fashion for ages and its hard to unlearn that since most of them found success in thier organisations. These organisations carried different mission and purpose.

    If mission drift should not happen then it should work towards organisational culture. There has to be cultural transformation in the lateral recruits if they had to do justice to the new job role and still retain their expertise for what they are bought for.

    I rate high for this aritcle by Julie Battilana

     
     
     
    • Dave Nanderam
    • President, TapestryBuilder

    Thanks for brining yet another voice to this growing trend!

    Through my strategic planning work with non-profit leadership, we have worked to shift focus away from donor campaigns as the primary funding source to one of being "cost-neutral" in their program/service delivery.

    This shift in mindset incubates innovative cross-sector partnership opportunities for non-profits - beyond philanthropic relations. For example, the use of qualified multilingual staff to provide cost-effective translation services to private sector clients as an alternative program/service funding [revenue] stream.

     
     
     
    • Kriti Singh Bhandari
    • Coordinator, Sanjivan Revival

    Excellent insights.. In fact Non Profit Institutions are set up for an Ideal purpose and solely for the Greater Good of the Society.. However, due to the growing pressure of the Social Evils all around us, it has become all most impossible for any one to remain completely Corruption free.. It's a Tough World. Kathmandu,Nepal