Social Business Hybrids: Demand Externalities, Competitive Advantage, and Growth Through Diversification

Abstract

Organization scholars have recently studied the internal challenges and opportunities faced by companies that combine business and social logics (i.e., social business hybrids). By adopting a demand-side perspective, this paper addresses the implications of hybridity for strategic choices with products and businesses by focusing on the role of social business hybrids’ customers. In the conceptual framework, social identity theory explains how hybridity generates both positive and negative demand-side externalities. Thus, hybridity can be a source of competitive advantage in the marketplace, but also create hurdles to firms’ ability to scale up their business. Diversification represents a potential choice that simultaneously generates growth, preserves hybridity, and avoids negative demand-side externalities. This paper analyzes the optimal type, timing, and scope of such diversification.

Private action in public interest: The comparative governance of social issues

“…Column (3) in Row (2) deals with situations involving high creative or absolute uncertainty and high ex post information asymmetry, such as those where it is unclear how a social problem may best be solved. In such cases, the comparatively efficient governance arrangements may be social entrepreneurship (Martin & Osberg, 2007;Santos, 2012;Zahra, Rawhouser, Bhawe, Neubaum, & Hayton, 2008), that is, initiatives that develop new technologies and business models combining social and business objectives (Battilana & Lee, 2014;Fosfuri, Giarratana, & Roca, 2016) in order to benefit disenfranchised stakeholders and be financially rewarded for doing so, for example, Method products, or Drinkwell (a startup that offers villagers in South Asia a low-cost system to purify well water). In such cases, the fact that the social mission is an explicit part of the firm's strategy, often from its very inception, serves as a credible commitment to playing a fiduciary role, as does the adoption of hybrid regulatory forms such as benefit corporations.…”

Categorical cognition and outcome efficiency in impact investing decisions

“…A growing area of strategy research investigates how market‐based organizations might not only create private financial value, but also advance broader social welfare goals (Barney, ; Dorobantu & Odziemkowska, ; Freeman, Wicks, & Parmar, ; Luo & Kaul, ). Essential to this work is the concept of “hybrid” organizations that explicitly pursue both financial and social goals simultaneously (Battilana, Besharov, & Mitzinneck, ; Fosfuri, Giarratana, & Roca, ). Hybrid organizations, such as social enterprises and impact‐driven businesses, transcend conventional organizational forms that maximize only one of either financial gain (i.e., profit‐maximizing businesses) or social welfare (i.e., social welfare‐maximizing charities) and may thereby provide innovative, financially efficient organizational vehicles for solving specific social problems (Kaul & Luo, ).…”

A longitudinal comparison of capital structure between young for-profit social and commercial enterprises

“…Our findings based on SPCs are relevant to the emerging body of work on B Corps in particular and other prosocial hybrids in general. Indeed, SPCs and B Corps share common features such as having a for-profit legal form and dual mission based on economic and social goals, which generate common differences compared to commercial enterprises (Fosfuri et al, 2016). By having to generate both financial and social returns, SPCs, B Corps, and other hybrid categories have in common the need to use prosocial cost-benefit analysis (Miller et al, 2012) for major decisions such as capital structure.…”

“…In the United States, new legal forms were established in different states of which the most prominent has been the Benefit Corporation introduced in 2010 (André, 2012;Ebrahim et al, 2014;Rawhouser et al, 2015). Unlike the SPC label, the Benefit Corporation legal form requires companies to conduct an assessment of their overall social and environmental performance against a third-party standard (Benefit Corporation, 2017;Fosfuri et al, 2016). However, with regard to the requirements of carrying a for-profit legal status, formally pursuing a public benefit in addition to profit, and publishing an annual benefit report (Fosfuri et al, 2016;Hiller, 2013), the conditions for adopting the SPC legal label are very similar to those for the Benefit Corporation legal form.…”