Social enterprises as hybrid organisations
Traditionally, the divide between a for-profit or nonprofit organisation was clear; for-profit businesses would engage in revenue generation and nonprofits would engage in charitable work to solve social issues and would largely stay away from revenue generation.
Yet, the rise of hybrid organisations in recent years has made that distinction less and less clear. As you set out on your mission to change the world, you will have to decide if you want to form your venture as a for-profit or nonprofit – or perhaps some hybrid of the two. The answer will largely depend on your activities and the source of funding.
The Hybrid Spectrum includes four types of hybrid organisations (see the pdf document below for additional information). On the right-hand side of the spectrum are traditional for-profit entities that create social value but whose main motives are profit-making and distribution of profit to shareholders. On the left-hand side of the spectrum are traditional nonprofits with commercial activities that generate economic value to fund social programs but whose main motive is mission accomplishment as dictated by stakeholder mandate.
The Hybrid Spectrum
From strongest social orientation…
- Traditional non-profit
- Non-profit with income-generating activities
- Social enterprise
- Socially responsible business
- Corporation practicing social responsibility
- Traditional for-profit
…to strongest profit orientation
Social enterprises are hybrid organisations, finding innovative ways to challenge the traditional thinking about nonprofit organisations (by focusing on economically sustainable models) and for-profit businesses (by focusing on solving social issues). They introduce structures and incentives typical of profit-seeking businesses into organisations with charitable goals, assuming that an institutional setting focused on profits will outperform one focused on charity. They also encourage for-profits to donate to charities, create affiliated foundations, and, with state stakeholder legislation, attend to social goals aside from profit maximization. Some have created nonprofit/for-profit joint ventures and public- private partnerships, and endorsed the privatisation of traditional government functions and activities.