Should We Require Every New Venture to Be a Hybrid Organization?

• Author: Benjamin J. Warnick,Jeffery S. McMullen
• Published date: 01 June 2016
• Date: 01 June 2016
• DOI: http://doi.org/10.1111/joms.12150

Should We Require Every New Venture to Be a Hybrid

Organization?

Jeffery S. McMullen and Benjamin J. Warnick

Indiana University

ABSTRACT Critics of entrepreneurial capitalism have argued that entrepreneurship creates

dysfunction in individuals, families, communities, and society because entrepreneurs neglect

social and environmental dimensions of value in favour of financial value creation. By way of

contrast, hybrid organizations, such as Benefit Corporations, are created explicitly to address

social and environmental objectives in addition to their financial objective. Therefore, in this

paper we explore the consequences of a world of blended value in which every new venture is

required to be a hybrid organization. In doing so, we reveal the boundary conditions of

current social criticism levied against entrepreneurship and suggest that blended value may

best be relegated to the role of ideal or guideline as opposed to normative or legal obligation.

Keywords: blended value, corporate social responsibility, hybrid organization, social

entrepreneurship, sustainable entrepreneurship, triple bottom line

All investments are understood to operate simultaneously in economic, social, and envi-

ronmental realms. There isno ‘trade off’ between the three, but rathera concurrent pur-

suit of value – social, financial, and environmental. Regardless of the equation involved,

the parts operate together, inconcert, at all times. They cannot be separated and consid-

ered as distinct propositions, but are one and the same. All business enterprises have

within them a component or function of social value creation and all nonprofitorganiza-

tions generate a level of economic value and worth. They are inseparable. Therefore, all

returns generated from investing in this capital market space create value that is eco-

nomic, social, and environmental – a blendedvalue (Emerson, 2003, p.45).

INTRODUCTION

For over a decade the term blended value has been employed by scholars and practitioners

to communicate a concern about businesses’ disproportionate allocation of limited

Address for reprints: Jeffery S. McMullen, Associate Professor of Entrepreneurship, Kelley School of Busi-

ness, Indiana University, 1309 E. 10th St., HH M3135, Bloomington, IN 47405, USA

(mcmullej@indiana.edu).

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C2015 John Wiley & Sons Ltd and Society for the Advancement of Management Studies

Journal of Management Studies 53:4 June 2016

doi: 10.1111/joms.12150

attention and resources to the financial dimension of value creation at the expense of its

social and environmental dimensions (Emerson, 2003; Nicholls, 2009; Paine, 2003;

Vogel, 2005). Proponents of blended value often suggest that financial returns rarely

account for the full cost of their production (Bower et al., 2011) and that this emphasis

on financial returns exacerbates the managerial tendency to engage in actions that have

negative external effects on natural systems and social systems (Stiglitz, 2010).

During this same period, there has been an explosion of both practitioner and schol-

arly interest in the creation of social businesses designed to employ a hybrid model of

organization in which demand-based business logic is combined with need-based charity

logic (Battilana and Dorado, 2010; Battilana et al., 2012; McMullen, 2011; Miller et al.,

2012; Pache and Santos, 2013). These ‘hybrid organizations’ go beyond encouraging

emphasis on social and environmental dimensions of value creation, weaving these

threads into the fabric of the organization from the moment of origin (Grimes et al.,

2013). By integrating these priorities into the very mission of the organization, hybrid

entrepreneurs seek to ensure emphasis on social and environmental value while immu-

nizing their ventures from the temptation to become focused exclusively on financial

value creation (Battilana and Lee, 2014).

If policymakers are susceptible to the inferential affliction suffered by management

scholars, namely that if something is good, then more of it must be even better (Grant

and Schwartz, 2011; Pierce and Aguinis, 2013), then the concept of blended value has

the potential to morph rapidly from a choice to be encouraged into an outcome to be

required. But what are the implications of such a policy requiring a moderate, blended

value approach in entrepreneurial goal setting, strategy formulation, and tactical

implementation?

Philosophers ranging from Aristotle to Confucius have sung the praises of modera-

tion, but we would like to embrace the caveat of Oscar Wilde who glibly, but insight-

fully, retorted, ‘All things in moderation, including moderation’. Indeed, we fear that

instead of encouraging entrepreneurs to employ moderation voluntarily in their pursuit

of financial outcomes, a superficial understanding of blended value could lead society

and its policymakers to rush to the judgment that all organizations should be required

to be hybrids. This could have two potentially devastating consequences. First, it could

result in policy that abandons moderation in governance in order to enforce moderation

in entrepreneurial behaviour. Second, to the extent that an emphasis on blended value

has the potential to prohibit, obstruct, or impair the entrepreneurial activities responsi-

ble for creating societal benefits, a policy that requires blended value could inhibit or

completely suppress the mechanisms that make entrepreneurship the dynamic engine of

entrepreneurial capitalism it has proven itself to be (Baumol, 2002).

To avoid a fool’s bargain in which policymakers would trade a world that is excessive,

but organizationally diverse and dynamic, for one that is moderate but homogenous

and stagnant, this essay evaluates the hypothetical policy claim that every new venture

should be required to be a hybrid organization. To do so, we first employ stasis theory

to identify the assumptions necessary to support such an argument. Second, we consider

whether there is consensus (1) that entrepreneurship has dysfunctional effects on individ-

uals, families, communities, and society, and (2) that failure to pursue blended value is

responsible for these effects. Third, we examine the efficacy and efficiency of

631Exploring the Limits of a World of Blended Value

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encouraging blended value through (1) the intrapersonal argument of self-regulation, (2)

the interpersonal negotiation of social regulation, or (3) the impersonal coercion of gov-

ernmental regulation. Fourth, we review the costs of each cure. Finally, we consider the

prudence of requiring every new venture to be a hybrid organization by evaluating

arguments and counter-arguments that support and refute the policy claim’s exclusive

reliance on the coercive approach.

CLARIFYING THE DEBATE USING STASIS THEORY

Whether every new venture should be required to be a hybrid organization is a policy

question that can manifest only after a number of assumptions have been granted

involving more fundamental questions. Such policy questions lend themselves to analysis

through stasis theory, which was developed by Aristotle and Hermogenes and refined by

Roman rhetoricians such as Cicero (Nadeau, 1964). Originally designed for courts of

law, the concept of stasis defines the focal point of a dispute and literally means ‘a point

of rest’ between two opposing forces (Sloane, 2001). It is meant to identify precisely

what is in dispute by inviting response by antagonists in order to transcend opposition

and resume movement toward a goal (Braet, 1987).

Classical theory established four categories of stasis: (1) stasis in conjecture concerns

whether an act occurred, (2) stasis in definition concerns what the act should be called, (3)

stasis of quality concerns whether the act is justified, and (4) stasis in place concerns

whether the discussion is occurring in the proper forum (Corbett and Eberly, 2000).

Although stasis in place is largely preemptive, the other three are, generally speaking,

progressive, such that stasis in definition implicitly concedes conjecture, whereas stasis in

quality implicitly concedes both conjecture and definition (Sloane, 2001). Consider, for

example, the issue of climate change. Some antagonists deny that climate change is

occurring at all. Others concede its occurrence, but debate its meaning, denying that it

is anthropogenic. Still other antagonists concede that climate change is occurring and

that it is anthropogenic but debate its quality, claiming that the inaction is preferable to

action (Stern, 2007), or that future generations will be better positioned to absorb the

costs of addressing the issue (Broome, 2008; Dasgupta, 2008). Finally, some antagonists

concede that climate change is occurring, is anthropogenic, and that society must take

immediate action, but debate the nature of this action – should governmental policy

seek to encourage conservation through taxes or are privately-funded technological solu-

tions a more appropriate course of action?

One popular non-legal application of stasis theory is to apply the stases of conjecture,

definition, and quality to each of four topoi for a resolution of policy (stasis in place usu-

ally is not applicable). These topoi include: (1) ill (i.e., symptoms), (2) blame (i.e., cause),

(3) cure (i.e., treatment), and (4) cost (i.e., effects vs. side effects) (Corbett and Eberly,

2000). The result is a four-by-three matrix with 12 possible stases (e.g., ill-conjecture,

ill-definition, etc.) that help locate the centre of dispute and build on points of consensus

to promote productive dialogue about alternative means to respond to a given situation.

The premise that entrepreneurship causes dysfunction because of a lack of blended

value can be analyzed through stasis theory to answer the policy question of whether

every new venture should be required to be a hybrid organization. Table I offers the

632 J. S. McMullen and B. J. Warnick

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