Virtuous circle: Human capital and human resource management in social enterprises

• Published date: 01 September 2020
• Date: 01 September 2020
• DOI: http://doi.org/10.1002/hrm.22002
• Author: Dorothea Roumpi,Katerina Nicolopoulou,Solon Magrizos

ORIGINAL ARTICLE

Virtuous circle: Human capital and human resource

management in social enterprises

Dorothea Roumpi

1

| Solon Magrizos

2

| Katerina Nicolopoulou

3

1

School of Labor and Employment Relations,

Pennsylvania State University, University Park,

Pennsylvania

2

Department of Marketing, University of

Birmingham Business School, University of

Birmingham, Birmingham, UK

3

Hunter Centre for Entrepreneurship

Strathclyde Business School, University of

Strathclyde, Glasgow, UK

Correspondence

Solon Magrizos, Department of Marketing,

University of Birmingham Business School,

University of Birmingham, Birmingham B15

2TT, UK.

Email: s.magrizos@bham.ac.uk;

Funding information

Coventry University

Abstract

The majority of the extant research on human resource management (HRM) draws

conclusions based on evidence from for-profit organizations. In response to calls

for the exploration of HRM in different contexts, this study focuses on under-

standing HRM in the context of social enterprises. The unique context of social

enterprises and their unique workforce raise questions about the direct applicabil-

ity of frameworks developed from examining HRM in for-profit organizations. The

narratives provided by 20 CEOs, HR directors, and managers of social enterprises

in the United Kingdom highlight the importance of “ethics of care”as the core of

the HRM-related decisions in the “third sector.”In addition, we identify five dis-

tinct workforce categories and propose a typology of differentiated HRM systems

that enable social enterprises to achieve their dual mission. Finally, we propose a

“virtuous circle”model, highlighting “ethics of care”as the main driver for organi-

zational outcomes, using differentiated HRM systems that better serve their

needs.

KEYWORDS

differentiated workforce, ethics of care, HRM systems, social enterprises

1|INTRODUCTION

A significant body of human resource management (HRM) research

demonstrates a direct or indirect relationship between HRM prac-

tices and organizational outcomes, such as performance and reten-

tion (Arthur, 1994; Boselie, Dietz, & Boon, 2005; Combs, Liu, Hall, &

Ketchen, 2006; J. Delery & Gupta, 2016; Huselid, 1995). A plethora

of authors, however, drawing on the contingency perspective

(J.E.Delery&Doty,1996;C.A.Lengnick-Hall&Lengnick-Hall,

1988; Snell & Youndt, 1995), call for greater emphasis on the con-

text of HRM (Jackson & Schuler, 1995; Lepak & Shaw, 2008;

Roumpi & Delery, 2019; Ulrich & Dulebohn, 2015). Contextual fac-

tors, such as organizational structure, sector, size, life cycle, labor

market conditions, legal environment, and national culture

(Farndale & Sanders, 2017; Jackson, Schuler, & Jiang, 2014; M. L.

Lengnick-Hall, Lengnick-Hall, Andrade, & Drake, 2009), are all

critical to understanding the relationship between HRM and organi-

zational outcomes.

Despite the steps taken to explore HRM in context, most rele-

vant research focuses on for-profit organizations, with only limited

emphasis on the context of nonprofit organizations (Van de

Voorde & Beijer, 2015). Even more limited, however, are the con-

ceptual and/or empirical scholarly endeavors that explore the role

of HRM in the context of the “third sector,”that is, social enter-

prises (e.g., André & Pache, 2016; Newman, Mayson, Teicher, &

Barrett, 2015; Ohana & Meyer, 2010; Royce, 2007). Most studies

in this research stream rely on case studies or draw parallels

between social enterprises and other forms of organizational

activity (e.g., small businesses and nonprofit organizations;

Cornelius, Todres, Janjuha-Jivraj, Woods, & Wallace, 2008;

Lumpkin, Moss, Gras, Kato, & Amezcua, 2013; Short, Moss, &

Lumpkin, 2009).

DOI: 10.1002/hrm.22002

Hum Resour Manage. 2020;59:401–421. wileyonlinelibrary.com/journal/hrm © 2019 Wiley Periodicals, Inc. 401

Social enterprises, often viewed as “hybrid organizations”operat-

ing at the intersection of the nonprofit and for-profit sectors

(Battilana, Sengul, Pache, & Model, 2015; Doherty, Haugh, & Lyon,

2014), simultaneously pursue a social and an economic mission

(Austin, Stevenson, & Wei-Skillern, 2012; Pache & Santos, 2013). This

dual mission, as well as the rapidly increasing number of social enter-

prises all over the world (Battilana et al., 2015) and their significant

social and economic impact (P. A. Dacin, Dacin, & Matear, 2010; M. T.

Dacin, Dacin, & Tracey, 2011), highlights the importance of gaining a

better understanding of managerial practices within this specific con-

text (Newman et al., 2015). HRM practices are rather important for

social enterprises. As social enterprises typically rely on earnings from

their commercial activities to sustain their operations and finance

their social mission, investing in social causes often comes at the

expense of investing in financial performance (Battilana et al., 2015;

Moizer & Tracey, 2010). Given social enterprises' limited access to

financial resources (Battilana & Lee, 2014), human resources and

human capital are assets of strategic importance (Borzaga & Solari,

2001). Thus, having HRM systems that help social enterprises attract,

motivate, combine, and retain human capital resources, despite their

limited financial resources, is imperative (Mair, Mayer, & Lutz, 2015).

The uniqueness of the context of social enterprises creates HRM-

related challenges and opportunities that raise questions about the

direct applicability of research findings and frameworks developed

from examining HRM in for-profit and nonprofit organizations (Zhang,

Zhang, Dallas, Xu, & Hu, 2018). First, social enterprises have a unique

workforce of both paid and unpaid (volunteers) staff (Peattie & Mor-

ley, 2008), and each group has different needs and interests that

require a set of differentiated HRM deployments. HRM-related needs

become even more complicated in the case of work integration social

enterprises (WISEs). WISEs aim to integrate disadvantaged individuals

who are unemployed back into the labor market by offering them

occupational training and, typically, short-term employment, as well as

helping them find other employment opportunities (Battilana et al.,

2015; Defourny & Nyssens, 2006). Therefore, WISEs' workforce con-

sists of employees, volunteers, and individuals who have been tradi-

tionally excluded from the labor market (e.g., individuals with

disabilities and returning citizens) (Austin et al., 2012; Bode, Evers, &

Schultz, 2006; Cooney, 2011). Second, working for a social enterprise

requires a set of sector-specific competencies that are typically rare in

the labor market (e.g., Battilana & Lee, 2014; Battilana, Lee, Walker, &

Dorsey, 2012; Royce, 2007). Finally, even commercially successful

social enterprises are limited in terms of the financial resources avail-

able for HRM investments and remuneration (e.g., Austin et al., 2012;

Doherty et al., 2014), as profits are directed to the social mission.

Thus, their ability to attract and retain employees is further challenged

(e.g., Liu, Takeda, & Ko, 2014; Ohana & Meyer, 2010).

On these grounds, this study aims to explore how HRM can con-

tribute to the effectiveness of social enterprises by shedding light on

the intricate relationship between HRM practices and the unique

workforce of social enterprises. Therefore, this study explores three

questions: (a) What is the main driver of HRM-related decisions in

social enterprises? (b) What is the workforce synthesis (paid and

unpaid staff)? (c) What systems of HRM practices do firms use to

effectively manage the differentiated workforce of social enterprises?

Our theoretical and managerial contributions are fivefold. First,

through 20 in-depth interviews with key informants from social enter-

prises, the deeply rooted “ethics of care”value emerged as the core of

all decisions social enterprises make about the synthesis of their work-

force and the HRM deployments they adopt. Second, in contrast with

previous research suggesting the existence of three distinct groups in

social enterprise workforces—namely, employees, volunteers, and dis-

empowered employees (the latter only in the case of WISEs; Austin

et al., 2012; Royce, 2007)—we identify five distinct groups: volunteers,

traditional employees, recent graduates, established professionals, and

disempowered employees. While extant literature suggests that dis-

empowered employees are present only in WISEs, our results indicate

that social enterprises, in general, driven by the “ethics of care”value,

are likely to employ disempowered individuals. Third, we draw from

research on differentiated workforces (Osterman, 1987), as well as

Lepak and Snell's (1999, 2002) human capital architecture framework,

to develop a typology of HRM systems most suited to each type of

workforce group. Fourth, we contribute to the emerging literature on

“hybrid organizing”(i.e., combination of multiple forms of organizing;

Battilana, Besharov, & Mitzinneck, 2017), as social enterprises are the

“ideal setting to explore hybrid organizing and thereby advance the

field of organizational studies”(Battilana & Lee, 2014, p. 409). Fifth,

our findings have broader implications for the HRM literature. We add

to the growing body of research suggesting that “firms can gain com-

petitive advantage only through the interplay between human capital

resources and HRM practices—each shaping and bringing about the

other”(J. E. Delery & Roumpi, 2017, p. 2) and propose a “virtuous cir-

cle”model. According to the proposed model, social enterprises and

other organizations that have “ethics of care”as their main driver can

accomplish desirable organizational outcomes (e.g., retention, financial

and social performance) by using differentiated systems of HRM prac-

tices for their unique workforce groups.

2|CONTIGENCY PERSPECTIVE AND

SOCIAL ENTERPRISES: A UNIQUE

WORFORCRE AND HRM-RELATED

CHALLENGES

For more than three decades, scholars have highlighted the impor-

tance of contextual factors in HRM (e.g., Jackson & Schuler, 1995).

The progress, however, toward this direction has been slow and even

“disappointing”(Farndale & Paauwe, 2018, p. 202). Although HRM in

context research is arguably in its infancy, several studies have

highlighted the critical role of context. For example, Combs et al.'s

(2006) meta-analysis shows that there is a difference in the effect

sizes of the high-performance work practices–organizational perfor-

mance relationship between manufacturing and service organizations.

Similarly, Kalleberg, Marsden, Reynolds, and Knoke (2006) found that

for-profit organizations are more likely to adopt practices such as per-

formance incentives than nonprofit and public-sector organizations.

402 ROUMPI ET AL.