Combining Social Welfare and Market Logics:

Understanding the Determinants of Social Performance in Socioeconomic Hybrid Organizations

Julie BattilanaHarvard Business SchoolTel: 1 – 617 – 495 6113

E-mail: jbattilana@hbs.edu

Anne-Claire PacheESSEC Business SchoolE-mail: pache@essec.edu

Metin SengulBoston College

E-mail: metin.sengul@bc.edu

Jacob ModelStanford University

E-mail: jmodel@stanford.edu

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Combining Social Welfare and Market Logics:

Understanding the Determinants of Social Performance in Socioeconomic Hybrid Organizations

ABSTRACT

Socioeconomic hybrid organizations combine the social welfare and market logics: they pursue a

social mission but they rely on commercial activities to generate revenues necessary to sustain their

operations. Although they have been identified as a promising way of organizing, we do not know how

they can succeed at achieving their social mission while facing different, and potentially conflicting,

demands imposed by the logics they combine. We address this gap by exploring the factors that

influence the level of social performance in socioeconomic hybrids. We argue that investment in the

social mission is positively associated with higher social performance in these organizations. We

further argue that social imprinting (i.e., the early emphasis put by the founding team on the

accomplishment of the organization’s social mission) and organizational productivity both enhance the

positive impact of investment in the social mission. The results, based on a panel of social integration

enterprises operating in France between 2003 and 2007, are congruent with our predictions. This paper

suggests that socioeconomic hybrids can leverage the synergies between the logics they combine and

points out the conditions under which they can do so.

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The for-profit and not-for-profit sectors have historically coexisted as well-delineated sectors, each

relying on distinct goals and distinct practices. Importantly, they have been characterized by distinct

institutional logics, defined as taken-for-granted social prescriptions guiding actors’ decision-making

in fields of activity (Ocasio, 1997; Thornton, 2004; Lounsbury, 2007). Whereas the for-profit sector

has traditionally been guided by the market logic dictating that firms adopt efficient practices in order

to maximize profit, the not-for-profit sector has traditionally been guided by the social welfare logic

dictating that not-for-profit organizations focus exclusively on their social mission. Over the last thirty

years, however, the boundaries between for-profit and not-for-profit sectors have become increasingly

blurred (Dees and Anderson, 2003; Emerson, 2003; Westall, 2009).

Facing increased public pressure to help address far-reaching societal problems (Margolis and

Walsh, 2003), corporations have developed and adopted socially responsible behaviors (Lev, Petrovits,

and Radhakrishnan, 2010). The for-profit sector, traditionally guided by the profit generating goal and

rationalized practices inherent to the market logic, has started adopting the goal of addressing social

problems, once a distinctive feature of the social welfare logic. In the meantime, not-for-profit

organizations, under pressure to simultaneously provide more services with fewer public resources and

to increase their overall efficiency and accountability (Chetkovich and Frumkin, 2003), have

introduced rationalized practices such as strategic planning (Hwang and Powell, 2009), social impact

assessments (Ebrahim and Rangan, 2010), or revenue generating activities (Foster and Bradach, 2005)

into their operations, thus introducing features of the market logic into organizations which had

traditionally been guided solely by the social welfare logic.

In the wake of this evolution, social entrepreneurship initiatives have emerged at the

intersection of the for-profit and not-for-profit sectors (Dacin, Dacin, and Matear, 2010). In the last ten

years, these initiatives have spread throughout developed and developing countries (Dacin, Dacin, and

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Tracey, 2011; Kelley, Bosma, and Amorós, 2011). Borrowing their goal to further social welfare from

not-for-profit organizations, many of them employ commercial business models to sustain their

activities and achieve a social mission (Zahra et al., 2009). By borrowing organizational templates

from both sectors, they become hybrid organizations (Scott, 2003) that combine the social welfare and

market logics. These ‘socioeconomic hybrid organizations’ can be found legally incorporated under

any legal status, including traditional for-profit and not-for-profit status (Townsend and Hart, 2008), as

well as new statuses such as benefit corporations or low profit limited liability companies (L3C)

(Strom, 2011). Importantly, they all diverge from a typical for-profit corporation by pursuing primarily

their social mission, rather than profits. They also differ from a typical not-for-profit organization by

aiming to generate enough revenue through commercial activities so as to be self-sustaining and in

some cases, even profitable.

Socioeconomic hybrid organizations are widely considered to be a promising fourth way of

organizing, different from typical corporations, not-for-profits, and public organizations (Strom, 2010).

At first they were created mostly in certain domains, such as education and healthcare, from where

they have spread into areas such as financial intermediation, retailing, consumer products, apparel,

food processing and software development (Dorado, 2006; Hoffman, Badiane, and Haigh,

forthcoming). Commercial microfinance organizations are well known examples of socioeconomic

hybrids. They aim to help the poor escape poverty by giving them access to adapted market-based

financial services, such as micro loans. As such, they combine the social welfare logic, which guides

their mission to help the poor, and the market logic, which dictates that the interest rates they charge

generate profits sufficient to fulfill fiduciary obligations and to sustain their activity.

Although it is clear that socioeconomic hybrids, by definition, combine social welfare and

market logics, we do not know how they can balance the different, and potentially conflicting,

demands imposed by each logic in order to succeed in achieving their social mission. Not surprisingly,

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many commentators have expressed doubts about socioeconomic hybrids’ ability to do so while

relying on commercial activities to generate revenue and sustain their operations (Fowler, 2000;

Weisbrod, 2004; Strom, 2010). A few inductive qualitative studies suggest that some socioeconomic

hybrids are able to successfully achieve their social mission (Battilana and Dorado, 2010; Pache and

Santos, 2010a), however, it still remains an open question how they can do so. This is a fundamental

question for the study of socioeconomic hybrids because attainment of social objectives is the very

essence of their existence in the first place. We address this gap by exploring the factors that influence

the level of social performance in these organizations.

We argue that the more resources these organizations invest in their social mission, the better

their social performance will be. Furthermore, and importantly, we argue that this positive link,

between investment in the social mission and social performance, will be positively moderated by

social imprinting, which we define as the early emphasis put by the founding team on the

accomplishment of the organization’s social mission, as well as by organizational productivity. Put

differently, at any given level of social investment, a socioeconomic hybrid is more likely to achieve

higher social performance if the accomplishment of the organization’s social mission was prioritized at

the time of founding and if the organization is effective in its operational activities.

We test our predictions in the context of social integration enterprises (SIEs) in France. These

organizations are socioeconomic hybrids that aim to help long-term unemployed people to transition

back into the workforce. They do this by hiring formerly unemployed people (with up to two-year

contracts) to produce goods and/or services that are then sold on the commercial market and by

training and helping them acquire the professional and technical skills that are necessary for them to

obtain regular jobs after they leave their SIE. The field of social integration constitutes an ideal setting

to test our arguments because SIEs are hybrid organizations combining both social welfare and market

logics. The social welfare logic guides SIEs’ mission to reintegrate long-term unemployed people into

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the job market, while the market logic guides their commercial activities, from which they generate

most of their revenue.

To test our predictions, we studied data from a detailed survey administered annually to a panel

of SIEs operating in France between 2003 and 2007. We complement this quantitative data with

interview data collected from field experts, SIE staff and SIE beneficiaries. The regression results and

qualitative evidence strongly support our predictions. SIEs’ social performance is driven by high levels

of investments in their social mission and is further enhanced by founders’ early commitment to the

social mission of the organization as well as by efficient operations. This is the first non-casual

quantitative evidence on drivers of social performance in socioeconomic hybrid organizations.

Our study makes three main contributions. First, it contributes to the study of socioeconomic

hybrid organizations by examining the drivers of their social performance. Whereas there is abundant

research on for-profit corporations and on not-for-profits, socioeconomic hybrids have so far received

scant attention. These organizations demand a different form of theorizing because they are neither

typical corporations, operating with a purely market logic, nor typical not-for-profit organizations,

operating under only the social welfare logic, rather they are a combination of the two. Second, and

more broadly, our study also contributes to the social entrepreneurship literature. Despite many calls

for research examining the consequences of social entrepreneurial activity (Lepoutre et al., 2011), we

still lack a clear understanding of the factors that influence social performance. We address this issue

by conducting what is - to our knowledge - the first quantitative study examining the antecedents of

social performance. Finally, our study contributes to the institutional theory literature by identifying

organizational factors that influence socioeconomic hybrids’ ability to successfully maintain their

hybrid nature. It further points to the conditions under which hybrid organizations can leverage the

synergies between the logics that they combine.

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IDENTIFYING THE DRIVERS OF SOCIOECONOMIC HYBRIDS’ SOCIAL

PERFORMANCE

The first forms of socioeconomic hybrids, organizations that employ commercial business models to

serve a social mission, can be traced back to the nineteenth century when groups of individuals, usually

professionals, began building cooperatives or mutual insurance companies with the goal of serving the

collective interest of the group (through market-based health or material insurance services as well as

through the mutualisation of production factors) rather than distributing profits to shareholders

(DiMaggio and Anheier, 1990). These early initiatives were nevertheless rare and mostly scattered,

addressing the idiosyncratic needs of specific local groups.

During the second half of the twentieth century, a new form of hybrid organizations, which

aimed to serve the needs of the broader public, emerged as a response to the declining role of welfare

states (Scott and Meyer, 1983). These organizations allowed for the provision of specific goods that

pure market-based mechanisms failed to produce efficiently (Dacin, Dacin, and Matear, 2010). Until

the late sixties, these hybrid forms were circumscribed to very specific sectors in society, such as

education and healthcare. Since the seventies, however, the notion that commercial business models

can be mobilized to serve a social mission – understood broadly as the provision of products and

services that enhance the wellbeing of societies – has gained prominence in many different sectors

(Dorado, 2006; Seelos et al., 2011). This development has called for organization scholars to

investigate these increasingly prevalent socioeconomic hybrids.

These hybrids have to cope with different institutional logics, which function as cultural

schemata that shape the cognitions and behaviors of actors by prescribing what goals are appropriate

for them to pursue and what means are appropriate to achieve these goals (Lounsbury, 2007; Thornton

and Ocasio, 2008). A key mechanism through which institutional logics operate is by providing

organizational members with a set of rules and conventions for deciding which problems get attended

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to and which solutions get considered (March and Olsen, 1976). They therefore focus the attention of

decision makers on issues and solutions that are deemed appropriate and legitimate (Ocasio, 1997).

Recent research has emphasized the variety of strategies mobilized by organizational members for

coping with multiple logics (Kraatz and Block, 2008; Greenwood et al., 2011). They sometimes resort

to avoidance strategies (Oliver, 1991) in an attempt to evacuate the logic which they perceived as

problematic, either because it is not favored by the dominant internal coalition (Heimer, 1999; Pache

and Santos, 2010b), because the organization does not depend on it for key resources (Dunn and Jones,

2010) or because it is not strongly promoted and enforced by external institutional referents (Oliver,

1991).

Hybrid organizations cannot use such avoidance strategies precisely because they attempt to

enact features of all the logics that they combine (Scott and Meyer, 1991). As a result, they are

confronted with different conceptions of what constitutes appropriate behavior. Depending on the

degree of compatibility (Greenwood et al., 2011) between the logics being combined, organizations

may find it more or less difficult to simultaneously enact the different institutional prescriptions. As

they try to do so, hybrid organizations may, over time, give precedence to one logic over the other

(Selznick, 1949; Thornton, 2002) and potentially abandon the other logic. If they do not abandon one

of the logics, hybrids are likely to face organizational instabilities due to blurred organizational

identities (Battilana and Dorado, 2010; Lok, 2010), and high levels of internal conflict (Glynn, 2000;

Townley, 2002; Zilber, 2002; Reay and Hinings, 2005; Pache, 2010), which may result, in extreme

cases, in organizational breakups (Tracey, Phillips, and Jarvis, 2010). Overall, hybrid organizations

face a real challenge in sustaining their hybrid nature and in keeping their focus on their initial goals

(Scott and Meyer, 1991).

Combining the Social Welfare and Market Logics in Socioeconomic Hybrid Organizations

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Socioeconomic hybrids face the significant challenge of combining the market and social welfare

logics, which impose different and potentially conflicting demands on organizations (Townsend and

Hart, 2008). The social welfare and market logics promote very different conceptions of what the

predominant goal for an organization should be. According to the market logic, organizations should

prioritize the creation of profitable operations, with an emphasis on private gain, whereas the social

welfare logic requires that organizations create goods and services for the public good (Austin,

Stevenson, and Wei-Skillern, 2006). The social welfare logic prescribes a focus on serving the needs of

disadvantaged people (DiMaggio and Anheier, 1990), whereas the market logic promotes the

maximization and redistribution of profits to shareholders (Friedland and Alford, 1991). According to

the social welfare logic, the organization’s objective is to improve social welfare, by reducing human

suffering, improving human wellbeing or protecting the natural environment. In contrast, according to

the market logic, the organization’s objective is to maximize profit by minimizing costs, increasing

revenues, and improving organizational efficiency (Besharov and Smith, 2011). As a result, the two

logics promote antagonistic views over which organizational constituencies should be attended to first.

According to the social welfare logic, the beneficiaries of the social mission are at the core of the

organization and addressing their needs should guide organizational structure, operations and strategy

(Frumkin, 2002). In contrast, the market logic places clients (as providers of resources) and

shareholders (as legitimate owners of the value generated) as the core constituents, whose interests

should be attended to (Fligstein, 1996).

Accordingly, the two logics further promote different conceptions of how resources in the

organization should be allocated. Under the social welfare logic, resources should be systematically

allocated towards the achievement of the social mission: profits, if generated, should not be

redistributed, but should be reinvested in the mission (Dees and Anderson, 2003). Slack resources, if

any, should similarly be mobilized in a way that serves best the advancement of beneficiaries, even if

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this may generate economic inefficiencies. In contrast, the market logic promotes the management of

resources for the creation of financial profits (to allow for their appropriation by shareholders). Notions

of efficiency and productivity are thus considered legitimate notions which guide the maximization of

economic value (Alexander and D'Aunno, 2003).

Overall, socioeconomic hybrids pursue the end prescribed by the social welfare logic, which is

the creation of goods and services for the public good (Austin, Stevenson, and Wei-Skillern, 2006) but

they adopt the means prescribed by the market logic, which dictates that their operations should be as

efficient as possible. As such, these organizations need to balance demands from social constituencies

that expect compliance with the social welfare logic, as well as demands from market constituencies

that expect compliance with the market logic. However, a number of socioeconomic hybrids have

recently been criticized for defying social constituencies’ demands and experiencing steep declines in

their social performance as they started giving precedence to profit generation over the achievement of

their social mission (Weisbrod, 2004; Strom, 2010).

One example of a group of socioeconomic hybrids that have been the targets of such criticisms

are commercial microfinance organizations, which have been criticized recently for focusing

excessively on profits at the expense of outreach to poorer customers (Christen and Drake, 2002;

Dichter and Harper, 2007; Carrick-Cagna and Santos, 2009). Some have even been accused of harming

the very constituency they were supposed to help: in the fall of 2010, SKS Microfinance, the largest

commercial microfinance organization in India, was accused by the government of being partly

responsible for several suicides due to SKS’s harsh loan-collecting practices (The Economist, 2010).

Even the Bangladesh Rehabilitation Assistance Committee (BRAC), one of the largest and most

respected international development NGOs in the world, has recently been criticized for failing to

serve the needs of its clients in its microfinance operations, while focusing its attention on profit

generation (IRIN, 2011).

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These examples resonate with the concern in the field of social enterprise that socioeconomic

hybrids may not be able to successfully achieve their social mission while engaging in commercial

activities. A few inductive qualitative studies suggest that some socioeconomic hybrids are able to

successfully achieve their social mission (Battilana and Dorado, 2010; Pache and Santos, 2010a),

however it still remains an open question how they can do so. In order to address this issue, we

examine below the factors that influence socioeconomic hybrids’ level of social performance, that is,

the degree to which they actually generate positive social impact (Roche, 1999).

The Importance of Investment in the Social Mission

The level of investment in the social mission, that is, the amount of resources that socioeconomic

hybrids directly invest in the pursuit of their social mission, is naturally expected to play a key role in

their ability to achieve this mission. The more resources they dedicate to it, the better their social

performance is likely to be. Higher levels of investment in the social mission increases the means

available for achieving the social mission, thereby enabling organizational members to act upon it and

reach higher levels of social performance.

Furthermore, higher levels of investment are also likely to allow socioeconomic hybrids to

mobilize additional resources, which they can allocate to the achievement of the social mission. For

example, high levels of investment in the social mission signal appropriateness and legitimacy to

external social constituencies (such as partner social service organizations, governmental agencies or

activists) who expect from socioeconomic hybrids a commitment to the social mission. The more

resources they invest in their social mission, the more likely socioeconomic hybrids are to be regarded

as legitimate within the community that they serve (Moizer and Tracey, 2010). In turn, external social

constituents are likely to reward these socioeconomic hybrids for appropriate behaviour by granting

them additional support (Meyer and Rowan, 1977; D'Aunno, Sutton, and Price, 1991) – for example in

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the form of subsidies, volunteer time, or partnerships – which can be further invested in social action.

We therefore hypothesize that:

Hypothesis 1: The higher the investment of a socioeconomic hybrid in its social mission, the

better its social performance will be. 

Although the quantity of resources invested in the social mission is likely to have a direct

influence on socioeconomic hybrids’ social performance, as reflected in the baseline Hypothesis 1, we

further argue that the way in which socioeconomic hybrids use these resources internally is also likely

to affect their ability to deliver on their social mission. A given level of investment in the social

mission may indeed lead to different levels of social performance depending on whether or not the

invested resources have been put to work in the organization in an effective way. The influence of the

level of investment in the social mission is therefore likely to be moderated by the organization’s

ability to effectively use the invested resources in order to achieve its social mission. Because

socioeconomic hybrids pursue the ends prescribed by the social welfare logic, while embracing the

means prescribed by the market logic, we argue that their ability to make the most out of the resources

invested in their social mission will depend both on their commitment to their social mission and on

their organizational productivity, that is, their overall efficiency in turning inputs into economic

outputs.

Moderating Effect of Commitment to the Social Mission

The effects on social performance of a socioeconomic hybrid’s level of investment in its social mission

may indeed vary depending on the degree to which commitment to the social mission is deeply rooted

in the organization’s culture. The definitions of an organization’s mission, norms and values are not

only imposed through institutional processes by external institutional constituents (DiMaggio and

Powell, 1983), they are also designed and promoted in important ways by its founding team. The latter

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plays an important role in defining what goal the organization should pursue and in developing an

organizational culture that is aligned with this goal (Baron, Hannan, and Burton, 1998; Ding, 2011).

Importantly, not only does this influence how the organization is set up during its early years of

development, but it is now widely recognized that it persists long after the founding phase

(Stinchcombe, 1965; Johnson, 2007), affecting organizational dynamics (Marquis, 2003),

organizational performance (Bamford and Dean, 2000), as well as how logics are enacted within

organizations (Thornton and Ocasio, 1999) in important ways.

Building on organizational imprinting research (Stinchcombe, 1965; Boeker, 1989; Baron,

Hannan, and Burton, 1999; Johnson, 2007), we contend that social imprinting, that is, the early

emphasis put by the founding team on the accomplishment of the organization’s social mission, has a

lasting impact on how subsequent organizational members conceive of the organization’s goal and

thereby on their commitment to the organizations’ social mission. Because of homophilic processes

(Ruef, Aldrich, and Carter, 2003), founders with a strong commitment to the accomplishment of the

social mission are likely to attract and select organizational members sharing similar social goals and

values. This dynamic is likely to reproduce over time. Social imprinting thus reinforces organizational

commitment to the social mission. An important consequence of this pattern is that, in these

organizations, members are going to be more willing to protect the end promoted by the social welfare

logic.

Due to social imprinting, organizational members are not only likely to be committed to the

social mission of the organization, but they are also likely to better leverage the resources committed to

the social mission because they will be motivated to invest time and energy to achieve it. This leverage

is likely to occur through distinct processes. In these organizations, organizational members, in

addition to being willing to focus on social goals, are more likely to be able to achieve them because

they incorporate social concern and social expertise in their work. They are thus likely to transform a

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given level of resources into higher levels of social performance. In addition, the commitment of

organizational members to social welfare goals is also likely to project appropriateness to external

social welfare constituencies and to reinforce the legitimacy of the organization. Furthermore,

organizational members committed to social welfare goals are likely to be aware of key social welfare

referents and to be able, given the legitimacy of the organization, to build relationships with them

through which they may be able to obtain additional external resources which may contribute to

mission achievement. We therefore hypothesize that:

Hypothesis 2: The positive effect of investment in the social mission on the social performance of

a socioeconomic hybrid is positively moderated by its social imprinting.

Moderating Effect of Organizational Productivity

Because socioeconomic hybrids embrace the means prescribed by the market logic in order to pursue

the end prescribed by the social welfare logic, we argue that their ability to effectively use the

resources invested in their social mission will also depend on their level of organizational productivity.

First, more productive socioeconomic hybrids will be able to dedicate more time and attention to the

achievement of their social objectives. More productive organizations, by definition, are able to

produce higher levels of output for any given level of input compared to less productive counterparts.

As a result, they have relatively higher margins and profitability. This reduces, in relative terms, the

pressure on them to achieve sufficient revenues to ensure their survival and allows them, again in

relative terms, to focus more on the attainment of social objectives internally. In a SIE with high

organizational productivity, for example, permanent staff, because they do not need to focus their

attention on delivering economic outcomes, can spend more time training the long term unemployed

people in order to help them acquire technical and professional skills. Simply put, organizational

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productivity enables socioeconomic hybrids to dedicate more resources to the attainment of their social

mission for any given level of social investment.

Second, a productive socioeconomic hybrid is likely to project an image of appropriateness to

key external market constituents such as clients or investors. These external constituents may, as a

result, reward the socioeconomic hybrid with enhanced support and contributions (such as more

purchase of goods and services or more investments) which, given high levels of internal productivity,

can ultimately enhance even more its social impact (Moizer and Tracey, 2010). Taken together, the

extent to which a socioeconomic hybrid manages to establish productive operations determines in

important ways the level of social impact that this organization can achieve for a given level of

investment in its social mission. We therefore hypothesize that:

Hypothesis 3: The positive effect of investment in social mission on the social performance of a

socioeconomic hybrid is positively moderated by its organizational productivity. 

METHODS

We test the proposed theory on a panel of social integration enterprises (SIEs) operating in France.1

SIEs are private (i.e. not state owned) organizations that aim to provide temporary employment to

individuals who have been unemployed for a long time, with the goal of increasing their future job

market prospects. In order to operate as an SIE, organizations are required to obtain an accreditation

from the Ministry of Labor. This accreditation entitles them to a public subsidy intended to offset the

opportunity cost of employing less productive people who require extra supervision.2 This

accreditation also requires SIEs to hire the beneficiaries of the service they provide from a pool of

1 We focus exclusively on “social integration enterprises” EI (Entreprises d’Insertion) and ETTI (Entreprises de Travail Temporaire d’Insertion). In France, there are two additional organizational forms, AI (Associations Intermédiaires) and ACI (Associations Chantier d’Insertion) as a part of the broader “work integration sector.” These organizations, however, operate outside of the commercial market. Their business models rely mainly on public support and thus diverge from hybrid organizational forms that are the focus of this study.

2 In 2007, in annual basis SIEs received €9,681 for each participant hired, except temporary work social integration enterprises which receive €51,000 to hire a social/professional counselor to coach 12 FTE participants.

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individuals who have been unemployed for a long period of time and enlisted by Pole Emploi

(National Agency for Employment) as “deserving social integration.” The idea behind this requirement

is to ensure that SIEs focus on their social objective and do not hire (and receive public subsidies for)

individuals who are already able to work and be productive. For conceptual clarity, we refer to the

beneficiaries of SIEs as “participants.” Participants work in the production of goods and services that

are chosen on the basis of their accessibility for unskilled workers (such as construction, catering,

gardening, recycling, etc.). These products and services are then sold on the market. Employment

under this status (that is, as a participant) is limited by law to two years. During this period, SIEs help

participants readapt to working life and regain individual pride and confidence through close

mentoring, adapted training programs as well as individual social counseling. Participants constitute,

on average, 70 percent of the total workforce of SIEs.

SIEs operating in France constitute an ideal setting to test the arguments developed in this

paper for three main reasons. First and foremost, SIEs are excellent examples of socioeconomic

hybrids that combine the social welfare and the market logics. They combine two interrelated, yet

different goals: a social goal (enhancing job market prospects of individuals who have been

unemployed for a long period of time) and an economic goal (generating positive economic profits in

order to sustain their operations). While the social goal is predominant, the economic goal is very

important because the social mission is performed through the SIE’s economic activity. Furthermore,

SIEs rely on their commercial activities financially as they obtain, on average, over 70 percent of their

revenues from the sale of their products and services (the rest from public subsidies and grants). Half

of the SIEs have a for-profit legal status, and all SIEs are required by law to operate entirely within the

legal and fiscal rules and boundaries of the market economy. Therefore, SIEs inevitably need to

combine divergent institutional logics: a social logic required by their relationships with public and

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social partners, and a commercial logic required by their relationships with clients and industrial

partners.

Second, in addition to being exemplary socioeconomic hybrids, SIEs have a significant and

growing economic presence in France, which is the fourth largest developed economy in the World

(behind U.S., Japan, and Germany) with a GDP of $2.1 trillion and per capita income of $32,495 as of

2007 (OECD Factbook 2010). First established in the late 1970s, the number of SIEs increased

significantly in the 2000s as they became an important building block of national employment policies.

A law passed in late 1998 officially announced the State’s willingness to double the size of the sector

within three years and institutionalized increased financial support for SIEs. In 2007, at the end of our

observation period, there were 1,178 SIEs in France employing over 22,000 participants, with a

combined sales volume of over €800 million ($1.17 billion) (DARES, 2011).3

Finally, while we study SIEs operating in France, SIEs are not an organizational form

idiosyncratic to France. Similar organizations can be found in many countries –including

Beschäftigungsgesellschaften in Germany, empresas de inserção in Portugal, entreprises de formation

par le travail in Belgium, and work integration social enterprises in Ireland and the U.K. More

broadly, SIEs reflect the recent ‘social entrepreneurship approach’ to addressing social needs with

market based mechanisms (Dacin, Dacin, and Matear, 2010).

Data

The data used in this study are mainly from a dataset constructed by the French National Federation for

Social Integration Enterprises, CNEI (Comité National des Entreprises d'Insertion). CNEI was created

in 1988 to promote and strengthen the SIE movement. It actively lobbies the government to encourage

political support for SIEs, builds national partnerships with other professional organizations in order to

3 Sales figure is authors’ estimate based on data from the Direction of Research and Statistics of the Ministry of Work, DARES.

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enhance the visibility and performance of SIEs, and provides members with training and networking

opportunities. About half of the French SIEs are affiliated with CNEI.4

The CNEI dataset contains data collected through an annual survey administered by CNEI to

establishments of all its members each year since 2003. It contains detailed information about the SIEs,

including their activity, legal and organizational form, sales, wages, composition of human resources,

and placement of participants. CNEI invests significant resources in the administration of the survey in

order to use the data collected in its lobbying efforts (Hugues, 2007). As a result, the response rate was

consistently extremely high (e.g., 98 percent in 2007), covering nearly the entire population of CNEI

members. Using this data source, we gathered a panel of CNEI members between 2003 and 2007,

inclusive. We then imposed two criteria in the construction of our working sample. First, we excluded

from our analyses SIEs that had less than ten employees. Data on very small organizations were

relatively less reliable and unstable. Second, we focused exclusively on observations that covered a full

year of data. Hence we excluded the data from the founding year of firms (if it was founded within our

observation period). Applying these criteria and eliminating observations with incomplete or missing

information for one or more variables of interest, we obtained 1,198 establishment-year observations

with complete information.

We complement this dataset with qualitative evidence that enables us to further validate the

mechanisms through which the level of social investment, social imprinting, and organizational

productivity influence socioeconomic hybrids’ level of social performance. We collected our

4 SIEs that are not affiliated with CNEI are either too small to be ready to invest in the required membership fees or affiliated with two other social federations: FNARS (Fédération Nationale des Associations d’Accueil et de Réinsertion Sociale –the main federation for homeless shelters) or CORAACE (Fédération des Comités et Organismes d'Aide aux Chômeurs par l'Emploi –another federation for social service organizations). CNEI is the largest of these three federations and is the only one open exclusively to SIEs. In order to affiliate with the national federation, CNEI, an SIE has to affiliate first with UREI (the regional union of SIEs) and thus has to pay both regional and national fees. As of 2007, the membership fee to CNEI (i.e. national fee) was €230 plus 2‰ of total wage costs (with a minimum of €305) and the UREI fee (i.e. regional fee) was 200€ plus 30€ per social position open. New organizations (created in the year before membership) benefited from a discounted fee of €230 to CNEI and €200 to UREI in their first year of membership. For an average firm in our sample, this roughly corresponds to a total initial registration fee of €430 and an annual fee of over €2,000 in subsequent years.

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qualitative data between 2005 and 2009 through 95 semi-structured interviews with field experts (14)

as well as members (75) of eight SIEs, including board members, executive directors, technical

managers and social workers. We interviewed in addition a few external referents such as funders,

industrial partners or clients (6). Interviews, which were taped and transcribed, lasted between 30 and

180 minutes and systematically included questions related to the drivers of social performance.

Dependent Variable: Social Performance

The social performance of a social enterprise – often qualified as social impact – refers to the actual

positive social change generated by the enterprise (Roche, 1999). The social goal of SIEs, as we

mentioned earlier, is to enhance job market prospects of individuals who have been unemployed for a

long period of time. A straightforward measure of the extent to which an SIE fulfills this goal is the

number of participants who were able to find regular jobs at the end of their employment at the SIE.

Accordingly, we measure an SIE’s social performance by the number of participants that are placed in

a regular company (with contracts lasting more than six months) as a percentage of participants who

completed their term at the SIE. This measure, known in the field as the ‘rate of positive graduation’, is

a good proxy of social performance because it measures the objective social impact that SIEs have on

the participants in terms of their ability to work on the regular job market.5

Independent Variable: Investment in the Social Mission

We calculate an SIE’s investment in its social mission by the ratio of the total number of permanent

staff involved in the mentoring and training of participants to the total number of participants (FTE:

5 The experience of working in a SIE per se is beneficial for participants as they have temporary (up to two years) employment at the SIE and they are given an opportunity to (re)gain professional skills. The number of participants could therefore also be used as a proxy for social performance. Yet, our field work revealed that not all participants can (or do) turn their training to actual positive job market outcomes, and some participants are still unable to find or keep a regular job after their time at the SIE. Therefore, the number of participants per se is a proxy for the social output rather than the social impact (and thus social performance) of SIEs.

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full-time equivalent). Therefore, we assume that an SIE’s investment in its social mission is reflected

by its allocation of resources to activities that enhance participants’ (short run and long run) job market

prospects at the end of their time at the SIE –the core social mission of SIEs that we study in this

paper. As is well established in labor economics, the principal determinant of an individual’s

employability is, among other factors such as education or race, his/her professional skills (Bertrand

and Mullainathan, 2004). In the context of social integration, employability is also influenced by

specific factors including health, housing or administrative conditions of participants (Hugues, 2007).

SIEs thus fulfill their mission by helping long-term unemployed people acquire the skills of work as

well as by helping them address social issues that considerably alter their employability. The

mobilization of permanent staff that train and mentor participants to address these issues can therefore

be seen as an important investment of SIEs in their social mission.6

In an SIE, two types of permanent staff members are involved in the training and mentoring of

participants: technical supervisors and social workers. Technical supervisors provide participants with

‘on the job’ supervision to help them acquire professional social skills (e.g. showing up on time or

interacting with co-workers and supervisors), basic technical skills (e.g. concentrating on an activity,

respecting guidelines, etc.), as well as skills that are directly related to the execution of their job (e.g.

how to point, lay bricks, etc.). Social workers help participants fix obstacles to work (including

administrative, housing or health issues) as well as get ready for the job market (preparing their

resumes and identifying job opportunities). Accordingly, the more training and mentoring permanent

staff per participant, the more support and individualized training and mentoring participants will

receive.

6 Another dimension of social investment is the additional financial resources invested in the training of participants in order to allow them to acquire professional qualifications (e.g., financing driving licenses or entry level professional certificates). Due to data unavailability, we were not able to account for this complementary investment dimension. Yet, note that, while such a measure would reflect the degree to which a SIE is willing to invest slack resources to enhance its participants’ employability, it would not reflect the essential part of training which is happening while participants are performing their work within the SIE. Furthermore, these costs are likely to be substantially lower compared to year-around total wage cost of permanent employees.

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Moderating Variables

Social imprinting. We use the industry classification of SIEs (that is, the APE code, which stands for

‘activité principale de l’entreprise’) as a proxy for their imprinting. This code corresponds to the main

activity of an organization. It is determined by INSEE (the French National Institute of Statistics and

Economic Studies) on the basis of what the founder of a company described as its main activity at the

time of incorporation. It is subsequently used in reporting to the administrative and fiscal authorities.

Of particular interest to this study, founders of SIEs face two main options when describing their main

activity: reporting their organization as mainly performing a social activity (e.g., social services,

training, etc.) or reporting their organization as operating in a specific industry (e.g., recycling,

gardening, catering, etc.).7 We argue that SIEs incorporated with a social industry classification were

built around the notion of primarily serving a social goal, and therefore received from their founders an

early social imprinting. Accordingly, social industry classification takes the value of 1 if the SIE has a

‘social’ APE code and 0 otherwise. SIEs in our dataset have 57 different APE codes. We code the

following APE codes as social industry classifications: 85.3H, aide par le travail, ateliers protégés

(sheltered workshops); 85.3K, autres formes d’action sociale (other types of social services); and

91.3E, organisations associatives n.c.a.. In 2006, roughly 21 percent of CNEI members had a social

APE code.

Organizational productivity. We measure organizational productivity, following Huselid

(1995) and Rangan and Sengul (2009), by the ratio of total sales of the SIE to the number of its

7 This choice has no implications for SIEs so that founders’ choice is not determined by external factors; rather they have total discretion to choose any of the existing categories to describe their main activity. While an organization can technically change its APE code, such changes are very rare because an organization’s APE code does not have any legal or fiscal implication for the organization. Furthermore, changes from one industry to another (e.g. from recycling to gardening) do not affect the cultural imprinting of the SIE. Only three SIEs (corresponding to approximately 1 percent of unique SIEs in our sample) changed their APE codes between 2003 and 2007: two of these three changes were from a social to non-social APE code and the third change was from one non-social APE code to another. There were no changes from non-social to social APE codes). Thus, for simplicity, we used the mode (most repeated value in our regressions. This noted, regressions were qualitatively identical if we include (as raw values) or exclude these observations.

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employees, including both permanent staff and participants (logged and mean-centered). Controlling

for differences across industries, as we do, the level of sales per employee reflects a combination of

managerial (sales, training, mentoring, etc.) capability of permanent staff as well as production

capability of participants. Capabilities are embedded in tacit knowledge and routines, and are reflected

in productivity differences across firms.

Control Variables

Because the social performance of SIEs can vary for reasons other than their social investment, we

controlled for a number of factors identified in prior work.

We first control for organization size (measured by the log of total number of FTEs working in

the SIE) and organization age (measured by the number of years since its founding; scaled by 1/100 to

help demonstration of coefficients.). These factors might affect SIEs’ social performance, as the extent

of available organizational resources may vary significantly by organization size (Huber et al., 1993)

and organizations’ ability to convert their resources to organizational outcomes is likely to change over

time (Miller, and Shamsie, 2001).

We included a temporary work organization dummy (which takes the value of 1 if the

organization is a temporary work organization, 0 otherwise) in order to control for specificity of this

sector. Given the nature of temporary work services, temporary work SIEs do not directly hire

participants on a full-time basis, but operate as intermediaries, detaching participants for specific short

to medium term assignments with client companies. As a result, participants have only limited

interactions with their temporary work SIE. Temporary work SIEs therefore hire participants who

deserve work integration yet are among the more autonomous and ready to work. A temporary work

SIE’s performance is a function of its ability to convince clients to give participants a chance, and its

ability to provide participants with moral support in the very early phases of the assignment (to make

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sure they show up and adjust to the specific assignment). The training and mentoring, which are key to

other SIEs’ social impact, do not take place within temporary work SIEs. Given this substantive

difference in functioning, we control for SIEs operating in the temporary work sector.

Another alternative explanation for the variation in SIEs’ ability to place their participants in

regular companies upon the completion of their time at an SIE is the profile of its participants. All

SIEs recruit difficult to employ individuals. Still, some demographic categories are particularly

disadvantaged in the labor market and SIEs that predominantly recruit participants from these

categories can demonstrate lower social performance, even if they are effective organizations. Holding

everything else constant, their ability to place their participants (and their ‘positive graduation rate’)

would be lower by definition. To control for this alternative explanation, we include three control

variables, female participants, participants that are less than 26 years old, and participants that are

over 50 years old, as percentages of total number of participants. Prior studies and anecdotal evidence

have shown that both age (D'Autume, Bethbèze, and Hairault, 2006) and gender (Margaret, 2006) can

play a role in the labor market and individuals who are female, or deemed to be too young

(inexperienced) or too old are relatively disadvantaged and find it more challenging to find a job.

Legal status of SIEs can also play a role in SIEs social performance. Association is the

standard non-for-profit legal status in France. As for the three principal for-profit statuses, the société

anonyme (SA) requires large capital upfront and is seen by investors and banks as secure investments;

the société à responsabilité limitée (SARL) can be created with a small capital upfront and

shareholders’ liability is limited by their share in the company; and the société par actions simplifiée

(SAS), while being as organizationally flexible as SARL, resembles SA in that it requires large capital

upfront to ensure investors. In France, not-for-profit organizations are eligible for tax (VAT and

corporate income tax) exemptions, under the condition that they do not compete in commercial

markets with similar products, similar prices and similar publicity as for profit companies. Therefore,

23

most SIE operating under the not-for-profit status do not actually benefit from these tax exemptions. At

the same time, they face two key additional constraints compared to their for-profit counterparts: they

are not allowed to distribute profits and have, as a result, a hard time raising capital. In addition, it may

be harder for not-for-profit SIEs to create connections and build partnerships with potential recruiters

in for-profit companies where they could place their participants. Indeed participants of not-for-profit

SIEs are more likely to be perceived negatively by potential recruiters: either stigmatized as ‘deserving

social integration’ or as being able to work only in ‘amateur’ environments. For all these reasons, we

expect that the adoption of a for-profit legal status may have a more positive influence on SIEs’ social

performance.

Finally, because effort allocation and marginal returns to effort can be expected to be a function

of costs (Miller and Shamsie, 2001), we also control for average wage cost, which we measure by the

ratio of total wage cost of the SIE to the number of its employees.

We report the sample statistics and bivariate correlations in Table 1. A prototypical (i.e.

average) SIE establishment had about 29 employees (FTE), including 8-9 permanent staff (roughly one

permanent staff member for every two participants). Some SIEs had over 200 employees. Legal

statuses of SIEs were equally split with half of the SIEs having a not-for-profit status and half of the

SIEs having a for-profit status. Roughly 22 percent of participants were less than 26 years old, 11

percent of participants were over 50 years old and 32 percent were females. Sales per employee of an

average SIE (before mean-centering) was €26,921, with a corresponding average wage cost of

€20,744. Total sales were over €6 million for some, typically the largest, SIEs. On average, SIEs were

able to place 41 percent of their ‘graduating’ participants on a regular job.

[Insert Table 1 about here.]

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Although there are no critically collinear variables in the data set, to further alleviate

multicollinearity concerns we reran regressions by dropping moderately correlated control variables

(e.g. average wage cost), one-by-one and in combinations. Regression results were qualitatively

insensitive to inclusion/exclusion of concerned variables (but exclusions typically resulted in lower

model fit). We also calculated variance inflation factors (VIFs) on both pooled-OLS and SIE-

demeaned data. All calculated VIFs were much lower than the critical value of ten, indicating no

serious multicollinearity. Therefore we are confident that potential multicollinearity is not driving the

results.

Estimation

In choosing our estimation method, we took into consideration the cross-section and time-series nature

of our data. In order to control for SIE-specific unobserved heterogeneity, we ran all regressions using

a GLS (random effects) estimator. Random effects estimator assumes that average values for each SIE

differs from the population average (i.e., there are SIE-specific differences) and differences across

SIEs has an underlying distribution (i.e., each SIE is randomly selected from a larger population of

SIEs).8 We also took into account that some of the right-hand-side variables might be correlated with

the error term. It might be the case that factors unobservable to us (but observable to SIEs) might affect

the levels of both the dependent variable and the right-hand-side variables. When, and if, this is the

case, it would result in simultaneity: a shock that affected SIE social performance might also affect its

social investment, size, wage costs, and so on in the same year. To address the potential issue of

simultaneity, keeping with convention, we lag all right-hand-side variables 1 year. This lagging

attenuates potential simultaneity problems. In all regressions, we included year, segment, and region

8 This noted, pooled OLS yielded fully consistent results.25

dummies to account for unobserved heterogeneity in these dimensions and report robust (i.e.

heteroskedasticity-corrected) standard errors clustered by each firm.9

RESULTS

We present regression results in Table 2. Consider, first, model 1, which comprises our control

variables only. Consistent with extant theory, social industry classification is positively and

significantly associated with higher social performance. The imprinting (i.e. which overarching goal

was considered by the founder at the time of founding) of an SIE influences its social performance.

Those SIEs that have a social industry classification (i.e. those with social imprinting) demonstrate a

higher social performance compared to SIEs that adopted another (commercial) classification. Second,

also as predicted, organizational productivity is positively and significantly associated with social

performance of SIEs (it was significant in one-tailed tests in all models, even when introduced along

with its interaction with social investment). SIEs with higher firm-specific capabilities are more

successful in placing their participants in permanent jobs upon graduation than SIEs with relatively

lower organizational productivity. Third, temporary work organizations on average place more of their

participants in regular jobs, reflecting the unique characteristics of the sector. Fourth, SIEs that operate

under the legal status SARL (i.e., limited liability companies) have higher social performance

compared to not-for-profit associations but not SIEs with other for-profit legal forms, SA and SAS,

which are less organizationally flexible than SARL. Finally, unlike year and segment dummies, most

region dummies (not reported) were statistically significant reflecting profound impact of economic,

social, and demographic differences across region on social performance of SIEs.

9 Using the segment classification in the CNEI dataset, we coded SIEs into seven different segments: business services (services aux entreprises), construction (bâtiment, travaux publics), environment (environnement, espaces verts), garbage (déchets: collecte, tri, déconstruction, dépollution), recycling (récuperation, recyclage et commerce d'occasion), temporary work (travail temporaire), and other (all remaining segments).

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Investment in the Social Mission

Consider now model 2, where we introduce social investment, our focal independent variable. While

all other variables are signed and significant as in the baseline model 1, the coefficient of social

investment is positive and statistically significant, as hypothesized in Hypothesis 1. The investment of

a socioeconomic hybrid in its social mission is thus positively associated with its social performance.

The results are substantively significant, as well. Holding everything else constant (and considering all

other variables at their mean values), one standard deviation increase in social investment (i.e.,

permanent staff per participant) is associated with 5.6 percent increase in the social performance (i.e.,

percentage of participants that are placed in a regular job upon graduation). Considering that the

average positive graduation rate is 41 percent in our sample, this is substantial. Therefore the results

lend strong support to the baseline Hypothesis 1.

[Insert Table 2 about here.]

This result resonates with the qualitative data that we collected through interviews. For

example, the executive director of GREEN, a top social performer in our sample, explained how the

hiring of an additional mentor enhanced participants’ recruitment prospect, thus emphasizing the

positive relationship between higher levels of investment in the mentoring of participants and the

organization’s social performance:

“Before, we only had social counselors, because participants get stuck in their

social problems, and it gets precedence over everything else. (…). Now we have one

more staff person who works on [their professional project] from the beginning, we

start talking about graduation right from the first day of the program (…). And it

really helps them succeed.”

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The same executive director also emphasized how important investment in the social mission

was in securing external support from social welfare referents, which could give access to additional

resources that could subsequently be invested in the social mission. She explained, for instance, how

representatives of the European Union, monitoring the use of a European grant and evaluating the

opportunity for grant renewal, scrutinized the intensity and quality of GREEN’s investment in the

mentoring of participants in order to make their decision:

“In 2005, when the auditor from the European Union came, she challenged us on

how we invested in the mentoring of participants. It was important we could prove

her that we did. (…) Else they would not have given us that grant.”

Moderating Effect of Social Imprinting

Models 3-5 present coefficient estimates for the hypothesized interaction terms. We first turn to

models 3 and 5 that examine the moderating effect of social imprinting. While all other variables are

signed and significant as in the baseline model 1, the coefficient of the interaction term social

investment x social industry classification is statistically significant and takes the positive sign in

models 3 and 5. Therefore, as predicted in Hypothesis 2, the positive effect of investment in the social

mission on social performance of a socioeconomic hybrid is positively moderated by its social

imprinting.

In line with these results, our interviews consistently indicated a long-lasting impact of the

social emphasis at the time of founding on how organizational members channeled their attention and

resources towards the social objective of the organization. The founder of GREEN, a social activist

with a long career in the social sector, active member of the Boy and Girls Scout’s movement and a

leader of his local community centre, founded GREEN in 1993, as a spin off from a local community

centre. He was deeply committed to the goal to serve the social needs of the members of his local

28

community, as reflected by his choice of a social APE code. He recalled what motivated the creation

of GREEN:

“After a few years, we [community centre board members] realized that the

workshops that we organized to help people with work integration issues were not

enough: people needed jobs and a pay check. (...) So we thought, we need to do

more than these workshops to help them, and this is how we got interested in the

project of creating a social integration enterprise.”

The founders’ initial commitment to the social mission attracted executives sharing a similar

commitment, who, in turn, mobilized permanent staff members willing and able to promote and

achieve that social mission. GREEN deputy director explained how he recruited permanent staff on the

production floor:

“I [first] check the technical competencies required for the job. Then, [I check]

how the candidate will be able to evolve on the job and how he will be able to take

the social dimension of his work into account.”

Our qualitative evidence further suggests that GREEN members were able to develop and

maintain very productive relationships with social welfare referents (such as the municipality, local

representatives of the state or local social service organizations), which further provided them with the

resources (money, candidates, social services) needed to succeed at their social mission.

Our interviews at SOCYCLE, another SIE with strong social imprinting at its founding,

suggests that the moderating effect of social imprinting on social performance still operated long after

the founders left the organization. SOCYCLE was founded in 1985 by a small team, including a

member from a local EMMAUS community, who put a strong emphasis on the accomplishment of the

organization’s social mission.10 In 2007, although there were no real operational ties between the two

10 EMMAUS is a renowned international homeless charity, which creates homes, work and opportunities for homeless people to rebuild lives in supportive communities

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organizations anymore, the norms and values imprinted by the EMMAUS ethos still had a lasting

impact on the perception of the organization’s goal. One of SOCYCLE’s board members explained:

“People know where SOCYCLE comes from (…). This grants SOCYCLE with

moral credibility. And this is something very valuable (…). No one doubts about the

goal that SOCYCLE pursues.”

This strong social legitimacy, acquired through the early imprinting from EMMAUS allowed

SOCYCLE not only to attract staff with high potential talent and a real commitment to the social

mission, but also to secure a very wide web of local support, ranging from local social partners (social

workers, public social agencies, etc.) to local governments (cities, departments, regions).

Moderating Effect of Organizational Productivity

While all other variables are signed and significant as in the baseline model 1, the coefficient of the

social investment x organizational productivity interaction term in models 4 and 5 is positive and

statistically significant. Therefore, as hypothesized in Hypothesis 3 is supported. The positive effect of

investment in social mission on social performance of a socioeconomic hybrid is positively moderated

by its organizational productivity,

Again, our qualitative data provided us with illustrations of the mechanisms hypothesized. The

executive director of ZEROWASTE, one of the top performing social enterprises in our sample,

explained how economic efficiency allows SIEs to keep a focus on the attainment of their social

objectives. When asked to reflect upon ZEROWASTE’s social performance, he answered:

“The more effective we are economically, the more we can invest in our social

mission. That is, allocate resources in (…) training and mentoring for our

participants. If you are not efficient economically, you cannot do that. Because you

are stressed out, you need to go out look for support or for subsidies to balance

30

your budget and that always diverts you from your social mission. If you want to

succeed at your social mission, you need to succeed economically.”

DISCUSSION AND CONCLUSION

As socioeconomic hybrids are considered more and more a promising alternative way of organizing

(Hoffman, Badiane, and Haigh, forthcoming), it is crucial to identify the drivers of social performance

in these organizations in order to understand how they can succeed in achieving their social mission

while leveraging commercial activities to generate revenue and thereby sustain their operations. Our

results reveal that socioeconomic hybrids achieve higher levels of social performance when they invest

more resources in their social mission. The results also reveal that two factors further enhance the

positive link between investment in the social mission and social performance of socioeconomic

hybrids. First, we find that for a given level of investment in the social mission, the positive effect on

social performance is stronger when social imprinting has rooted the social welfare logic into the

culture of the organization. This finding suggests that the founders’ vision for their organization and its

core mission have a lasting influence within socioeconomic hybrids. By setting a clear and lasting

priority for social welfare goals, social imprinting thus helps socioeconomic hybrids deal with the

inherent internal tensions related to what goal they should pursue, encouraging a systematic

adjudication in favor of social goals.

Secondly, we find that the level of organizational productivity of socioeconomic hybrids also

positively moderates the influence of resource allocation decisions on social performance. More

specifically, we find that the positive effect of investment in the social mission on social performance

is stronger in more productive organizations. Therefore, our results confirm that the extent to which a

socioeconomic hybrid manages to establish productive operations determines in important ways the

level of social impact that this organization can achieve.

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Taken together, our results challenge and reconcile two opposing views on socioeconomic

hybrids. The first one considers that their social performance directly flows from economic

performance, suggesting that social impact is a positive externality of economic efficiency. The second

considers that hybrids will be unable to sustain high levels of social performance as they will

inevitably shift their focus to economic concerns at a significant cost to their social performance. Our

findings show that social performance is not a mere byproduct of economic performance, but requires

very important goal and resource commitments, along with economic efficiency. They also suggest

that socioeconomic hybrids can succeed in achieving their social mission if they remain committed to

the ends prescribed by the social welfare logic while setting up efficient economic operations thereby

embracing the means prescribed by the market logic. In doing so, they can capitalize most effectively

on the complementarities of the social welfare and market logics that they combine.

Contributions

In highlighting the factors that influence socioeconomic hybrids’ level of social performance, our study

contributes to the social entrepreneurship, as well as the institutional theory, literatures. In addition, it

provides practitioners in the field of social enterprise with actionable insights into maximizing the

social impact of their organizations.

A first contribution of this paper is to the literature on social entrepreneurship by providing a

better understanding of the functioning of social enterprises on the one hand, and by examining the

antecedents of social performance, on the other hand. Over the last decade, social entrepreneurship has

enjoyed increasing interest (e.g., Hemingway, 2005; Tracey and Jarvis, 2007; Short, Moss, and

Lumpkin, 2009; Zahra et al., 2009; Dacin, Dacin, and Matear, 2010; Dacin, Dacin, and Tracey, 2011).

It is an “umbrella construct” (Hirsch and Levin, 1999) embracing a diverse set of phenomena ranging

from the provision of an innovative solution to an unmet social need to the creation of a new

32

organization with a social mission (Seelos et al., 2011). In this paper, we focus on one type of social

enterprise organization, namely socioeconomic hybrids that address a social mission through

commercial activities.

Whereas there is abundant research on for-profit corporations and, separately, on not-for-

profits, research on socioeconomic hybrids is at its inception and has so far mainly attempted to define

the boundaries of the field (Dacin, Dacin, and Tracey, 2011). These organizations, however, demand a

deeper exploration and, in particular, a new form of theorizing, because they are neither typical

corporations nor typical not-for-profit organizations, rather they are a combination of the two

(Battilana, and Dorado, 2010). By identifying the conditions under which socioeconomic hybrids can

succeed at achieving their social mission, our study contributes to setting the foundations of a theory of

socioeconomic hybrids. In particular, our results suggest that under specific conditions, socioeconomic

hybrids can combine the ability to maintain a clear focus on a social mission with the ability to

generate enough revenue through commercial activities in order to sustain their operations.

It also contributes to the social entrepreneurship literature by examining the antecedents of

social performance. Despite growing interest, the field of research on social entrepreneurship is still

nascent (Hall, Daneke, and Lenox, 2010; Nicholls, 2010). The vast majority of the studies conducted

so far are case studies that describe the success of highly visible social entrepreneurs (Sharir and

Lerner, 2006; Van Slyke and Newman, 2006). More recently, some studies have started to look into

the challenges associated with assessing social performance (Nicholls, 2009; Ebrahim and Rangan,

2010). However, despite many calls for research examining the antecedents and the consequences of

social entrepreneurial activity and statistically analyzing differences between various social

entrepreneurial ventures (Lepoutre et al., 2011), we still lack a clear understanding of the factors that

influence social performance. We address this issue by conducting what is - to our knowledge - the

first quantitative study examining the antecedents of social performance within socioeconomic hybrids.

33

Our study further contributes to the institutional theory literature by identifying organizational

factors that influence the ability of hybrid organizations, defined as organizations combining multiple

institutional logics, to leverage the synergies between these logics thereby successfully maintaining

their hybrid nature. Previous research has shown that organizations embedded in multiple institutional

logics are more ready to comply with the logic that is strongly promoted by external constituencies on

which they depend for key resources, while they are more likely to resist the demands from

constituencies on which they do not depend (DiMaggio and Powell, 1983; Oliver, 1991). Because they

operate with a commercial business model and therefore rely only marginally on grants, gifts and

subsidies, hybrids combining the social welfare and market logics depend mainly on clients and

investors to access key economic resources (cash and capital). In this way, despite asserting the

primacy of their social mission, they are at risk of complying with the market logic that these

constituents promote, while defying the social welfare logic, often promoted by powerless

beneficiaries, and thereby abandoning their social welfare goals along the way (Ben-Ner, 2002). As a

result, under the pressure to satisfy market logic referents the social welfare logic might be more easily

abandoned, possibly leading to mission drift (Christen and Drake, 2002; Weisbrod, 2004; Jones, 2007;

Mersland and Strøm, 2010; Haight, 2011).

Although the pattern of external resource dependence that characterizes them creates this risk,

our study identifies the factors that socioeconomic hybrids can leverage to achieve high levels of social

performance. In doing so, it suggests that internal influences may be stronger than external resource

dependence influences in shaping organizational responses to multiple logics. Therefore, it lends

support to research that highlights the role of organizational processes and systems (Gouldner, 1954;

Binder, 2007; Hallett, 2010; Greenwood et al., 2011) in influencing how actors perceive and deal with

the different logics that an organization combines. It further complements this body of work by

34

identifying the organizational factors that influence socioeconomic hybrids’ social performance and

that may thereby play a key role in preventing mission drift in these organizations.

Last, but not least, this paper has important implications for practice. Overall, our research

suggests that to maximize their social performance, leaders of socioeconomic hybrids need to

maximize their investments in the social mission as well as maximize their productivity. To do so, they

should, by trial and error, investigate what specific investments best drive social performance as well

as productivity in their own organization. While leaders of socioeconomic hybrids may have little

control over social imprinting (unless they are themselves the founders of the organization), they

should at least try to find out whether or not social goals are part of the organization’s DNA, in order

to build upon them, or alternatively compensate for a potential lack of an initial social focus. In

addition, the mechanisms that we highlight encourage socioeconomic hybrids’ leaders not only to

invest in their social mission as well as in their productivity, but also to selectively communicate about

these investments to social and economic stakeholders in order to increase their legitimacy and

maximize, consequently, the support from these stakeholders.

Limitations and Future Research Directions

By uncovering the determinants of the social performance of socioeconomic hybrids, this study

constitutes only a first step towards a better understanding of how these organizations can sustain their

hybrid nature over time. While our study allows us to predict when socioeconomic hybrids are likely to

experience higher and lower levels of social performance, it does not allow us to capture whether lower

levels of social performance reflect a voluntary abandonment of social goals in favour of economic

goals or if they result instead from poor social efficiency despite sustained commitment to the

organization’s social mission.

35

While we control for the influence of economic performance in our models, our study focuses

on the antecedents of only one of the two dimensions of socioeconomic hybrids’ overall performance,

namely their social performance. Thus, a promising future research avenue is to explore the

determinants of socioeconomic hybrids’ compound social and economic performance as well as the

interactions between the two types of performance in order to understand whether and when the two

types of performance operate as substitutes versus complements. More specifically, future research

could explore how socioeconomic hybrids should balance their effort allocation between achieving

their social mission and building and maintaining thriving commercial activities. Some scholars (e.g.

Oster, Massarky, and Beinhacker, 2004; Foster and Bradach, 2005; Pharoah, Scott, and Fisher, 2004)

suggest that the long-term success of socioeconomic hybrids is dependent on leaders’ understanding of

the complementarities between the two sides of the organization but we still lack empirical

explorations of how different proportions of efforts spent on each of the two dimensions influence

socioeconomic hybrids’ overall success (Moizer and Tracey, 2010).

Another promising future research opportunity lies in examining the impact on social

performance of other aspects of socioeconomic hybrids’ design and functioning, in addition to

investment in the social mission, organizational productivity and social imprinting. Other factors, such

as the profile of socioeconomic hybrids’ leaders or governance structures, may also be important

determinants of social performance. The training and experience of these leaders are likely to influence

their ability to navigate social welfare and market logics, thus their ability to interact with and generate

support from key external stakeholders. Governance structures, by determining who has a say in the

strategic decisions as well as shaping the internal power balance, are further likely to influence the

prioritization of organizational goals as well as their attainment.

Further research that replicates and expands our results to other social enterprise settings will

inform the generalizability of our findings. The relationship between productivity and social

36

performance that we uncover in this paper may be particularly strong in the field of SIEs because more

productive participants both contribute more to the economic outcomes and are also more likely to

successfully find jobs upon graduation. More broadly, our results would need to be confirmed in social

entrepreneurship settings where the provision of economic goods is disconnected from the provision of

social goods and only serves to fund it (such as the operation of an ice cream shop subsidizing a

homeless shelter) (Alvord, Brown, and Letts, 2004). The distance and disconnection between the two

activities may change the nature of the relationship between investment in the social mission and social

performance as well as the relationship between productivity or social imprinting and social

performance.

Finally, another potentially valuable extension will be to examine the influence that the broader

institutional context in which socioeconomic hybrids are embedded has on their social performance. In

our study, the French State played a key role as a gatekeeper for the field of SIE, granting SIEs with

authorization to operate. This intervention may play a key role in insuring that SIEs keep a clear focus

on their social mission, in turn potentially influencing their levels of social performance. Further

research will thus need to explore whether or not our results hold in different contexts where public

authorities may play a different role. In addition, with the recent appearance of new hybrid legal

statuses, such as the status of low-profit limited liability (L3C) company in a number of American

states (Bromberger, 2011; Strom, 2011), Community Interest Companies (CIC) in the UK or Sociétés

Coopératives d’Intérêt Collectif (SCIC) in France, the future research should explore potential

differences in performance related to the existence of different legal statuses across institutional

contexts.

Conclusion

37

Social enterprises, which are endorsed by a growing number of political and business leaders all over

the world (Tracey and Jarvis, 2007; Defourny and Nyssens, 2008), provide much needed alternative

models of organizing in the aftermath of the 2008 financial crisis, when there is demand for

transforming corporations. Socioeconomic hybrids in particular seem to offer a promising vehicle for

the creation of both economic and social value (Sabeti, 2011). In this paper, we provided foundational

work on the understanding of how these organizations can combine the social welfare and market

logics in a way that allows them to successfully fulfill their social objectives. Much remains to be

explored about the way in which socioeconomic hybrids function. As they gain prominence, the

ensuing research in this area will have potentially profound implications for the study of organizations

and the evolution of the organization of the economy.

38

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Table 1

Means, Standard Deviations, and Bivariate Zero-Order Correlations

Variable Mean S. D. 1 2 3 4 5 6 7 8 9 10 11 12 13

1. Social performance t+1 .41 .20

2. Social investment (log) .00 .98 -.06

3. Social industry classification .21 .41 .00 .144. Organizational productivity .00 .43 .18 .32 -.105. Organization size (log) 3.36 .54 -.02 -.11 -.06 -.076. Organization age (÷100) .09 .05 -.10 .27 .23 .12 .157. Temporary-work organization .20 .40 .25 -.64 -.26 -.01 .16 -.268. Participants (%) – Female .32 .28 -.07 -.08 -.02 -.33 .07 -.01 -.069. Participants (%) – Under 26 y.o. .21 .15 .17 -.11 -.07 .16 .05 -.01 .34 -.09

10. Participants (%) – Over 50 y.o. .11 .09 -.07 .05 .15 -.08 -.06 .09 -.22 .05 -.3311. Legal status - SA .10 .31 -.03 .05 -.12 .10 .25 -.10 .08 -.07 .06 -.1012. Legal status - SARL .38 .49 .14 .00 -.33 .18 -.03 -.31 .07 -.04 .03 -.09 -.2713. Legal status - SAS .01 .12 .03 .05 -.06 .11 .08 .01 -.01 -.01 .08 -.08 -.04 -.1014. Average wage cost 9.94 .29 .11 .11 .04 .52 -.02 .07 .06 -.20 .16 -.08 .11 .04 -.06

N= 801 All independent and control variables are lagged one-year.

48

Table 2

Random-Effects Regressions Explaining the Social Performance of French Social Integration Enterprises, 2003-2007

Variable 1 2 3 4 5

Social investment (H1) 0.025 ●● 0.018 ● 0.024 ●● 0.016 ●

(0.012) (0.012) (0.012) (0.012)Social investment 0.043 ● 0.048 ●●

x Social industry classification (H2) (0.029) (0.027)Social investment x Organizational productivity (H3)

0.046 ●● 0.048 ●●●

(0.020) (0.020)

Social industry classification 0.049 ●● 0.050 ●● 0.039 ● 0.054 ●● 0.042 ●●

(0.021) (0.021) (0.021) (0.021) (0.021)Organizational productivity 0.063 ●● 0.053 ●● 0.052 ● 0.038 0.037

(0.029) (0.029) (0.029) (0.028) (0.028)Organization size (log) 0.011 0.014 0.015 0.016 0.018

(0.018) (0.017) (0.017) (0.017) (0.017)Organization age (÷100) -0.079 -0.120 -0.145 -0.102 -0.128

(0.178) (0.180) (0.179) (0.176) (0.175)Temporary-work organization 0.124 ●●● 0.165 ●●● 0.151 ●●● 0.171 ●●● 0.156 ●●●

(0.032) (0.038) (0.037) (0.037) (0.037)Participants (%)

Female 0.028 0.032 0.030 0.032 0.029(0.036) (0.036) (0.035) (0.035) (0.034)

Under 26 years old 0.013 0.006 0.000 -0.002 -0.009(0.055) (0.055) (0.055) (0.056) (0.056)

Over 50 years old 0.041 0.050 0.038 0.051 0.037(0.079) (0.078) (0.077) (0.078) (0.077)

Legal status a

SA (la société anonyme) -0.005 -0.011 -0.015 -0.012 -0.016(0.033) (0.032) (0.031) (0.032) (0.031)

SARL (la société à responsabilité limitée) 0.057 ●●● 0.055 ●● 0.056 ●●● 0.056 ●●● 0.057 ●●●

(0.021) (0.021) (0.021) (0.021) (0.021)SAS (la société par actions simplifiée) 0.028 0.025 0.024 0.013 0.012

(0.051) (0.052) (0.052) (0.054) (0.054)Average wage cost (log) -0.016 -0.015 -0.014 -0.011 -0.010

(0.027) (0.026) (0.027) (0.027) (0.027)

R-squared (overall) 0.202 0.208 0.211 0.215 0.220

N=801; Robust standard errors, clustered by SIE, in parentheses; Constant, year, segment, and region dummies included in all modelsAll independent and control variables are lagged one-year* significant at 10%; ** significant at 5%; *** significant at 1%; one-tailed tests, when hypothesizeda Omitted (benchmark) category is “association”

49