To achieve social and business objectives, leaders need to build guardrails and adopt paradoxical frames, argue Wendy Smith and Marya Besharov in this blog based on their research on a leading social enterprise.
As our world cries out for repair, organisations have responded. For-profit businesses are adopting socially responsible programs and practices. Nonprofit organisations are experimenting with novel approaches to more effectively deliver social value. Cross-sector partnerships are bringing together for-profit, nonprofit and government organisations to generate innovative solutions to societal challenges. And new organisational forms such as social enterprises and B-corporations are being created to pursue social and environmental missions through commercial ventures.
Collectively, these efforts have the potential to address some of our world’s greatest challenges, such as protecting the environment, advancing labour and human rights, eliminating poverty and economic insecurity, redistributing wealth for more sustainable economic, political and social systems. Yet they face a common challenge in realising this potential: managing a social mission alongside business demands surfaces tensions.
How leaders address these tensions matters. Avoiding tensions or allowing them to escalate into intractable conflict can create paralysis and ultimately organisational failure. Yet leaders who engage and successfully navigate tensions can turn these competing demands into sources of strength, creativity, and opportunity, setting up their organisations for long-term sustainability and social impact. Our recent research provides insight into this process by exploring how the social enterprise Digital Divide Data became a leader in impact outsourcing over the past two decades.
Digital Divide Data started in 2000 when Jeremy Hockenstein, a recent graduate of the MIT Sloan School of Management, travelled to Cambodia. While most tourists focused on the ancient Angkor Wat Temple in Siem Reap, Hockenstein was more intrigued by the impoverished citizens flocking to local Internet cafes and taking English language classes to gain access to a better life. Returning several months later, he and several colleagues launched Digital Divide Data (DDD), an impact outsourcing firm that hired the most disadvantaged citizens, provided them with on-the-job training and formal scholarships, and helped them graduate into higher paying jobs. Now in their 19th year, DDD employs over 2000 people across four offices in three countries and has graduated over 650 employees into higher paying jobs that pay four to five times the local average salary. The organisation is also financially sustainable, covering 92 per cent of costs with earned revenues in 2017. These successes have won DDD the Skoll Foundation Award for Social Enterprise and the Google Award for Innovation in Business Process Outsourcing.
Our analysis of DDD’s leadership identifies two core practices for navigating social-business tensions:
When tensions emerge between social and business demands, organisations often end up prioritising just one or the other. In corporations, for example, profit pressures threaten social initiatives, minimising their impact and influence. Social enterprises face opposing pressures and risk prioritising their social mission at the expense of financial sustainability. In both cases, sustaining both social mission and business objectives is a central challenge.
To address this issue, DDD leaders created dedicated internal roles, structures, and metrics, as well as external stakeholder relationships that advocated for either the social mission or the business. We refer to these features as guardrails. Like guardrails on a highway, they served to keep leaders’ decisions bounded, preventing them from over-emphasising one priority at the expense of the other. For example, in DDD’s early years, leaders emphasised their social mission by hiring the most disadvantaged citizens, irrespective of their potential skills and abilities and by trying to operate in the most rural areas of Cambodia despite the significant costs of doing so. At one early meeting, a board member with significant business leadership experience looked at DDD’s financial statements and voiced concerns, noting that despite the inspiring social mission, DDD would be broke in a few months. His comments led leaders to rethink and adapt DDD’s approach to hiring to more effectively balance social and commercial objectives.
Adopting paradoxical frames
While guardrails help organisations remain focused on both social and business objectives, pursuing both simultaneously can create conflict which, if unchecked, becomes increasingly intractable. At DDD, leaders addressed this challenge by adopting paradoxical frames – a “both/and” approach to managing tensions in which leaders recognise social and business demands as both contradictory and interdependent.
Hockenstein, DDD’s founder and CEO, understood the social mission and business objectives as distinct and sometimes contradictory, but also in the long run dependent on one another. On the one hand, he saw how DDD’s business purpose advanced the social mission. Dealing with the demands of paying clients and on-the-job pressures enabled better, more realistic training and skill development opportunities and positioned employees to find new, higher paying jobs after spending time at DDD. On the other hand, Hockenstein also saw how the social mission could advance DDD’s business purpose, giving them an edge in securing clients in the highly commodified digitisation industry, as long as they could also compete with other firms on price and quality. Over time, Hockenstein’s paradoxical frame spread to other senior leaders. DDD’s board chair described the organisation as “bowing before dual gods” acknowledging that the social mission made it challenging to run a profitable business while also recognising that they needed to address both objectives to be successful.
By adopting paradoxical frames, leaders pushed beyond momentary tensions and conflicts between the social mission and the business, and instead asked what they needed to do achieve both in the long term.
The interaction of guardrails and paradoxical frames
A core insight from our analysis is that achieving social and business objectives requires leaders to use both guardrails and paradoxical frames. Creating guardrails without paradoxical frames only exacerbates conflicts. Absent paradoxical frames, roles, structures, and stakeholder relationships associated with one objective or the other serve as guards of their own position, staring defensively at one another, poised for ongoing conflict. Paradoxical frames transform these guards to guardrails. When advocates for a particular objective adopt a both/and perspective, they can shift from focusing on how to advance their own position to instead considering how their position, knowledge, and expertise can collectively advance the integrative goals of the organisation. In addition, paradoxical frames without guardrails can lead to “false synergies”, which arise when leaders seeking integrative and synergistic solutions end up focusing on the more powerful or immediate objective and ignoring or diminishing the other. Core to DDD’s success, then, was the interaction of paradoxical frames and guardrails. Together, these two features allowed leaders to navigate strategic decisions by making ongoing shifts in support between the social mission and the business, thereby over time achieving both.
As organisations across all sectors increasingly pursue both social and business objectives, the combination of guardrails and paradoxical frames can help them effectively navigate the inevitable tensions that arise, and in doing so unlock novel solutions to some of our world’s greatest ills.
Wendy Smith and Marya Besharov
Wendy Smith is a professor of Management at the Alfred Lerner School of Business and Economics at the University of Delaware. She earned her PhD in Organisational Behaviour at Harvard Business School and is a research fellow at the Cambridge Centre for Social Innovation. Her research explores how leaders and their organisations address strategic paradoxes – contradictory, yet interrelated demands embedded in an organisation’s strategy. Currently, her research investigates how social entrepreneurs create conditions to sustain both their social mission and business purpose. Her research has been published in journals such as Academy of Management Review, Academy of Management Journal, Harvard Business Review, Organization Science and Administrative Science Quarterly. In 2012, she gave a TEDx-UD talk on The Power of Paradox.
Marya Besharov is an associate professor of Organisational Behavior at the ILR School at Cornell University. An organisational theorist with a background in organisational sociology, she studies how organisations and their leaders sustain competing goals. Much of her research focuses on hybrid organisations such as social enterprises and mission-driven businesses that seek to address deeply rooted societal challenges while also making a financial profit. Marya’s work has been published in journals such as Academy of Management Journal, Academy of Management Review, Administrative Science Quarterly, Business Ethics Quarterly, Academy of Management Learning and Education, Research in Organizational Behavior, Research in the Sociology of Organizations, and Industrial and Corporate Change.
See also the article by Wendy Smith and Marya Besharov published in Administrative Science Quarterly (2017): Bowing before Dual Gods: How Structured Flexibility Sustains Organizational Hybridity