Practice variation as mechanism for generating institutional complexity: local experiments in...
Transcript of Practice variation as mechanism for generating institutional complexity: local experiments in...
Practice Variation as a Mechanism for Generating Institutional Complexity
Local Experiments in Funding Social Impact Businesses
Tracy ThompsonJill Purdy
Support from the Center for Leadership and Social Responsibility, Milgard School of Business, University of Washington Tacoma is gratefully acknowledged
Changing the Rules of Finance in Seattle
• Social entrepreneurs and impact businesses struggle to find capital
• Three new organizations are trying to solve this problem using unconventional means
• Since 2012 they have channeled nearly $2 million to over 125 impact businesses
• Challenging purpose and desired outcomes of investment to add a social dimension
Seattle Impact Finance CompaniesAccelerate: innovation accelerator
Shareland: crowdfunded lending platform
Impact Angels: angel investor group
Seattle Impact Finance Companies“Members believe that impact investing can meaningfully address our world’s social, environmental, and economic issues while generating sound financial return and measurable change. We are attempting to prove this hypothesis by gaining investing knowledge and experience in order to carefully direct our investment capital. Our work requires us to work through cultural taboos surrounding money, and to reimagine generally accepted investment strategies which ignore human and environmental factors.” [Impact Angels’ Mission]
Financing Social Impact Businesses
The market for capital is culturally constructed and embodied in practices (Thornton, Ocasio & Lounsbury, 2012; Zajac & Westphal, 2004).
These firms ascribe to multiple logics:• The market logic dominates practices for
financing for-profit business• The community logic informs practices for
social impact businesses
Dimensions of Complexity
• The presence or absence of conflict among means and ends of two or more logics (Pache & Santos, 2010)
• The degree of ambiguity or specificity of practices associated with different logics (Goodrick & Salancik, 1996)
• Complexity exists across multiple dimensions
Cultural Tensions in Societal-Level Logics Market Logic Community Logic
Economic System Market Capitalism Cooperative Capitalism
Social Orientation Self interest Common interest
Definition of Value Money Honor, status, commitment to group
Orientation toward capital Maximization Sufficiency
Spatial Perspective Global, outward looking Local, inward looking
Time Orientation Current, short-term Futuristic, long-term
Our Research Questions
• To what extent are impact finance organizations aligned with the market logic and the community logic?
• What practices are these organizations employing to increase capital flows toward impact businesses?
• How do variations in their practices affect the institutional complexity of the finance field?
Methods
• Comparative case analysis of three organizations based on interviews and archival data
• Identified and analyzed each organization’s practices
• Compared each to their conventional counterpoint to understand the differences
• Examined how they justified their practices, esp. those that varied from the conventional practices
AccelerateTypical Innovation Accelerator Accelerate
Definition Selects cohorts of high growth startups; provides seed investment, mentorship, education and networking over a limited time period
Same
Legal structure For-profit, usually LLC SameTarget customer Tech sector Differs: "Impact",
"conscious companies"Source of funding for operations
Ongoing investment in portfolios of firms generates return over time.
Same
Criteria for investing capital
Potential for rapid, high growth and quality and passion of team
Differs: Potential to reach $2 million in revenues in less than 10 years
Impact AngelsTypical Angel Group Impact Angels
Definition A group of accredited investors who screen deals, watch pitches and invest individually & collectively
Differs: grant-like process to determine investments’ focus; on 2 year formal curriculum delivered to cohort of investors
Legal structure Varies to include affiliation, no profit and for profit
Same
Target customer
Tech sector Differs: Focus on a "significant and measurable social and environmental impact"
Source of funding for operations
Fees/dues from members, sponsorships, events grants
Same
Criteria for investing capital
Potential for rapid, high growth (includes quality and passion of team) in 3-5 years
Differs: Slower growth is acceptable, emphasize ability to repay loan
SharelandTypical Peer to Peer Lending Shareland
Definition Platform for funding debt on the Internet by attracting small contributions from a large number of individuals
Same
Legal structure
For profit, usually LLC Differs: Social Purpose Corporation
Target customer
Lending for individuals and small business
Differs: Focus on local, small businesses
Source of funding for operations
Borrower pays fees based on size of loan and credit rating; funders pay service fee based on size of loan
Differs: Borrower pays flat listing fee plus monthly fee until loan is paid off
Criteria for investing capital
Risk based - ability to pay back loan
Differs: ability to pay back loan plus community impact of company
Analysis: Practice Variations• Standard practices
– Ends and values of dominant finance practice either align with or don’t directly conflict with the ends of non-dominant logic
– Moral legitimacy (Suchman, 1995; Tolbert & Zucker, 1983)• Adapted practices
– Ends and values of imported practice are new/differ but don’t directly conflict with dominant logic
– Pragmatic legitimacy (Suchman, 1995)• “Invented” practices
– New practice introduced/created that straddles or accommodates multiple logics
– Requires decoupling and revision of ends and values associated with dominant logic
– Cognitive legitimacy (Suchman, 1995)
Chal
leng
e to
Dom
inan
t Log
ic
Lower
Higher
Practice VariationsCompany Description of Practice Practice Area OrientationShareland Crowdsourcing loans
Product/ Service Strategy
External / Client
Impact Angels Offering seed capital Accelerate Offering a limited-time, cohort-based program w/ mentoring Impact Angels Soliciting applications for a grant-like funding process Shareland Limiting to a local geographic market Shareland Offering matching loans Shareland Charging clients using a monthly fee
Terms of capital
transaction
Impact Angels Investing via straight equity, loans and revenue-based equity investing
Shareland Limiting the amount an individual can loan Shareland Returning only principal (no interest loan) Accelerate Using revenue based equity investing
Shareland Attracting capital through choice of legal form
Funding the org
Organizational
Accelerate Diversifying revenue streams with related services Accelerate Organizing as a for-profit backed by seed money Impact Angels Requiring members to pay dues Accelerate Recycling capital to fund more companies Impact Angels Cultivating the supply of capital (angel investors)
Internal operations
Impact Angels Evaluating impact funds Impact Angels Making investing decisions on a consensus basis Impact Angels Meeting in small groups/cohorts Impact Angels Meetings structured around educational program
Standard Adapted Invented
Type of Practice Variation by Internal vs. External Orientation
Internal/Organizational External/Client
Standard 4 funding the organization1 internal operations 3 product/service strategy
Adapted 1 funding the organization4 internal operations
3 product/service strategy1 terms of capital transaction
Invented None 4 terms of capital transaction
Externally, these organizations innovate and “sell” unconventional financial practices.Internally, these organizations use conventional means for ensuring their own financial sustainability.
Symbolic Meanings of Practices
Market Logic Community Logic
Definition of Value Money Honor, status, commitment to group
Orientation toward capital Maximization Sufficiency
Spatial Perspective Global, outward looking Local, inward looking
Time Orientation Current, short-term Futuristic, long-term
How did our organizations/actors situate these practices vis-à-vis the market and community logic to balance four tensions?
Representation of Societal Logics in Practice Justifications
59%9%
31%Community Logic
Market Logic
Both Market and Community
Practices and Cultural Tensions AddressedEXTERNAL PRACTICES Money /
ValueMaximization /Sufficiency
Short Term /Long
TermGlobal /Local
PRODUCT/ SERVICE STRATEGYLimiting to a local geographic market Value LocalSoliciting applications for a grant-like funding process Both Sufficiency LocalCrowdsourcing no interest loans Value Sufficiency LocalOffering matching loans LocalOffering a limited-time, cohort-based program with mentoring Both Offering seed capital TERMS OF CAPITAL TRANSACTIONLimiting the amount an individual can loan Value Sufficiency Charging clients using a monthly fee Both Sufficiency Long term Returning only principle (no interest loan) Both Sufficiency Using revenue based equity investing Money Sufficiency Long term Investing via equity, loans and revenue-based equity Money Maximization Long term
Standard Adapted Invented
Practices and Cultural Tensions AddressedINTERNAL PRACTICES Money
/ValueMaximization /Sufficiency
Short Term /Long Term
Global /Local
FUNDING THE ORGANIZATIONAttracting capital through choice of legal form Both Sufficiency LocalDiversifying revenue streams with related services Both Organizing as a for-profit company backed by seed money Both Requiring members to pay dues Recycling capital to fund more companies INTERNAL OPERATIONSMeeting in small groups/cohorts LocalEvaluating impact funds Both Cultivating the supply of capital (angel investors) Both Meetings structured around educational program Both Making investing decisions on a consensus basis
Standard Adapted Invented
Building Theory: Richer View of Conflict between Logics
• Suggests a positive relationship between the degree of perceived conflict and practice variation
• Community and market logics not viewed as conflicting absolutely; actors identified areas where the logics were aligned or oblique and justify practices accordingly
• Practices are means to the ends among multiple institutional orders, where the ends are:– Aligned– Oblique– Conflicting
Building Theory: Specificity
• Practice variation is a way to alter the specificity of a dominant logic
• Variations are justified by pulling down legitimated meanings from an alternate societal logic
• Adapting and inventing practices serves to decrease the specificity of the dominant logic, broadening its scope and creating openings for additional innovation
Creating Field-Level Complexity
Market
Family
Community
Religion Profession
StateCorporation
= existing logic= existing field
Businesses Nonprofits
Societal Level Logics
Finance FieldPractices
Impact Businesses
Accelerate
Shareland= emerging field
Market
= organization
Community
ImpactAngels
= new field logic
Findings
• Adoption of practices designed to increase the plurality of logics is self-reinforcing
• Independent but consistent actions of distinct organizations allowed localized practices to be seen as more conventional
Findings
• Importance of entrepreneurial organizations in creating institutional complexity
• Entrepreneurs who are able to sustain their own resources (using conventional/standard practices) are able to skirt conformity in the field without a centralized or high power position.
Conclusion
• The incumbent system of “competitive capitalism” (Adler, 2014) governs access to capital, legal forms of organization, and tools for accountability and legitimacy
• We shed light on how actors interact with existing conventions of capitalism to develop institutional conditions in which to pursue the goal of a social economy