Hybrid organizations as market disruptors

3 minute read

Mark Surman just posted on the topic of hybrid organizations, which he defines as organizations characterized by a mix of social mission, disruptive market strategies and web-like scale and collaboration. However Mark doesn’t really explain what’s truly disruptive about the strategies of hybrid organizations, stating simply that such organizations use products, services and consumer choice to promote the ideas and move the issues that they believe in.

While Mark is using the phrase disruptive strategy somewhat vaguely, I think using it more precisely would have strengthened his argument. Disruptive strategies (or, alternately, disruptive innovations) in the sense used by Clayton Christensen and others involve providing goods or services at significantly lower cost to existing users and/or enabling new sets of uses or users for those good and services, and doing so in an economically sustainable way. Thus, for example, although a traditional nonprofit hospital may be a social enterprise by strict definition, in practice its business model and cost structure are typically similar to those of traditional for-profit hospitals. A traditional free clinic may provide a service at significantly lower cost to its patients, but its operations are not economically sustainable in the absence of subsidies; its strategy is thus not truly disruptive.

To take a contrary example, microfinance in general is disruptive because it reaches new groups of customers who were not previously reached by traditional bank lending; it is thus an example of new market disruption (to use Christensen’s term). In the microfinance arena Kiva is in addition pursuing a disruptive strategy in the way it acquires funds to lend, implementing a decentralized mechanism to solicit funds from individuals acting as donor/lenders. Since individuals acting as lenders would be less likely to demand market rates of return on their loans (and might even be willing to make loans on an interest-free basis), in theory this could allow Kiva to offer loans at lower costs than other microfinance vendors while still being economically sustainable (low-cost disruption).

Mark then goes on to note that mixing mission and market with the scale and collaborative nature of the web is what makes hybrid organizations unique and (presumably) disruptive. Again I think this point could be further clarified and strengthened by looking through the lens of disruptive innovation theory: Operating at web scale and making use of web-based collaboration, delivery, and other mechanisms is exactly what enables hybrid organizations to implement economically sustainable disruptive low-cost and new market strategies. More specifically, the web allows hybrid organizations to pursue new and more effective ways of creating goods and services, delivering those goods and services, and funding the creation and delivery, thus enabling low-cost disruptive strategies. The web also enables new types of goods and services to be created and delivered, and expands the populations that can be served, thus enabling new market disruptive strategies.

For example, Kiva’s strategy of soliciting funds from individual lenders/donors is made possible by the web, and would likely be too expensive to pursue if Kiva had to solicit funds and communicate with lenders via traditional means (direct mail, face to face solicitation, etc.). However when it comes to delivering services Kiva still relies on on the ground field partners to oversee borrowers and collect payments. On the other hand, Mozilla leverages the web to a much greater degree, in creating its goods and services (via Internet- and web-based collaboration), delivering its goods and services (via digital downloads and web applications), and funding its operations (via search engine revenues). If one were to have a measure of hybridness in the sense Mark is using the term, Mozilla would thus arguably be a more hybrid organization than Kiva, since it leverages the web in more aspects of its operations.

I think successfully leveraging the web in this way is one of the key challenges of would-be hybrid organizations, especially in making these organizations economically sustainable — because if an organization can’t achieve economic sustainability, then its strategies can’t be truly disruptive in the long run.