Sunday, September 25, 2016

Blurring the Boundaries Between the Social and Commercial Sectors with Lakshmi Ramarajan

The social and commercial sectors are distinct in terms of their goals and values, but in recent years, the boundaries between these sectors have begun to blur. Social ventures are increasingly employing commercial activities such as marketing, accounting, and hiring employees with business backgrounds. Social sector organizations have important choices to make about how to manage the tension between the goals and practices of the social and commercial sectors. In particular: how do you generate revenue? Social sector organizations can operate on a continuum between typical charity-driven revenue generation and more commercial activities. This week’s WAPPP seminar featured results of a new collaboration presented by Professor Lakshmi Ramarajan, Assistant Professor of Business Administration, Organizational Behavior Unit, Harvard Business School.

Previous research has often pointed to environmental factors to explain why social sector organizations make revenue generation choices; for example, turning to more commercial activities when government funding dries up. However, little research has used a gender lens despite the social and commercial sectors being often gendered (the social sector as feminine and the commercial sector as masculine). How might cultural beliefs about gender influence the relationship between social ventures and commercial activities? Professor Ramarajan and her collaborators examine two key research questions: to what extent do female social venture founders employ “masculine” commercial activities in their revenue generation? And to what extent does the proportion of female business owners in the commercial sector affect these choices? Female social venture founders may risk backlash for engaging in masculine-typed behavior in a feminized setting. Alternatively, a higher proportion of female business owners may change the cultural beliefs related to women using commercial practices.

To investigate these questions, Professor Ramarajan examined applications to a prominent fellowship program for early-stage social ventures.  Applicants received a 1-5 ranking based on whether commercial activities were going to be a part of their revenue generation (1 for not at all, 5 for completely commercial). Female social venture founders generally planned on using no commercial activities in their revenue generation. At every positive level of commercial activity, female social venture founders were less likely to use commercial practices than male founders. However, this effect is mitigated by the proportion of female-owned businesses in the community. As the proportion of female business owners in a community increases, so too does the likelihood of female social venture founders using commercial practices.

The collaborators tested this conclusion with a second data set on nonprofit entrepreneurship. These organizations are similar to social ventures in that they’re recently founded, have a social mission, and face many of the same commercialization pressures. However, the researchers have access to data on the full population of newly founded nonprofits, so they don’t face the same self-selection bias issues as in the fellowship application.

To operationalize commercial activity among nonprofits, the researchers used data from tax filings on the percentage of total revenues from commercial services. They also included data on whether the nonprofit had a female leader or a woman among its top five ranking officers, along with the proportion of female business owners in that community. This data set replicated the earlier findings: nonprofits with female leaders are associated with a smaller percentage of revenue from commercial sources. As the proportion of female business owners in the local community increases, female-led nonprofits are more likely to generate a greater percentage of revenue from commercial sources.

Finally, Professor Ramarajan and her collaborators conducted an exploratory analysis on whether commercialization of female-led social ventures affects their organizational survival. They looked at tax filings over five years, using whether the nonprofit was still reporting taxes as a proxy for its organizational survival. On its own, female leadership doesn’t have much of an effect on organizational survival. Similarly, generating revenue through commercial activities does not significantly affect organizational survival. However, the interaction term is significant: female-led organizations that generate revenue from commercial sources have a greater risk of failure. This finding has significant implications for founders’ choices of whether or not to commercialize.

This research highlights the gendered aspects of entrepreneurship, particularly how gendered cultural beliefs inform choice of activities and models of organizing. Further, these findings highlight the importance of female business owners as a conduit between the social and commercial sectors. Female business owners both disrupt gender norms in business sector and shape how women disrupt gender norms in social sector.

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