Have you ever watched The Wizard of Oz while listening to Pink Floyd’s The Dark Side of the Moon, you know, just to see if they actually match up? They do, but only once – when Dorothy first steps into Oz, the movie changes from black and white to color, and the track “Money” kicks in at that exact moment. You’re seeing in color, and it’s actually all about money, man! (Stick with me, this is actually going somewhere.) For a long time, we’ve viewed organizational types in black and white: the old binary banality of “nonprofits do good, for-profits make money.”
It’s time for us to see organizations in color, recognizing the entire spectrum that now exists, and it does, in fact, have a lot to do with money. The Hybrid Spectrum, developed by Kim Alter, categories organizations by their mission, primary stakeholders, and use of income. The spectrum encompasses five main categories:
- Traditional nonprofits with no earned income
- Nonprofits with some earned income activities
- Social enterprises (for-profit or nonprofit)
- Socially responsible businesses
- Corporations practicing CSR
- Traditional for-profit corporations
Professor Michael Porter [the Bishop William Lawrence University Professor at Harvard University, (pictured above)] has a more recent approach: shared value, which fits neatly within the right-hand side of the Spectrum. Shared value describes the ways in which for-profit companies can generate both competitive returns for shareholders and broader social and environmental value.
In a sense, the Spectrum depicts how much of the value generated by an organization is shared with society as a whole: on the far right, very little; on the far left, nearly all. However, it’s important to understand that the Spectrum is not meant to portray any organizational type as inherently superior; instead, each type is useful in different situations and in pursuit of varying outcomes.
Focusing on a comprehensive shared value strategy may not be the best way for a microentrepreneur to lift her family out of poverty; likewise, not every nonprofit should charge for their services (especially in areas such as disaster relief). For those organizations operating in the middle of the Spectrum, the recent adoption of Benefit Corporation legislation by many states now allows them to incorporate as a legal entity befitting their approach.
New organizations – and new subsidiaries or business units within an existing organization – can finally select a legal entity explicitly designed to support their creation of shared value. It’s time for us to move beyond black and white thinking about for-profit vs. nonprofit. Society and government now embrace a spectrum of organizational types in pursuit of shared value, and business leaders should welcome the introduction of a little color into their approach.