Meeting the Need for Scale: Soft Governance in Dual-Purpose Organizations

Abstract

We develop a theory of scaling dual-purpose organizations—i.e., organizations that have a social impact-focused mission delivered through the simultaneous pursuit of both prosocial objectives and financial viability. We argue that effectively scaling such organizations requires a fundamentally different set of underlying processes than in organizations pursuing only profit-oriented goals. Specifically, we argue that misalignments between individual-level preferences and organization-level goals, stemming from the organization’s dual-purpose nature, create a unique set of impediments to achieving scale. Our central contribution in this regard is to theorize around the role of what we call “soft governance” in enabling the scaling of such organizations. Building on a conceptual microfoundational model of the processes linking individual-level preferences to organization-level goals in dual-purpose organizations, we show that: (1) goal misalignment between individuals and the organization creates impediments to scaling dual-purpose organizations; (2) these impediments cannot be resolved with formal governance alone; and (3) the interaction between soft governance and formal governance mechanisms mitigates individual-organization goal conflicts that constrain the ability of such organizations to scale.