Managing tensions in a social enterprise:

The complex balancing act to deliver a multi-faceted but coherent social mission

Meike Siegner1, Jonatan Pinkse2 & Rajat Panwar3

1The University of British Columbia, Forest Sciences Centre, 2424 Main Mall,

Vancouver, BC V6T 1Z4, Canada, meike.siegner@alumni.ubc.ca

2 Alliance Manchester Business School, Manchester Institute of Innovation Research, The

University of Manchester, Booth Street West, Manchester M15 6PB, UK,

Jonatan.Pinkse@manchester.ac.uk (corresponding author)

3 Department of Management, Walker College of Business, Appalachian State University,

Boone, NC, USA, panwarr@appstate.edu

Abstract

Until recently, it was commonly assumed that social enterprises – by virtue of the

ingenuity of their founders – were extra-ordinarily capable to simultaneously pursue

social and financial goals. However, an emerging body of literature considers that social

enterprises face tensions and trade-offs as they pursue their divergent goals. While extant

research has offered insights into tensions that social enterprises face between social and

financial goals, it is not clear whether this is the only trade-off social enterprises face or

whether they also have to balance other, related tensions that stem from their social

mission. In case tensions and trade-offs manifest themselves in other ways too, how do

social enterprises manage the various different tensions and trade-offs while keeping a

coherent social mission? The aim of this study is to examine a social enterprise’s

balancing act of addressing the various different tensions and trade-offs that arise when

trying to deliver a multifaceted but coherent social mission. A qualitative research design

was employed to examine tensions and trade-offs by focusing on the case of a German

social enterprise from the organic food sector. The case study findings suggest that,

initially, social enterprises face social-financial tensions. Yet, as they grow in size and

scope, they also begin to experience tensions among their various social goals that we

refer to as social mission design tensions. Regarding the management of tensions, we find

that in contrast to the current tenor in the social enterprise literature, which espouses that

redressing tensions is essentially an act of separation or integration of social and financial

goals, we find that, at times, social enterprises accept and live with tensions instead of

addressing them.

Keywords: social enterprise, hybrid organization, tensions, organic food, social

entrepreneurship, Germany

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1.0 IntroductionSocial enterprises (SEs), defined as organizations that integrate a social mission

and financial self-sufficiency (Austin et al., 2006), are gaining prominence as scalable

and replicable business models to help address grand challenges that face our planet

(Ferraro et al., 2015). Grand challenges have been identified in diverse fields and may

include environmental degradation and climate change, food insecurity, and poverty,

among others. Many grand challenges are also characterized as wicked problems

(Churchman, 1967; Panwar et al., 2015; Rittel and Webber, 1973). While challenging to

address, wicked problems require urgent solutions because they threaten the

sustainability of our social and ecological systems (IPCC, 2014; Levin et al., 2012).

Given the urgency, fundamental and large-scale transformations are necessary in

both public and private institutions. Specifically in the realm of business and commerce,

the role of business model change is touted as necessary to achieve sustainability

(Baumgartner, 2014; Bohnsack et al., 2014; Rauter et al., 2015; Schaltegger et al., 2016).

An underlying argument here is that traditional business models inherently limit firms’

abilities to deliver on sustainability goals even when firms may have genuine intentions

to do so. At best, firms can only reduce their negative impacts (Haigh and Hoffman,

2014), which is indeed an encouraging step; but it is not commensurate with the

magnitude and urgency of the problems that we are faced with. The development of

alternative, sustainable business models is therefore an imperative to bring about the

holistic changes necessary to achieve social and environmental sustainability (Bocken et

al., 2014). SEs represent such a promising alternative to traditional business models

(Nicholls, 2008). By linking the provision of goods and services – i.e., revenue-

generating pursuits – with the creation of positive social and environmental change, SEs

are able to place both social and financial goals at their core. Due to this goal plurality,

SEs are characterized as hybrid organizations (Battilana and Lee, 2014).

Current work on SEs and hybrid organizations comprises two major streams of

literature. The first focuses on individual social entrepreneurs and their extraordinary

abilities to align divergent social and financial goals (Bornstein, 2007; Nicholls, 2010).

The second deals with understanding the limitations of SEs in delivering their multi-

faceted promises. Within this latter stream, several studies argue that commitment to both

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social and financial goals may not always be seamlessly aligned. These studies suggest

that SEs face tensions and trade-offs (Smith et al., 2013), as they strive to combine

multiple goals – social and financial – that emanate from divergent institutional logics.

Battilana and Lee (2014) even argue that SEs are crippled with a congenital paradox such

that their hybridity – their defining feature – is also making them highly fragile

organizations and threatens their survival. While the extant literature has offered rich

insights into tensions that arise between social and financial goals (Battilana et al., 2015;

Jay, 2013; Pache and Santos, 2013), it is not clear whether this is the only trade-off SEs

face or whether they also have to balance other, related tensions that stem from their

social mission. In case tensions and trade-offs manifest themselves in other ways too,

how do SEs manage the various different tensions and trade-offs while keeping a

coherent social mission? The aim of this study is to examine a social enterprise’s

balancing act of addressing the various different tensions and trade-offs that arise when

trying to deliver a multifaceted but coherent social mission.

We draw on a detailed case analysis of Regionalwert AG (RWAG), a German

social enterprise that operates in the organic food sector. RWAG is a citizen shareholder

corporation that raises capital from local communities and invests it in regional, small

food ventures (i.e., growers, processors, retailers, and support service providers). In this

way, RWAG has a dual social mission: (i) it provides access to capital to small farmers

and regional organic food ventures, and (ii) it re-localizes agriculture and food production

through the creation of a regional organic food cluster in the southern parts of Baden-

Württemberg, one of the 16 federal states in Germany.

The development of regional organic food clusters is an important way to feed

growing populations while preserving the environment (Leung Pah Hang et al., 2016;

Mylan et al., 2015; Schnell, 2013). It is especially important for high-growth regions such

as Europe where organic retail sales have grown exponentially to reach a total of 29.8

billion Euros in 2015, and even more so for a country like Germany, where organic retail

sales stood at 8.62 billion Euros in 2015. As a result, numerous regional food networks

and local farming systems have proliferated across Europe including in Germany

(Kneafsey et al., 2013). Often, these networks emerge in the form of social cooperatives

and mutual self-help groups (Máté et al., 2014), which are effective in delivering on their

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social promise, but often remain financially unviable and therefore struggle to survive

(Galt, 2013). To overcome such potential threats to survival, RWAG was created as a

citizen shareholder corporation to meet the demand for organic food locally.

RWAG’s model is unique in two ways. First, it channels capital to meet regional

needs through a citizen share mechanism. Second, it seeks to develop an entire regional

value chain, not just to promote local farming. With an explicit focus on market activities

to raise capital, RWAG presents an example of a “new-style social enterprise”

(Birkholzer, 2015) in the German organic food sector that has garnered support from

organizations like Ashoka and the Schwab Foundation, which both promote promising

SE models. The complexity of RWAG’s business model – raising capital from local

citizens in the form of citizen shares, distributing the capital among small farmers and

other entities hitherto deprived of access to capital, developing an entire food value-

chain, and ensuring that investors receive expected financial returns – is riddled with

divergent social and financial goals. Hence, this case is very suitable to examine how SEs

manage the many different tensions that they tend to face due to their complex social

missions.

Our study’s findings advance knowledge about tensions in SEs by showing that

tensions not only arise between social and financial goals, as the current literature

suggests (Hahn et al., 2015; Smith et al., 2013), but also between different social goals

that together form an SE’s social mission. We label these tensions as social mission

design tensions to highlight that some of the tensions that SEs face can be attributed to

the manner in which they formulate their social mission. We also find that SEs do not

always seek to resolve tensions due to their divergent goals. Specifically, we show that

some of the unaddressed tensions may result in a situation that we refer to as social

mission disjunction. Disjunction of the social mission occurs because SEs face difficulties

in reaching all their possible beneficiaries across targeted geographic areas, and choose to

deliver to only some of them, while excluding others. Finally, our findings reveal that

when SEs attempt to resolve tensions, they do not primarily pursue a synthesis strategy –

as the previous literature on SEs suggests (Battilana and Lee, 2014; Smith et al., 2012) –

but also pursue separation strategies that comprise temporal and structural separations.

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The rest of this paper is organized as follows. First, we explain the hybrid nature

of SEs that enables them to pursue divergent goals. Second, we discuss current debates

on the management of SEs and how the emergent understanding of tensions plays out in

this context. We then present the methods, followed by our results and discussion. We

conclude with a summary of our findings and an outlook on the literature.

2.0 Social enterprises as hybrid organizations

Throughout most of the twentieth century, societal objectives were typically

achieved through single-purpose organizations. Our commercial needs were left for the

private sector, civic functions remained the sole responsibility of the public sector, and

charitable work was carried out by the non-profit sector. Even though these sectoral were

valid and legitimate for a long time, the complexities of the modern world have made

them less relevant. Instead, increasingly blurred organizational forms – i.e., hybrid

organizations – have emerged in response to the multi-faceted and often intertwined

societal challenges (Billis, 2010). Hybrid organizations combine elements of multiple

organizational forms and draw from and mix the logics of for-profit and non-profit

sectors (Battilana and Lee, 2014). Consider, for example, micro-finance organizations

like the Grameen Bank, which is a financial institution with a social mission. In offering

credit to the poor, they not only serve their intended beneficiaries but also create a

customer base. And with respect to the social sector, it can be noted that many traditional

non-profit organizations engage in business activities as an additional revenue source,

e.g., through offering consulting services or operating thrift stores (Battilana et al., 2012;

Dees, 1998). Instead of considering inherent trade-offs among social, ecological and

financial objectives, SEs create synergies as they are designed to address particular social

or environmental issues through commercial activities. Transcending the traditional

trade-off view, SEs are thus able to generate blended value (Emerson, 2003; Haigh and

Hoffman, 2014).

Generating blended value may give rise to a dual identity, but it also creates

internal conflicts and tensions. Moss et al. (2011) argue that the financial objective brings

with it a utilitarian identity, which focuses on factors such as service quality, expertise

and market factors. In the utilitarian identity, financial return is a key indicator of

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success. In contrast, the social objective corresponds with a normative identity, as

characterized by a concern for people and the public good. Achieving the set goals of a

social mission is central to the normative identity (Moss et al., 2011). Success in SEs thus

depends on the ability of these organizations to meet the expectations of both identities

over time through monitoring and interpreting outcomes with respect to both identities

and the resultant tensions (Jay, 2013). The following section will elaborate on current

perspectives regarding how SEs – with dual identities – manage those tensions.

2.1 Perspectives on tensions in social enterprises

With respect to how SEs can be run in order to fulfill their social mission

effectively, two strands of literature have emerged that provide contrasting perspectives.

The first strand puts the ingenuity and extraordinary capabilities of the social

entrepreneur central and generally ignores tensions and trade-offs that might surface. The

second strand recognizes potential tensions and views the management of SEs

predominantly from the vantage point of managing those tensions. The following sections

will discuss both of these viewpoints.

2.1.1. Managing social enterprises: A tale of aligning goals through social

entrepreneurial ingenuity

Part of the social entrepreneurship literature puts a strong emphasis on the

individual entrepreneurs and their ability to successfully generate blended value through

a clever maneuvering of financial and social objectives (Weerawardena and Sullivan

Mort, 2006). This social entrepreneurial ingenuity is depicted in a number of case studies

of inspiring individuals that highlight their commitment to address a cause and their

ability to achieve intended social and/or environmental outcomes, while they secure

financial stability for their organizations (Leadbeater, 1997; Thompson et al., 2000).

Others have highlighted how the passion of social entrepreneurs fosters trust among

employees which helps in achieving organizational goals (Thorgren and Omorede, 2015).

This body of literature projects the image of an extraordinarily capable individual

who can combine conflicting attributes – such as ‘ethical fiber and result-orientation’ or

‘vision and pragmatism’ – in the design and operations of their businesses (Nicholls,

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2010). Literature that highlights such an entrepreneurially-driven image of success in SEs

often echoes Schumpeter’s innovation framework to show how social entrepreneurs, in a

process of creative destruction, successfully deliver social innovation (Dees, 1998;

Mulgan, 2006). Such studies emphasize the role of compassionate social entrepreneurs

that spur integrative thinking, which allows for a successful alignment of social and

financial objectives (Miller et al., 2012). Extraordinary cognitive abilities enable social

entrepreneurs enable to successfully combine utilitarian and normative identities related

to a business and social logic, respectively (Wry and York, 2017). To summarize, then,

through cases, empirical studies and conceptual contributions, this literature draws from

individual characteristics of social entrepreneurial individuals to generally demonstrate

successful alignment in SEs of social and financial objectives.

2.1.2. Managing social enterprises: A tale of working through tensions and trade-

offs

The second stream in the literature takes a different approach to managing SEs.

Instead of assuming that the qualities of founders determine successful SEs, this stream

starts with the assumption that SEs, by their very nature, face an inherent paradox that

persists over time and could challenge their potential success. Hence, individuals within

SEs have to face tensions and trade-offs, if they are to successfully manage social and

financial goals simultaneously. The management of tensions has therefore emerged as a

key issue in research on SEs. This issue is also gaining currency in the broader

management literature (Hahn et al., 2015, 2014) and in line with a movement away from

the “win-win” notion that simplistically portrays an alignment between social,

environmental, and financial goals (Panwar et al., 2015; Van der Byl and Slawinski,

2015). According to Smith and Lewis (2011: 382), paradoxes in management refer to

“contradictory, yet integrated elements that exist simultaneously and persist over time”.

Scholars have argued that there is an inherent paradox present in the attempt to pursue a

social mission through business means, which leads to the emergence of competing

demands related to social and financial objectives (Battilana and Dorado, 2010; Jay,

2013; Smith et al., 2012). This paradox manifests itself in a set of central characteristics

of SEs (Mair et al., 2015) and creates tensions for managers of SEs (Smith et al., 2013).

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First, SEs have multiple principal stakeholders with competing expectations

regarding financial performance and the pursuit of social and/or environmental well-

being (Ebrahim et al., 2014; Santos et al., 2015). Second, SEs pursue various, often

conflicting goals, such as a short-term orientation related to economic output versus

longer time horizons dedicated to realizing strategies for the creation of social or

environmental welfare (Smith et al., 2013). Finally, SEs often engage in inconsistent

activities aimed at achieving both financial and social objectives (Battilana et al., 2015).

Therefore, SEs face various different tensions that mainly manifest themselves in three

areas: mission, human resources, and output (Doherty et al., 2014). As a consequence,

phenomena such as mission drift may occur, where the commercial activity takes

precedence over the social goals, ultimately restricting social output (Cornforth, 2014).

SEs in micro-finance have been found to drift from their social mission when seeking to

enhance financial efficiencies through hiring staff with expertise in banking practices

(Battilana and Dorado, 2010). Figure 1 provides an overview of the interplay between the

paradox in SEs, the resulting tensions and their manifestation within these organizations.

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The extant literature identifies two ways in which SEs respond to tensions:

integration and separation (Smith et al., 2013). Integration refers to strategies that allow

finding solutions to tensions that serve both the market logic and the social or

environmental logic (Battilana et al., 2015; Battilana and Dorado, 2010; Smith et al.,

2012). In contrast, separation strategies consist of dealing with inconsistent demands one-

by-one by separating them from each other either structurally, e.g., by splitting staff

between tasks related to mission orientation and economic operations (Battilana et al.,

2015), or temporally, by oscillating between economic and mission-oriented approaches (

Jay, 2013). Recent scholarship in the management literature (Hahn et al., 2015, 2014),

however, disputes that integration and separation are the only alternatives for

organizations facing tensions. These studies argue that, at times, organizations may

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simply choose to live with conflicting goals rather than resolve them, because taking any

action may be perceived as too arduous or too risky. Instead, tensions are kept in place to

avoid risks of a potential mission drift (Cornforth, 2014; Ramus and Vaccaro, 2014). This

intentional deferral to tackle a tension leaves open the option for future dialogue and

opportunities that may result in creative solutions (Hahn et al., 2015). Table 1 provides an

overview of the current approaches in the literature with respect to managing tensions

between financial and social missions.

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But do tensions emerge in more ways that the current literature outlines? And if

so, how are SEs managing those tensions? In the following, we introduce an in-depth

case study of RWAG, a German SE that has developed a complex social mission and

received various awards for its model by the two leading social entrepreneurship support

organizations, Ashoka and the Schwab Foundation. For this case, we will analyze the

emergence of tensions and how they were addressed over time in the organization.

3.0 Method

For this study, we collected data through in-depth interviews. Data was

triangulated using online and print material published between 2009 and 2015. For the

selection of our interviewees, we followed the purposeful sampling approach (Lincoln

and Guba, 1985). Given our research interest in the emergence of tensions in SEs and

how they are addressed, we initiated – in line with previous literature (Smith et al., 2013)

– with individuals that had a managing function within RWAG and RWAG-supported

ventures. Specifically, we started out with interviewing the founder and CEO of RWAG,

Christian Hiß, who also managed two of the RWAG-supported ventures. Access to other

interviewees was sought by using contact details provided on the RWAG website

(RWAG, 2017). As interviews proceeded, a snowball technique (Lincoln and Guba,

1985) was used to enlist further interviewees. In this way, we received suggestions to

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interview other managers of RWAG-supported ventures and citizen shareholders to

ensure a comprehensive coverage of perspectives. The first citizen shareholder was

identified at an economic development event in Bonn. When interviewing this individual,

we requested for referrals and succeeded in identifying and interviewing two additional

citizen shareholders

In all, 13 in-depth interviews were conducted between February and June 2013.

Table 2 shows a category-wise distribution of the interviewees and documents used for

triangulation. Notably, our sample covers 11 out of total 17 RWAG-supported ventures

(growers, processors, retailers, and support service providers) that were active at the time

of the fieldwork. As shown in the map (see Figure 2), most ventures are located in and

around the city of Freiburg, while two are located 80-100 km southeast from RWAG’s

main center of activity.

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Data triangulation involved analysis of 53 documents that included the RWAG

webpage (RWAG, 2017), press releases, newspaper articles, video material, and case

studies. These documents were identified by conducting a general web search with

“Regionalwert AG” as keyword. Three codes were identified to classify the documents in

the research: (1) reconstruction of RWAG’s social mission, (2) history and development

of the RWAG case, and (3) contextualization of the interview findings.

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The interview method entailed extensive narratives in response to an open

question, accompanied by a set of guided questions (Witzel, 2000). Moreover, it gives the

option to the interviewer to ask for details as deemed necessary. Each interview lasted

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between 45 and 60 minutes. We asked each informant two overarching questions to

stimulate a narrative response: “How did you become part of RWAG and how do you

experience participating in the business model?” The assumption was that these questions

would lead to a broad conversation, parts of which would inherently segue into the

tensions and trade-offs felt along the way. We also included specific questions that

centered on challenges, visions, tensions and forms of partnerships that capture the

informants’ experience in the business model as well as their personal experiences. All

interviews were conducted in person, with the exception of one, which was done by

telephone and they were all taped and transcribed. For the purpose of transparency

(Witzel, 2000), informants were offered insights in the interview transcripts and

contacted if clarification was needed.

We analyzed the interviews using a grounded theory approach (Gioia et al., 2013)

to unravel new concepts from the data. This approach is especially well suited for in-

depth single-case studies (Langley and Abdallah, 2011). We used the software package

ATLAS.ti 7.1.0 (2013) as it facilitates the management and structural analysis of a

variety of data sources. The analysis consisted of three consecutive steps (Gioia et al.,

2013), as Figure 3 depicts. In the first round of coding, we imported the interview

transcripts as text files into the software and fine-read the material to identify phrases,

terms and descriptions that evolved around RWAG’s social mission and the emergence of

tensions in the organization. The results of this process generated our first-order concepts

(left column in Figure 3). After carefully examining overlaps and common appearances

of concepts in our data, two central second-order themes emerged that indicate tensions

within RWAG: social/social and social/financial (middle column in Figure 3). In a final

step, we compared the second-order themes and organized them into aggregate

dimensions (resolution and acceptance strategies) that explain how tensions are

approached (right column in Figure 3).

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To ensure the validity of our study, the data collection process was carefully

documented. A matrix was used to classify documents according to their source (e.g.,

video, newspaper, book, press release) and the respective code indicating their use during

the research process. Post-scripts written immediately after the interview process to

accompany the tape recording served as a means to document observations, such as non-

verbal expression or situation-related conditions (Witzel, 2000). Memos, used during the

process of coding documents, and interviews enriched the documentation of the research

process (Gioia et al., 2013) and formed the basis for triangulation during the process of

coding the documents. When the analysis revealed information regarding tensions in the

business model’s social mission, we took notes and went back to the collected documents

and looked for indicators that could back up the information in the interview data. For

example, we looked at documents that listed information on the reporting requirements of

RWAG and expectations of RWAG-supported ventures in the statutes to support findings

in the interviews that indicated that managers of the ventures felt overwhelmed with their

responsibilities as part of the SE model. Besides, we tried to avoid a single-source bias by

ensuring a mix of informants that covered different positions within RWAG.

4.0. Results

This section presents the results of the RWAG case analysis. We first start with a

general overview of RWAG, its social mission and development over time, which will

provide the basis for the analysis of tensions – and their management – that emerged as

RWAG grew as an organization.

4.1. RWAG - origins and evolution

In 2006, organic farmer Christian Hiß founded RWAG under the legal form of the

shareholder corporation as a means to secure and develop socially and ecologically

responsible food consumption at the regional level. Such food consumption had reduced

with less capital available for small players operating in agriculture and increasing

competition from industrial food production entering the organic food sector. This led to

losses of regional jobs, and community identity around the production and consumption

of food, among other factors (Ashoka, 2015).

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RWAG’s deliverables to the citizen shareholders are twofold. First, to be certified

under national organic standards, RWAG-supported ventures report annually on their

performance along a range of social, environmental and economic indicators that RWAG

developed to measure the progress that every venture makes in contributing to the social

mission of the organization (Jakli and Volz, 2014). Second, all RWAG-supported

ventures engage jointly in creating an organic food cluster under a common trademark

and logo to strengthen a regional economy. These two aspects combined form the annual

socio-ecological return on investment that is guaranteed to the citizen shareholders and

aims to increase sustainable consumption (interviews 2 and 5). Financial return could

potentially be distributed to citizen shareholders once the ventures become profitable. At

the time this research was conducted, there were no financial returns for the citizen

shareholders (Bossert, 2015). In the interviews, the citizen shareholders described that

they invest in RWAG, not for immediate financial returns, but for reasons such as making

accessible to them and their families locally sourced organic food, a better local

environment, and a vibrant local economy (interviews 7, 9, 13). Figure 4 provides an

overview of RWAGs social mission and deliverables to the citizen shareholders.

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RWAG founder and CEO Christian Hiß contributed his own money and market

garden toward establishing RWAG before he would reach out to raise capital (interview

1). After successfully issuing the first round of shares, which resulted in 1.7 million

Euros of capital, RWAG rapidly grew in size and scope. By 2010 RWAG had grown to 2

million Euros of capital and in 2012 it comprised 16 ventures (growers, processors,

retailers, support service providers) (Schiller et al., 2015). In 2013, the number had gone

up to 17 ventures with a total estimated investment of over 2.24 million Euro, involving

510 citizen shareholders (IBA Forum, 2014). RWAG’s fast success was the result of the

commitment and vision of Christian Hiß as well as its appeal to interested investors.

RWAG’s success was already recognized in 2009 when the organization received an

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Ashoka Fellowship1 (Ashoka, 2015). This fellowship enabled Hiß to give up his role as

manager of his own market garden and focus, in his capacity as CEO, on the

advancement of RWAG’s social mission by exploring local and international replication

opportunities (Dehmer, 2014). This development resulted not only in additional

investment in ventures, but also led to the creation of Regionalwert AG Trust by the end

of 2011. The trust was founded as an umbrella organization, run by Hiß, which supports

other regions in the form of a franchise that provides the rights to use the Regionalwert

AG trademark and logo. In the fall of 2011, a second Regionalwert AG was founded in

Munich (Hiß, 2012). Subsequent to these developments, Hiß received another award as

Social Entrepreneur of the Year from the Schwab Foundation (BCG, 2011). This award

provided him with opportunities to participate in events and developments to work on

promoting the citizen shareholder model (interview 1). In 2012, RWAG received a third

award, this time from the federal government of Baden-Württemberg, further increasing

public visibility and improving credibility (interview 1).

After RWAG had received the awards, which increased media attention, the

interest in the model of the citizen shareholder corporation began to grow (Dehmer,

2014). At the time of writing this paper, a third Regionalwert AG was also operational in

Hamburg and several new ones were in the planning in Germany, Austria and Spain. Late

2015, RWAG initiated another round of shares to further increase the number of 19

ventures (Bossert, 2015) and announced the long-term goal of raising at least 10 million

Euro to achieve significant impact in the region (Arsenopoulus, 2010). Table 3

summarizes the main developments and achievements of RWAG.

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These accolades and accomplishments notwithstanding, pursuing plural goals

turned out not to be a trouble-free journey. In the following, we attend to our core

1 Since 1981, this fellowship has been recognizing and supporting social entrepreneurs for their innovative and scalable solutions to social problems. Fellows are selected through a stringent screening process. Fellows receive a three-year stipend to cover living costs while fully devoting their time to the pursuit of their social idea and are affiliated as recognized social entrepreneurs (Ashoka fellows) with the international non-profit organization Ashoka.

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objective of understanding what tensions arose in the process of developing RWAGs

social mission and how they were approached.

4.2. A categorization of tensions that emerged in RWAG and supported ventures

Simultaneous analysis of interview data and documents allowed the researchers to

reconstruct the implementation of RWAG’s social mission as a process, influenced by

key events in the development of the organization. As its work evolved, RWAG

experienced two phases of social-mission-related performance that each determined a

certain focus on the fulfillment of the social mission and related tensions (see Table 4).

Phase I, the pre-award phase, marks the early period of the organization, prior to

Christian Hiß being selected as an Ashoka fellow, in which the social mission was largely

focused on the local context where the organization emerged. In Phase II, the replication

and growth phase, the social mission’s scope expanded beyond the local region, due to a

broadened focus to extend RWAG’s impact through international replication of its

business model. In the following, we elaborate on the two phases of implementing the

social mission in RWAG and the resulting tensions.

In the pre-award phase, achieving the social mission was largely centered on local

opportunities. Cooperation between the few ventures that had received capital from

RWAG to develop a regional food cluster happened on a small scale and through direct

agreements rather than resource-intensive negotiation (interview 4 and 8). The tensions

that arose in this phase were related to the struggle of these ventures to align different

demands regarding the social mission and financial sustainability (social-financial

tensions in Table 4). In this phase, these ventures felt challenged in meeting social,

ecological and economic criteria that RWAG had established for them. Moreover,

established RWAG-supported ventures ended up compromising their socio-ecological

performance in order to remain financially viable (interview 5). Such compromises

included, for example, the inability to pay above-average wages (interview 4) – one of

the central social goals in RWAG’s socio-ecological reporting framework (Arsenopoulus,

2010) –, and allowing caterers in RWAG’s network to purchase organic products

overseas instead of locally sourced in order to keep costs low (interview 11).

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In the replication and growth phase, RWAG experienced a rapid increase in

recognition and attention. Accordingly, the social mission’s focus shifted towards

promoting the model beyond a local focus, while simultaneously engaging in developing

RWAG’s ventures and building the food cluster. This led to tensions in RWAG’s social

mission, as it meant investing in new ventures, while keeping an eye on developing

existing structures (social-social tensions in Table 4). Such tensions arose both within

RWAG and with RWAG-supported ventures.

At the RWAG level, social-social tensions arose due to a lack of a defined focus

over divisions and geographic areas, which resulted in trade-offs between devoting time

and resources to the expansion of the citizen shareholder model, on the one hand, and

support of existing ventures, on the other. Such trade-offs where faced, for example, by

RWAG founder and CEO Christian Hiß. In addition to running RWAG, he also managed

two of RWAG’s support service providers (the newly founded Regionalwert AG trust

and a real estate venture) (interviews 2,8 and 10). While the Ashoka fellowship and

subsequent awards helped to raise RWAG’s visibility and profile, these recognitions were

also perceived as distracting from the actual input needed to help RWAG-supported

ventures perform and build cluster relationships (interview 3). This development resulted

in a situation where RWAG contributed to socio-ecological outcomes on a larger scale at

the expense of RWAG’s local development (interview 1). Such trade-offs manifested

themselves in areas such as logistics. Newly acquired RWAG-supported ventures

expanded RWAG’s portfolio, but they were located further away from the Freiburg

headquarters, and lacked access to contributing to and participating in the emergent food

cluster (interview 5).

At the level of the RWAG-supported ventures, the interviews showed that the

managers of RWAG-supported ventures felt challenged in fulfilling different tasks

required to deliver on a comprehensive social mission (interview 5, 3 and 8). On the one

hand, managers needed to focus inward in order to ensure that their ventures met social,

ecological and economic criteria that RWAG had established for them. On the other

hand, they were expected to focus outward and devote time and resources in the

development of cluster relationships with a growing number of RWAG-supported

ventures (one of RWAG’s social mission-related goals). These social-social tensions

17

eventually resulted in RWAG-supported ventures having to make trade-offs with respect

to engaging in the latter process.

For example, one RWAG-supported venture (a caterer) stopped buying from a

grower in the food cluster to avoid lengthy trade negotiations that would then still result

in less standardized delivery conditions (interview 11) compared to purchasing products

from a wholesaler. Another RWAG-supported venture, which was located further away

from RWAG’s main center of activity, less frequently attended the regular meetings with

other RWAG-supported ventures aimed at developing a branding strategy for the food

cluster, due to the effort in time and costs associated with this process (interview 3).

These actions resulted in a situation where one component of RWAG’s social mission

(development of a food cluster between RWAG-supported ventures) took a backseat in

the implementation of RWAG’s more comprehensive social mission.

===================

Insert Table 4 about here

===================

Clearly, tensions emerged between social goals, both for RWAG and RWAG-

supported ventures, primarily, due to the way in which the overall social mission was

designed. We therefore label these as social mission design tensions.

4.3. Strategies employed by RWAG to address tensions

Our analysis reveals that people in RWAG applied different strategies to deal with

the tensions we observed. Those strategies can be captured with two main aggregate

dimensions: resolution and acceptance strategies. Resolution happens primarily through

separation, i.e., a tension is recognized but not addressed in an integrated manner (Smith

et al., 2013). We uncovered two ways in which separation manifested itself in RWAG:

structural separation and temporal separation.

Structural separation refers to diverting tasks related to the social and commercial

mission to different organizational units (Hahn et al., 2015). In the replication and growth

phase of RWAG’s social mission development, when social mission design tensions

arose (Table 4), RWAG board members realized that they had to devote considerable

effort to redefining internal structures and tasks for better operational performance at the

18

local and national level (interviews 2, 3 and 10). Hence, a new board member was given

more responsibilities related to RWAG’s local development in the region around

Freiburg. Christian Hiß, subsequently, took over the consultant work related to promoting

the citizen shareholder model, trademark, and logo beyond the regional scope. Taking

over these responsibilities allowed him to engage in the board of the newly founded

Regionalwert AG in Munich (interview 1) and in publishing a book on socio-ecological

accounting methods (Hiß, 2015). Structural separation was further applied to resolve

social mission design tensions at the level of RWAG-supported ventures with the creation

of a job position aimed at managing the development of the emerging food cluster

(interview 10). Creating this job alleviated the managers of RWAG-supported ventures

from the task of running their venture, while at the same time being expected to develop

cluster relationships. Instead, they could now focus on the individual success of their

food ventures, which resulted in outcomes such as bestowment of the German federal

award for innovative organic farming methods to one of the RWAG-supported ventures

(DPA, 2015).

We further found that managers of RWAG-supported ventures practiced temporal

separation to alleviate social-financial tensions. Temporal separation happens when

actors realize that financial and social values are incompatible at a certain point in time

and have to be compromised temporarily for better future prospects. Temporal separation

through negotiating trade-offs has been described with respect to the formation process of

SEs by their founders (Wry and York, 2017). Temporal separation further allows

managers to define targets for each opposing pole in order to avoid entering a state of

inertia (Hahn et al., 2015). In the case of SEs, inertia would occur when neither social nor

financial values could be sufficiently captured. Such inertia occurred in the pre-award

phase of RWAG’s social mission implementation (Table 4), when RWAG-supported

ventures had to compromise on socio-ecological dimensions for the sake of better

financial performance. Managers of RWAG-supported ventures applied temporal

separation through emphasizing gradual achievement of their socio-ecological

performance in front of citizen shareholders (interview 4). Such spaces of negotiation

(Battilana et al., 2015) were provided, for example, in annual shareholder meetings. They

enabled the managers to negotiate strategies to achieve future outcomes, a process that

19

the citizen shareholders valued and took interest in, without expecting immediate

financial return (interview 7, 9 and 13). One RWAG-supported venture, for example, had

to lay off a significant number of its staff. Through negotiating its situation in the annual

shareholder meeting, the management of the venture was released from performance

expectations and took its time to improve financial aspects. Eventually, an opportunity

came up to outsource its packaging to a work-integration business for people with special

needs, which increased the social performance, alongside financial goals, at a higher rate

than before temporal separation was applied (interview 11).

Finally, acceptance strategies were applied to address some of the social mission

design tensions, that arose during the replication and growth phase and that were caused

by the fact that some RWAG-supported ventures were integrated in the emerging organic

food cluster, while others were geographically too far away to participate in the process.

These ventures automatically reported low regional development indicators in the annual

report to the citizen shareholders. This tension was recognized, however, it was deemed

as inevitable under the development stage of the emerging food cluster (interviews 5 and

7). Figure 5 presents an overview and summarizes the resolution and acceptance

strategies applied in RWAG to address tensions.

===================

Insert Figure 5 about here

===================

5.0 Discussion and conclusions

The aim of this study was to examine a social enterprise’s balancing act of

addressing the various different tensions and trade-offs that arise when trying to deliver a

multifaceted but coherent social mission. That is, we explored the types of tensions and

trade-offs that SEs face in implementing their social mission and examined the

approaches they adopted in managing them. To achieve this aim, we conducted an in-

depth study of a German social enterprise, RWAG, which operates in the organic food

sector. This study contributes to the literature on strategic contradictions (Smith and

Tushman, 2005), tensions and paradox (Hahn et al., 2017; Poole and Van de Ven, 1989;

Smith and Lewis, 2011), particularly in the context of social enterprises as their managers

20

strive to scale them up. While previous literature mainly focuses on tensions between

social and financial objectives (Hahn et al., 2015; Smith et al., 2013), our findings

broaden this understanding by showing that tensions can emerge also within the domain

of the social mission. And, while previous literature would lead us to expect that SEs

employ synthesis strategies in order to simultaneously address competing demands

(Battilana and Lee, 2014; Smith et al., 2012), we instead found that tensions are managed

in a more nuanced manner.

We find that in the early stages of development, tensions arise between social and

financial goals, which is consistent with previous literature (Smith et al., 2013). In these

stages, tensions arise at business-unit levels (e.g., the level of RWAG-supported ventures

in our study), which are primarily resolved using temporal separation (Hahn et al., 2015)

such that social output is, at times, delayed to avoid potential negative financial

implications. In later stages, when SEs grow and seek to replicate their business models,

tensions emerge not only between financial and social goals, as is the case for early

stages, but also in the form of a spatial contest about which geographic areas an SE

should focus on. These social mission design tensions, which are separate from the

social-financial tension, manifest themselves at both at the business-unit and headquarter

levels (e.g., at the level of RWAG-supported ventures and RWAG, respectively). This

finding opens up space for further research on the study of tensions in SEs to explicitly

take into account the internal dynamics of the venturing process, where social aims are

incorporated in a nascent social enterprise (Wry and York, 2017).

Furthermore, in contrast to previous research that considers either synthesis or

separation strategies as a way to resolve tensions in SEs (Smith et al., 2013), some social

mission design tensions could not be addressed and were thus classified as inevitable.

That is, the tension was kept alive which resulted in a situation that we refer to as a social

mission disjunction. Such a social mission disjunction has a spatial connotation and refers

to a situation where people in an SE are unable to resolve a social mission design tension

due to a lack of resources. As a result, the social mission might be addressed in a

comprehensive way in one location, but is only partially addressed in another location.

This failure to reach all intended target constituencies across a geographic area reflects

the difficulty in the venture creation process between determining a broad scope, on the

21

one hand, and securing the resources and competences necessary in order to implement

such strategy, on the other (Chrisman et al., 1999).

To summarize, then, this study expands the literature on tensions in SEs that may

arise among their divergent social, ecological and financial objectives. Specifically, we

find that tensions do not arise just between social and financial goals, but also between

various social goals that together form an SE’s social mission. In the same way as recent

work in the realm of corporate responsibility recognized contradictions and tensions

inherent in social issues and analyzes these independent of their relationship with

financial dimensions (Hahn et al., 2016), SE scholars are well advised to pay greater

attention to the complex interplay of different components that together form the social

mission of SEs.

This study’s findings must be interpreted in light of its limitations, such as the

choice of a single case study design and its implications for the generalizability of

findings. Also, while we triangulated data sources, responses may have some biases,

which would have influenced our findings. Overall, we believe that this study has

important implications for the approach to the study of tensions in the context of SEs. It

paves the way for conducting future research and develops deeper insights into the

phenomenon of tensions that are germane to a multi-faceted social mission. For example,

future studies could conduct follow-up investigations into social mission design tensions

and how they can be addressed at the different implementation stages of the social

mission. Future studies may also consider expanding the scope of our work by extending

it to other sectors and/or geographical areas. Furthermore, our findings have implications

for research on social entrepreneurship education where recommendations for leadership

in SEs may be broadened to incorporate design and implementation challenges of the

social mission more explicitly. Lastly, our study offers useful insights to funding agencies

and policy actors that might be interested in understanding how social enterprises address

tensions and trade-offs as they pursue complex, plural goals.

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Tables and Figures

Table 1 Tensions within social enterprises and their resolution

Strategy for Tensions Summary of Approach Relevant Articles

Integration

Separation

Acceptance

Two ends of a tension are addressed simultaneously with a focus on generating synergies between them

Two ends of a tension are separated in space and/or time

Tensions are recognized but the paradox is left open in a conscious effort to wait for future opportunities to reconcile it

(Smith et al., 2012)(Pache and Santos, 2013)(Jay, 2013)

(Battilana et al., 2015)

(Hahn et al., 2015)

Table 2 Category wise distribution of data sources

Source Number

InterviewsChristian Hiß (RWAG founder and CEO, manager of two of RWAG’s support service providers)Managers RWAG food ventures(Growers, Processors, Retailers)Managers RWAG support service providersShareholdersTotal

DocumentsNewspapers/magazinesRadio/TV/videosPress releasesPublications on RWAG caseBooksTotal

1

7

2313

1313159353

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Table 3 A chronology of key events in RWAG’s development

Date Event Description

2006December 2009

2010November 2011December 20112012

2013

May 2014December 2014December 2015

RWAG is founded near Freiburg, GermanyRWAG founder and CEO Christian Hiß is selected “Ashoka Fellow”RWAG raises over 2 Million Euro in capitalRegionalwert AG Munich is foundedRegionalwert AG trust is foundedRWAG founder and CEO Christian Hiß is selected “Schwab Social Entrepreneur of the Year”RWAG receives sustainability award from federal state Baden-WürttembergRegionalwert AG Hamburg is foundedMore than 500 citizens have bought sharesRWAG issues a new round of shares

29

Table 4 Phases of social mission implementation in RWAG and related tensions

Phase I2006 – 2009Pre-award phase

Phase II2010 - 2015Replication and growth phase

Social mission focus

Predominant type of tensions felt

Defining characteristic

Source of tension

Level of tension

Local socio-ecological performance and gradual development of food cluster

Social - financial

Tensions between economic performance of RWAG-supported ventures and compliance with RWAGs social mission

RWAG-supported ventures torn between prioritizing financial stability and delivering on RWAGs socio-ecological reporting criteria:

“Right now we work with five people on the basis of 400€ and we had to lay off one part- time worker due to high fix costs.” (interview 8)

“Currently, the food ventures are facing financial difficulties, which also effects the whole shareholder corporation since it needs us to be profitable in order to make further investments” (interview 4)

RWAG-supported ventures

Simultaneous expansion of RWAGs socio-ecological performance model and development of food cluster

Social - social

Tensions felt within RWAGs complex social mission

Competing demands arise in two areas:

Allocating local resources for fulfillment of social mission versus promoting RWAG model in other regions

“This is not a one-man show. We have to make sure that different people take over these tasks.” (interview 5)

Focusing on own venture versus engaging in development of the emerging food cluster

“Some businesses are start-ups that still need a lot of support. […] Additional tasks are perceived as burden, especially when expected synergy effects are not felt yet.” (interview 3)

RWAG and RWAG-supported ventures

30

Figure 1 Tensions and trade-offs in social enterprises (based on Doherty et al., 2014)

31

Figure 2 Location of interviewed RWAG-supported ventures within the German federal state Baden-Württemberg (Inset within the figure shows location of this federal state within Germany)

32

Figure 3 An overview of the coding process

33

Figure 4 RWAG’s business model

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Figure 5 Strategies applied in RWAG to resolve tensions

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