Siobhan O'Mahony, Boston University

Lecture title:

From Nonprofit to Venture Backed: Explaining Why and How Organizations Change Their Form

Speakers:

Siobhan O'Mahony, School of Management, Boston University

Speaker(s) Web Pages:

Semester: Fall 2013

Date: Friday, November 8, 2013

Time: 1:30 - 3:00 PM

Venue: Room K1310, Ross School of Business

Additional Notes:


Abstract:

Theories of organizational change abound, but the most dramatic type of organizational change, form conversion, is rarely studied. Recently, both theoretical and regulatory debates as to the appropriateness of for profit and nonprofit forms for social or private enterprise have increased as entrepreneurs experiment with new ways of using these forms. As nonprofit forms have reached the regulatory limits of what they can accomplish, social entrepreneurs have gravitated toward the flexibility offered by for profit forms to achieve social welfare and private enterprise goals. Yet little existing theory or empirical research addresses why or how an organization might move from one form to another.

This research examines the process of form conversion with an 18 month ethnography of a small non-profit organization regulating internet privacy and trust practices that transitions to a venture backed start up. I examine: the conditions that led the organization to change its form; the process of form conversion; and how market practices affected the organization, its members and its mission. Organizational members were motivated to change their form due to: 1) the inability to innovate; 2) fear of losing relevancy; 3) the desire to improve their operational effectiveness; 4) their ability to scale operations; and 5) boredom and staleness due to lack of growth. Without the ability to grow the organization, individual members did not see how they could grow either. I identify the alternatives considered and the barriers encountered and overcome by drawing on the actions of the board of directors, venture capital investors, lawyers, chief executive officers, regulators and middle managers.

Although all employees quit the nonprofit and were rehired by the for profit under new human resource policies, little evidence suggests that the organization’s mission, vision, and values changed during the time of study. What did change was: 1) the introduction of an expanded professional management team and practices; 2) new product and project development practices and systems; 3) the scale of the enterprise and 4) the need to balance new pressures for growth with managing existing business. As a for profit firm, the organization actually improved its mission of improving privacy and trust practices on the Internet – becoming stronger at tracking and enforcing fast paced changes than they were able to as a nonprofit. As a for profit firm, the organization also improved its independence and became less beholden to the clients it regulated than it was as a nonprofit. Even though employees aspired to this level of growth, they struggled to keep pace with both the new professional employees introduced and with investors’ goals.

This research shows how the values associated with non profit forms such as independence and trust can be incorporated in a for profit form. It also suggests that capital plays an important role in scaling and growing organizations with social and/or regulatory missions that are too often underfunded. Most importantly, this research explains how a shift in form can occur and the role capital plays in those changes. Finally, this research suggests that there may be an under appreciated relationship between individual and organizational growth.

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