Strategic Positioning And Organizational Adaptation In Social Enterprise Subsidiaries Of Voluntary Organizations

Abstract

This article examines a new organizational form, the community interest company (CIC), as a means for voluntary and charitable organizations to embark on formalized social enterprise activities in the UK. A combination of social, economic, legal and strategic positioning factors has influenced charities to set up CICs as social enterprise subsidiaries to complement their public service work. CICs with charitable origins have relatively weak strategic positions, which are distinct from those of their parent charities. This difference creates tensions in the relationship between the CICs and their parent charities, which have implications for the management of third sector social enterprises.

Key words:

• Charitable organizations
• community interest companies
• social enterprise hybrids
• strategic positioning
• United Kingdom

Introduction

This article contributes to the organizational behaviour and strategic non-profit management literatures by increasing our understanding of a new organization form – the community interest company (CIC), as a means towards formalized social enterprise activities among voluntary and charitable organizations (VCOs) in the UK. The effects of this development on the strategic positioning of CICs with charitable origins as they adapt to their changing environment is explored for the first time.

The current public policy trajectory in the UK has paved the way for more VCOs to deliver public services under contracts from and in partnership with government (Strategy Unit 2002). A governmental social enterprise strategy, launched in 2002, has led to the creation of the CIC in 2005 (DTI 2005). This new organizational form is specially aimed at accommodating the social enterprise activities in VCOs and private sector organizations, in particular for service provision with public bodies. Charities are encouraged to undertake social enterprise activities, that is, ‘trading with the public body: undertaking specific activities in return for payment’ (HM Treasury 2005: 19). Although trading1 activities by UK charities for profits are legally permitted within limits under current charity law, charities have been urged to ensure that the financial and business risks associated with non-primary purpose trading for profits do not adversely affect their public benefit worth (Charities Act 2006; Charity Commission 2007a). However, the professionalization and marketization of VCOs in an increasingly competitive environment for raising funds (voluntary and statutory) and securing service delivery contracts have blurred their distinctiveness (Saxton 2003; NCVO 2004). Tension is thus emerging in charities between the need to maintain a strong strategic position anchored in their charitable purpose, preserving their core values and traditions, and being able to respond effectively to the transient demands of their external environment (Chew and Osborne 2007).

Despite the developments in and concerns about the social enterprise movement among VCOs, there is a lack of empirical research into understanding the impact of social entrepreneurialization on British charitable organizations, in particular, the effects a new organizational form (the CIC) have on their traditional core values, missions and strategic positioning. This article aims to address this gap by exploring the following three research questions:

1.	What are the factors that have influenced British charitable organizations in establishing formalized social enterprise activities in the form of CICs?
2.	How is the strategic positioning of the charities' social enterprise subsidiaries in the form of CICs similar or different from that of their parent organizations?
3.	What effects do the social enterprise subsidiaries in the form of CICs have on the relationship with their parent charities?

On the basis of the findings, we conclude with a discussion on the emerging themes and their implications for the management of social enterprise subsidiaries with charitable origins for public service provision.

Strategic Positioning And Organizational Adaptation In Vcos

Since the 1960s, the original role of positioning as a tactical advertising and promotion technique for commercial (for-profit) organizations has evolved to become a fundamental element in the corporate/marketing strategy development process (Hooley et al. 2004; Johnson et al. 2006). Strategic positioning in now advocated for VCOs to help them preserve their distinctiveness in an increasingly competitive operating environment (Saxton 1996; Bruce 1998; Frumkin and Kim 2001; Hudson 2002). The literature on positioning theory2 suggests different levels of positioning: positioning at the organizational level and at other (lower) levels. Strategic positioning at the organizational level is distinct from but provides direction for positioning at other levels (e.g. product/brand) in the organization (Webster 1992). An organization's perspective of its strategic position shapes the external audience's perspective of its distinctiveness compared to other providers (Ellson 2004; Chew 2009). Despite the developments in positioning theory, there is limited empirical research in strategic positioning at the organizational level in non-profit and non-market contexts.

Recent studies on strategic positioning at the organizational level3 in VCOs revealed that British charities have begun to position themselves strategically in response to the evolving policy context and an increasingly competitive fundraising environment (e.g. Bruce 1998; Maple 2003; Chew 2005). Strategic positioning in charities was found to be an emergent process, and the resultant strategic position embedded in the charity's mission helped them avoid mission drift. Mission drift for charities means a loss of focus on their charitable purpose due to prioritizing their activities for dominant funders instead of serving their beneficiaries/users (Blackmore 2004; Charity Commission 2007b). Other studies on positioning in charities found that they have adopted either differentiation or focus (niche) positioning as their core positioning strategy (Wray 1994; Saxton 1996; Bruce 1998) depending on their size, nature of services delivered and degree of dependency on statutory funding compared to voluntary income. Charities have also adapted to changes in their external environment by internally restructuring their positioning dimensions, which are the distinctive ways in which they differentiate from other charities/providers of similar services (Porter 1985; Hooley et al. 1998). Restructuring positioning dimensions allows charities to realign their organizational resources and capabilities to support their core positioning strategy (Chew 2009). For instance, developing and providing new/additional specialist services enabled a drug treatment charity to augment its existing portfolio of expertise and to serve emerging needs in the community; establishing stronger relationships with statutory bodies and private sector partners provided strategic alliances for a children's charity on a new housing project for terminally ill children; and building a distinctive network of branches and volunteers helped a sea rescue charity to reinforce its distinctive volunteer ethos.

Hrebiniak and Joyce (1985) suggest that the type of core positioning strategies that organizations adopt and the way they adapt to their external environment depends on the interplay between strategic choices available to them and environmental determinism. Organizational adaption is defined as the various ways in which organizations respond to environmental change, such as through proactive or reactive behaviours (Miles and Snow 1978). It is the result of aligning organizational resources with environmental conditions (Hrebiniak and Joyce 1985), which could be achieved through a carefully conceived strategic position (Mintzberg 1987). Environmental determinism refers to the degree to which organizations are able to respond to external changes. In other words, the reasons an organization adapts to its external environment influence the way it adapts to those influences. This perspective supports the evolutionary theory of organizational change, which argues that organizational change is brought about by the interaction of environmental factors and organismic adaptation (Simpson 1949). However, organizations that become too specialized in their ‘ecological niches’ would find it difficult to adapt to more turbulent environmental changes (Jacobs 1974: 46). Brandsen et al. (2005: 754) observe that VCOs are increasingly ‘dynamic and hybridic’ because many of them have adopted features that combine elements of market, state and ‘traditional’ non-profit organizations. VCOs establish social enterprises as a ‘coping’ strategy, which helps them reconcile the tensions and contradictions that could arise during the process of hybridization (Evers 2005). However, there is currently a lack of theoretical development and empirical studies on the effects new organizational forms, such as the CIC, have on the positioning and adaptation strategies of charitable organizations. This study aims to fill a part of this gap.

Social Enterprise In Vcos

Despite the historical roots of ‘enterprising’ activities among VCOs in the UK since the mid-1800s, there remains no agreed definition of social enterprise (SEC 2003). The UK Department for Trade and Industry's (2002) definition suggests that a social enterprise is a business trading for a social purpose whose surpluses are principally reinvested for that purpose or in the community rather than established to maximize profits for shareholders and owners. However, a diverse range of organizational forms has been grouped under the social enterprise tent in the UK (Lloyd 2003), such as co-operatives, credit unions, development trusts, social firms, community businesses, charities trading subsidiaries and CICs – each having a particular environmental and organizational distinctiveness. The latter group of social enterprise entities is the focus of this present study.

Several drivers have been cited as causes for the emergence of formalized social enterprise activities among VCOs in the UK, for example, as a response by them to provide particular types of public or quasi-public services due to market/state failures (Spear 2004) or a redefinition of the role of these organizations due to the changing relationship between the consumer, intermediate structures of civil society and the State (Defourny 2004). VCOs have been encouraged to be involved in the delivery of public services through various policy initiatives since the 1990s, such as contractual partnerships with central and local governments (HM Treasury 2002; Alcock et al. 2004) and more recently using the social enterprise model as identified in the UK-wide social enterprise strategy (DTI 2002; Office of the Third Sector 2007). Social enterprises have also been hailed as a sustainable means by which VCOs could pursue their social purposes using business practices to effect social change (Alter 2006). Moreover, greater economic uncertainty and increasing competition for voluntary donations and statutory grants/contracts have contributed to a challenging funding environment for charities in the third millennium (NCVO 2004; Wymer et al. 2006). These external drivers have exerted pressures on charities to expand their income streams into trading/commercial activities in order to sustain their core charitable work. This trend is evident from the 46 per cent increase in the amount of earned income generated by British charities from trading (e.g. fees for services, selling of goods) in 2006 compared to a decade ago (NCVO 2006, 2007).

The community interest company (CIC)

A major milestone in the UK-wide governmental social enterprise strategy of 2002 was the creation of the CIC in 2005. The CIC is specially designed for VCOs and other organizations in the UK that wish to undertake formalized social enterprise activities. A CIC can be incorporated as one of three legal forms: a private company limited by shares; a private company limited by guarantee; or a public limited company. As a hybrid organization, a CIC does not have charitable status but it can be a wholly owned subsidiary of a parent charity. Unlike a private sector organization, a CIC has special features (e.g. an ‘asset lock’,4 a limit on dividends payable and the ‘community interest test’5) that ensure it uses its assets and revenue for social purposes only (DTI 2004, 2005). At the same time, a CIC can gift-aid6 any profits that it generates back to the parent charity for favourable tax benefits. An independent CIC regulator registers and monitors the activities of the CICs and administers the community interest test on them. A CIC therefore offers charities an alternative legal form to the conventional private limited company structure for formalized social enterprise activities.

There were over 2,300 organizations registered as CICs in England, Wales and Scotland in December 2008 (Office of the Regulator of CICs 2008), which meant there had been an increase of 92 per cent since 2006 (Third Sector 2007). Ashton (2007: 28) claims that the CIC offers ‘the best way for communities to rediscover their heritage of self-sufficiency’ by unifying commercial opportunities and social purpose. However, there is a lack of empirical evidence on the extent to which charities have established formalized social enterprise subsidiaries in the form of CICs, and the factors that have influenced their decision to do so.

Despite the contributions of the CIC model for VCOs, there could be potential risks and tensions arising from the process of marrying social and commercial goals in the pursuit of a charitable mission/cause. Dees (1998) argues that social enterprise activities of VCOs should be carried out as part of their wider range of mission-centric activities, instead of emphasizing the commercialization (profit generating) aspect of these activities. The impact of heterogeneous (and often opposing) goals and accountability to a multiplicity of stakeholders in social enterprises could result in a clash of operating culture, inequality and clientelism in these organizations (Evers 2005). Corporate culture refers to a set of basic assumptions, which are invented, discovered or developed within an organization; it is the result of shared experiences of and learning by members in the organization during the process of external adaptation and internal integration (Schein 1992). Culture also encompasses the philosophy, mission, core values, history and subcultures of the organization (Melewar and Karaosmanoglu 2006), which could be different in a ‘traditional’ VCO compared to an ‘entrepreneurial’ one, regardless of how innovative the former is (Boschee 2006). The former is concerned primarily with achieving social returns, is mission-driven, prefers collaboration to direct competition, and is generally risk averse in strategic decision making. The latter has a higher tolerance for risk taking in strategic decisions, possesses a greater appreciation of financial margins, and a stronger competitive orientation (Boschee 2006: 371). These differences create tensions in the relationship between key decision makers and other stakeholders in the organization, thus providing rich grounds for a clash of culture during the social entrerpreneurialization process in charities.

Moreover, a heightened expectation by dominant stakeholders (e.g. government or corporate funders) on CICs to operate in a businesslike and enterprising manner to address social problems and/or to sustain public policy objectives could raise performance standards too early in their developmental years. Concerns have also been raised about the risk of institutional isomorphism in social enterprises of VCOs that are overly dependent on dominant external parties for financial and other resources for their survival (Bode et al. 2006; Evers 2008). An over reliance on short-term external funding contradicts the ideals that a social enterprise seeks to achieve – sustainability, entrepreneurship and independence.

Methodology

A case study methodology was employed due to this study's exploratory nature, the type of research questions posed (Yin 2003) and because a lack of empirical research existed on the social enterpreneurialization of charitable organizations. Evidence was gathered from a purposive sample of four charities that had established CICs between 2006 and 2007 in order to answer the three research questions established for this study.

Due to a lack of publicly available datasets on charities with CICs in the UK, a three-step approach was followed to identify four case organizations located in England, Wales and Scotland. A list of ten CICs registered between 2006 and 2007, which were established as subsidiaries of registered charities, was first identified from the register of CICs with the help of the Office of the Regulator of CICs. Secondary data on these ten CICs and their parent charities were then gathered from their organizational reports and promotional material in order to shortlist those cases that were contrasting in terms of their origin, size (annual income and number of paid staff), type of services delivered and funding mix. These selection criteria had enabled a comparison of findings across the case organizational contexts while offering a degree of generalizability in the findings (Eisenhardt 1989). Six shortlisted organizations were invited via email to participate in the research, and four were selected as the final case study organizations.

Table 1 summarizes the organizational profiles of these organizations. Pseudonyms YouthEnterprise, FaithCare, CultureSports and HealthTrading are used to ensure the anonymity of the case study organizations involved in this study.

Table 1 : Profiles of the four case study organizations

	YouthEnterprise ^a	FaithCare ^a	CultureSports ^a	HealthTrading ^a
Charity's core services	Established in 2000 to provide community services and educational schemes disadvantaged young people in northeast England	Established in 1997 to provide (faith-based) community services in south Wales	Established in 2006 by a local city council to deliver and promote cultural and sports activities in south Scotland	Established in 2001 as a fundraising and grant-making charity for a hospital trust in the west midlands of England
Charity's annual income/operating budget and main sources of income	£486,000 (grants, donations, fees for services)	£255,000 (donations, fees for services)	£68 million (grants, contracts, donations)	£3 million (donations)
Number of paid staff in the charity	22	21	2,300	3 (plus 10 fundraising staff contracted from the hospital trust)
Year CIC was established	April 2006	March 2006	March 2007	December 2006
CIC's core services	Manages community services under contracts with the parent charity, social franchising, facilities and vehicles hiring service, community scrap store, online sales services, employment contracts of all charity and CIC staff	Manages the charity's community centre, coffee shop, nursery, facilities hiring service, employment contracts of all charity and CIC staff	Manages and expands the charity's trading and commercial activities under contracts with the parent charity – retail shops, cafes and restaurants, venue hiring service, corporate sponsorships of major events	Manages and expands the charity's trading and commercial sponsorship activities
CIC's annual income in 2007	£385,000	£210,000	£600,000	Not available (income targets still being established at the time of this study)
Note: ^aPseudonyms are used for the names of the case study organizations to ensure anonymity.
Source: Organizational documents and company reports of the case study organizations; interviews with key decision makers in the parent charities and their CICs (November 2007–January 2008).

A case study protocol and multiple data sources were used to provide data triangulation and to enhance the reliability and validity of findings (Denzin 1978; Yin 2003). The case study protocol included guidelines on pre-interview communication with participants, use of pro-formas for the semi-structured interviews, and adherence to interview schedules to ensure consistency in the structure of interviews and data collection (Miles and Huberman 1994). A total of twelve semi-structured interviews were conducted with key organizational decision makers (chairperson/trustee, chief executive, strategy director and manager) in the charities and their CICs. Thematic analysis of data within each case and analytic comparison of data across cases were conducted to unveil similarities and differences in the evidence along key themes (Carson et al. 2001; Neuman 2006). At the same time, relevant organizational documents, such as corporate plans/strategies, annual reports and communications materials were analysed for corroborating or contradictory evidence to enhance the validity of the case study findings (Yin 2003).

Key Findings

This section presents the key findings from the cross-case analysis, which attempt to answer the research questions established for this study.

Factors influencing formalized social enterprise activities in charities

The first research question asks what drivers have influenced charities in embarking on formalized social enterprise activities and adopting the CIC organizational form for these activities. A combination of internal and external factors was found to have influenced the charities in adopting formalized social enterprise activities in the form of the CIC. Table 2 summarizes the social, economic, legal and strategic positioning rationale, which were cited in all the four case organizations.

Table 2 : Factors influencing formalized social enterprise activities in the form of CICs in British charitable organizations

Emerging factors	Internal drivers	External drivers
Social	• Charity's mission – focus on public benefit for beneficiaries and the wider community	• Changing expectations from consumers, funders and state on role of VCOs in community/public service and their accountability to funders/donors
	• Ethos and core values – to remain independent from state and private sector
Economic	• Funding strategy – diversify income sources to include more commercial/trading revenue and other investment income	• Increasing competition for voluntary donations and government grant/contracts
	• Financial/investment strategy – reduce reliance on donations and grants (voluntary or state provided)	• Government policies/funding initiatives to encourage social enterprise in VCOs for public service delivery and community development
	• Sustainable charitable and social enterprise operations
Legal	• Protection for charity trustees and CIC's (social enterprise) Board of Directors – need to have separate entities for charity services and its commercial/trading activities	• Timely introduction of new legal organizational forms (CIC in 2005 and Charitable Incorporated Organization in 2008)• CIC legal features are made for purpose to encourage charities to increase commercial/enterprising activities:
	• Preservation of public/charity assets• Tax avoidance on profits from trading
		– asset lock
		– profits reinvested in the parent charity
		– limits on dividends
		– tax claim from profits donated to the parent charity
Strategic positioning	• Need to restructure to refocus on charitable mission and service delivery	• Combination of external social, economic and legal influences on the charity's strategic planning and positioning (as summarized in the above drivers)
	• Strengthen the charity's strategic position and distinctiveness – by separating its social enterprise activities, which are subservient to the charity's mission and its strategic position
	• Need to adapt to increasing competitive funding environment and to take advantage of new policy and legal developments for social enterprises
Source: Corporate planning and strategy documents of the case study organizations; interviews with key decision makers of the parent charities and their CICs (November–December 2007).

Meshing of social and economic objectives

A common assertion by researchers is that the motivation of VCOs undertaking social enterprise activities stems from two primary forces – social and economic (Vidal 2005; Alter 2006). This present study has found empirical evidence to support this assertion. All the interviewees claimed that their charities had undertaken varying degrees of ‘enterprising’ activities before the CICs were created. For instance, YouthEnterprise was an award winning charity based on its work on alternative education projects for disadvantaged youths in the local communities, while the other three charities had been involved in some non-primary purpose trading activities due to current charity law limiting trading for profits. However, establishing a CIC for their social enterprise efforts epitomized the charity leaders' readiness to embrace formally social enterprise more purposefully to benefit their charities' missions in an economically sustainable way:

Our vision has been to run our activities sustainably so that the coffee shop pays for itself, the nursery pays for itself and hiring of the church centre pays for itself. The separation of the charity's activities and its social enterprise trading activities in the CIC would enable the church trust to continue providing its services for the good of the community in a sustainable way.(Charity Chairperson – FaithCare)

Timely introduction

The CIC organizational model has provided a timely and alternative formal legal structure at the time of this research for charities to organize their social enterprise activities in specified ways. The CIC's ‘made for purpose’ features, such as its asset lock and the limits on dividends for investors, have enabled the charities to expand their revenue streams into non-charitable and commercial activities, while ensuring that these activities benefited the charitable mission/purpose directly:

The opportunity for us to restructure came because the CIC structure was there. It was made for purpose and seems to fit with what we wanted to do, which was to trade legally and tax efficiently, but at the same time make it entirely transparent that our commercial activities are for the benefit of the charity and not for an individual.(Charity Chief Executive – HealthTrading)

Strengthening strategic position

Establishing a formalized social enterprise entity does not imply that the charities were not previously creative or innovative. It suggests that the charity's trustees have made a conscious strategic decision to adapt to an increasingly competitive and challenging external fundraising environment, while taking advantage of a timely public policy development for social enterprise among VCOs, as supported by a case study interviewee below:

We had looked at other legal options. We could have used a traditional private trading subsidiary company rather than a CIC. However, from a strategic point of view, we needed to demonstrate to the public the purpose of setting up this CIC, which supports the charitable objectives. It was about investing in community-based activities in more enterprising ways that had at its heart benefits for the public. It was very much about establishing and reinforcing public confidence in the cultural and sports activities of the council, which are now delivered by the charity.(Charity Director – CultureSports)

Moreover, all interviewees felt that the public benefit test for their charity and the community test for the CIC's social enterprise work were crucial to strengthen the parent charity's reputation and strategic position: ‘For a small charitable organization like ours, we rely on our growing reputation of providing innovative social enterprise solutions in an enterprising way. This helps us to position ourselves as making a difference to young people in the community’ (CIC Chief Executive – YouthEnterprise).

Strategic positioning and the influence of formalized social enterprise activities

The second research question explores the strategic positioning of charities and their CICs that have embarked on formalized social enterprise activities. The parent charities have distinctive strategic positions, which shared some common features. Table 3 summarizes the strategic positioning components of the parent charities.

Table 3 : Strategic positioning components of the four case study parent charities

Positioning components	YouthEnterprise	FaithCare	CultureSports	HealthTrading
What is the core positioning strategy of the charity?	Focus Positioning (providing innovative and sustainable services to a particular group of users/clients in a particular geographic location in England)	Focus Positioning (providing faith-based services in a particular geographic location in a sustainable way to a local community in Wales)	Differentiation Positioning (providing a range of cultural, leisure and sporting activities and services that are valued by the community in and visitors to Scotland)	Differentiation Positioning (raising funds and providing grants for a large city children's hospital in England, which is its sole beneficiary)
Who are the key target audiences for the charity's positioning?	Primary audience	Primary audience	Primary audience	Primary audience
	• young and disadvantaged persons aged 14–25 years in north-east England	• users of charity services, including its church goers in the local community	• wide range of users in cultural and sporting services (community, children and their parents, schools, visitors to Scotland)	• a city children's hospital trust, which is a major beneficiary• children patients and their families in the hospital• local community groups
			• local city council (major beneficiary of the charity)
	Secondary audience	Secondary audience	Secondary audience	Secondary audience
	• local statutory funders• voluntary donors• local schools	• local statutory and other funders of its projects• voluntary donors	• voluntary donors• partner organizations for cultural and sporting activities	• voluntary donors (individuals and companies) of various hospital projects
				• partner organizations in medical/healthcare (NHS, a research university, local statutory agencies)
What are the key positioning dimensions that support the core positioning strategy of the charity (its key strengths and distinctiveness compared to other charities/providers of similar services)?	• Specialize in unique services to a targeted primary audience• High quality standards of service delivery to users• Innovative and award winning charity for its environmental and enterprising programmes• Strong working partnership with local authorities, businesses and schools in the local community• Focused mission	• Unique nature of its faith-based charity model for community services• High quality of services to users/beneficiaries, grant applicants• Good relationships with local community/voluntary groups and private sector organizations• Focused mission	• Largest charity that is established by a city council (size, budget and staffing)• Wide range of cultural and sporting services/activities in Scotland and north of England• Unique operating model using networks of community-based teams and organizations to promote its range of services• High quality standards of service delivery to users• Good track record of capabilities and capacity to manage effectively, co-ordinate and deliver a high critical mass of services under one roof.	• Reputation of its main beneficiary, i.e. the city hospital, which is a leading (expertise) provider in paediatric care in the UK• Strong working relationship with statutory, health, social and other voluntary organizations
Source: Corporate planning and strategy documents of the case study organizations; interviews with key decision makers in the parent charities (November 2007–January 2008).

This present study has found evidence to support earlier conclusions (e.g. Frumkin and Kim 2001; Chew and Osborne 2009) that a charity's mission provides the central direction for the organization's core positioning strategy, identifies its primary target audience (users/beneficiaries) and guides the development of its positioning dimensions. Moreover, the strategic positions of the parent charities were anchored in their charitable missions, helping them avoid mission drift as they embarked on increasing levels of commercially orientated activities:

We now have a mechanism in place where we won't have mission drift in the charity or the CIC. One of the reasons why we have adopted the CIC model was because of the legal linkage with the charity and its mission. The charity's mission and what it does is unique. Any assets and surpluses in the CIC go back to the charity, as its parent organization.(Charity Chairperson – YouthEnterprise)

However, this study has uncovered differences in the strategic positioning among the parent charities and between the charities and their CICs. For instance, smaller parent charities (e.g. YouthEnterprise and FaithCare) adopted focus or niche positioning. They were very focused on serving a particular target audience/main beneficiary in a particular geographic area. At the same time, they were able to distinguish themselves by their quality of service, innovative projects/services and reputation in their locale. Differentiation positioning was the dominant core positioning strategy of larger parent charities (e.g. CultureSports and HealthTrading). They had a wider range of key target audiences/beneficiaries compared to charities with focus positioning strategies. Their positioning dimensions included their leadership expertise, wide range of services offered and unique relationship with public sector agencies. Despite these differences, the individual parent charity's core positioning strategy had remained relatively unchanged after the creation of the CIC.

In contrast to their parent charities, the CICs tended to have weakly defined strategic positions and unspecified positioning dimensions as shown in Table 4. Two plausible reasons are proposed to explain this situation. First, the inherent resource dependency of the CICs on their parent charities during the early years of their development had resulted in a symbiotic relationship between the two entities. Second, the CICs in this study were set up only during the past two years. Their strategic positions would require time to be affirmed.

Table 4 : Strategic positioning components of the CICs in the case study organizations

Positioning Components	CIC of YouthService	CIC of FaithCare	CIC of CultureSports	CIC of HealthTrading
What are the core positioning strategy and main responsibilities of the CIC?	Same as the parent charity	Same as the parent charity	Focus Positioning	Undefined
	• wholly owned trading subsidiary to deliver the services of the charity, recruit and manage its paid management and operational staff and to expand the commercial activities on behalf of the charity	• wholly owned subsidiary to deliver and manage all aspects of the charity's social enterprise activities, managing the charity's community centre, a coffee shop, a nursery, the hire of facilities and the employment contracts of its paid management and operational staff on behalf of the charity	• wholly owned subsidiary to manage the charity's trading activities, such as its retail shops, venue hires, cafes and restaurants, and the corporate sponsorships of major events	• wholly owned trading subsidiary to facilitate the development of its commercial activities for the benefit of both the charity and the hospital trust (the charity's main beneficiary)
Who are the key target audiences for the CIC's positioning?	Primary audience	Primary audience	Primary audience	Primary audience
	• parent charity	• parent charity	• parent charity	• parent charity
	• young disadvantaged people aged 14–25	• users of services	• local city council (major beneficiary of the charity)	• hospital trust (main beneficiary of the charity)
	Secondary audience	Secondary audience	Secondary audience	Secondary audience
	• local government agencies• local businesses and donors	• local council and other funders of its projects• voluntary donors	• partner organizations for cultural and sporting activities; businesses	• partner organizations in medical/healthcare• businesses/donors
Source: Corporate planning and strategy documents of the case study organizations; interviews with key decision makers in the CICs (November 2007–January 2008).

Interestingly, there was a mixed response from interviewees about the need for their CICs to develop unique strategic positions. One-third of interviewees felt that establishing the identity and distinctive competences of their CIC was important for it to enhance its revenue-generating role. This finding reflects the corporate identity theory's7 depiction of organizational identity as those characteristics of an organization that its members believe are ‘central, distinctive and enduring’ (Pratt and Foreman 2000: 20). Moreover, organizations can possess multiple identities when individuals in the organization have different conceptualizations of what is fundamental, unique and enduring about their organization (Balmer and Greyser 2002). Whilst multiple conceptualizations of an organization's identity may not be antithetic or universally held by organizational members (e.g. retained by specific groups), they could help an organization adapt or respond to the demands of external audiences/stakeholders in complex organizational environments (Albert and Whetten 1985). The complex situation is exemplified in this study's findings. Two-thirds of interviewees believed that their CIC's strategic position should be subservient to that of the parent charity. They suggested that underplaying the legal relationship between the charity and its CIC in marketing communications to external audiences was crucial to ensuring that the CIC did not develop a more distinctive position than its parent charity. However, all interviewees agreed that the parent charities should continue to develop formalized social enterprise activities as a means to augment their resource mix in an increasingly competitive fund raising environment.

Moreover, a tripartite relationship had emerged between the parent charity, its CIC and the main beneficiary in two of the case studies where the charities were set up by public sector organizations. For instance, a local city council and a public hospital established the charities in CultureSports and HealthTrading respectively. In both these cases the main beneficiary and key stakeholder was a public sector entity who retained ownership of the charity's physical assets despite its independent status. While this tripartite relationship may not always involve a public sector entity, we found that such a relationship had compounded the difficulty faced by the CICs in establishing their distinctive positions as independent entities. This phenomenon is illustrated in the following quotation:

Because the CIC was set up as a trading arm of the charity it is important that it doesn't develop a unique external identity in terms of donors' perception. I think it is important that people perceive that when they are supporting the activities of the CIC, which is supporting the charity, that they are in actual fact supporting the hospital, which is our major beneficiary. They don't need to know the internal relationship between the CIC, the charity and the hospital. People give to the charity because they want to give to the hospital and what it is doing.(CIC Director – HealthTrading)

The relationship between charitable mission and formalized social enterprise activities

The case studies have uncovered a distinctive synergistic relationship between the parent charities' missions and that of their commercially orientated activities. The roles and key activities of the parent charities and their CICs were distinctly different, yet one depended on the other for their existence and survival. Alter (2006: 209) suggests that the type of social enterprise set up by non-profit organizations is determined by the mission orientation along a pure social–pure profit motive continuum. On the pure-social motive extreme of the continuum, the ‘commercial’ activities/programmes of a mission-centric social enterprise are directed by and primarily aimed at sustaining the non-profit purpose/goals of its parent organization. On the other extreme, a mission unrelated social enterprise exists for a purely profit motive, for example, as part of the organization's funding strategy (Alter 2006: 209). The unique circumstances in which the four CICs in this present study were created by their parent charities demanded a mission related orientation in the charities' social enterprise activities. This hybrid mission orientation, which is positioned between the two extremes in Alter's (2006) continuum, suggests that the CICs had a means–end mission, that is, to provide a vehicle to facilitate new ways of generating income to sustain their parent charities' mission/cause. The CICs were therefore an integral part of their parent charities' strategic development, rather than being divorced from it. The relationship between the parent charities and their CICs was therefore more complex and extends beyond resource dependency (Pfeffer and Salancik 1978).

Being mission related had also allowed the CICs to expand their range of activities beyond those legacy activities that were delegated to them by their parent charities. The CICs and their parent charities were thus mutually dependent on each other during the CICs' early development years. Physical and human resources were transferred in varying degrees from the case study charities to their CICs under contractual agreements in return for increased revenue (especially from commercial/trading activities) from the CICs. In addition, some of the case study charities (e.g. YouthEnterprise and FaithCare) had to provide financial grants to their CICs to meet the latter's operational needs during their early years of development. This inter-organizational relationship suggests that the parent charities could derive benefits from the ‘best of both worlds’– public recognition from their charitable status and economic gains from their social enterprise activities. This symbiotic condition is well summed up by one case study interviewee:

We set up commercial projects that are linked to the parent charity's services, for example, the charity coffee bar, educational programmes and scrap metal stores. We are looking strategically at how the different services and projects in the CIC can have synergies with the charity's mission. This is quite a difficult thing to do, but if we can manage this relationship it will be very beneficial for both the charity and the CIC.(CIC Chief Executive – YouthEnterprise)

It was highlighted earlier that there was evidence of a more complex tripartite relationship in two of the case study organizations between the charity, its CIC and the main beneficiary. This tripartite relationship was perceived to play a key role in ensuring that the public service role of the charity and its CIC in each of the case organization would be preserved:

Establishing a CIC allows us to generate income from commercial activities, which feeds back into the charity for our delivery of public services. The aspiration in the long term is to reduce the level of grants from the council to the charity, while continuing to provide a range of cultural and sporting activities for the benefit of the wider community.(Charity Director – CultureSports)

A notable tension that had emerged was the clash of operating culture between the more social-orientated charity and a business/market-orientated CIC. We have suggested earlier that the values and beliefs embedded in organizations may not be universally held by all members (Pratt and Foreman 2000). The multiple perspectives held by members about their charities and CICs could create intraorganizational conflicts, impede strategic decision making and expend valuable resources unnecessarily in negotiating among members holding varying identities of the organization (Golden-Biddle and Rao 1997). For instance, there was a mixed reaction among the interviewees about the extent to which the emerging tension could have a negative impact on the core values of the parent charity. While all the interviewees agreed that this tension was expected, half of them felt that there would be an inevitable erosion of the charity's voluntary ethos and charitable values as it embarked on formal social enterprise activities. At the same time, a majority of interviewees believed that the charity's core values should be maintained as a distinguishing feature of both the parent charity and its CIC:

There is potential for a clash of culture between the charity side of our organization and the business side. Because of the way the CIC is structured you often get the business side becoming the stronger of the two – you need the board of trustees to ensure that there is a right balance between the charitable side and the business side of our operations. But, the charitable side of the organization should not be compromised as it defines who we are.(CIC Manager – YouthEnterprise)

Implications And Discussion

This section identifies four emerging themes from the findings and discusses their implications for the strategic positioning, management and development of social enterprise subsidiaries with charitable origins.

First, this study has demonstrated that charities have adopted the CIC organizational form as a conscious and planned approach to support their social enterprise strategy in varying degrees and to adapt to an increasingly competitive fundraising environment. Not all charities in the UK have taken the decision to establish CICs as their social enterprise subsidiaries. The charities in this study have weighed the benefits (e.g. increase in trading/non-charitable activities, growth in earned income, safeguards to the charity assets and limits on profit distribution to investors/shareholders) against the potential costs (e.g. clash of operating cultures and mission drift) of this new organizational form on their sustainability in the longer term. At the same time, the introduction of the CIC organizational form had provided these charities with a timely opportunity to strengthen/reposition their distinctiveness against other competing organizations.

Menard (2006) argues that the main reasons for VCOs developing hybrid organization forms are to invest in mutual dependence for resources and to adapt to environmental uncertainty. This study has found evidence to support this assertion. However, it has also uncovered a complex combination of social, economic, legal and strategic positioning goals in CICs with charitable origins, which requires beyond businesslike approaches to govern and manage (Kirkert 2001). This means that the social enterprise CIC of a parent charity, as aptly interpreted by one case study interviewee, is not just an economic device ‘to exploit the charity's assets and resources for commercial benefits but to enhance and preserve them’. The positioning and management approaches used by CICs would have to take into account not only administrative and commercial issues but also their impact on the organizations' social values, cultures and political domains.

Second, the development of distinctive strategic positions in social enterprise subsidiaries of charitable organizations poses particular challenges. Mission-based positioning, where the charity's strategic position is anchored in its mission, was evident in the parent charities in this study. This form of strategic positioning had been found in other charitable organizations that were involved in public service delivery in previous studies (e.g. Frumkin and Kim 2001; Chew 2006; Chew 2009). The parent charities in this study tended to be cautious in their decision making and relied on a careful evaluation of potential organizational changes that could divert them from their charitable missions. Hence, their core strategic positions and key target beneficiaries have remained relatively unchanged despite establishing CICs as social enterprise subsidiaries.

In contrast, the strategic positions of the CICs were found to be weakly defined. The web of symbiotic and tripartite relationships between the charities and their social enterprise activities had made the process of establishing the distinctiveness of the CICs less explicit. The CICs in this study were heavily reliant on their parent charities for financial, human and other resources during their developmental years. This condition reflected the transient nature of the organizational developmental process of the CICs where their missions, core values and performance outcomes were still evolving and have yet to be crystallized. However, this resource dependency could hamper the CICs' strategic positioning developmental efforts. For instance, the interviewees in FaithCare and HealthTrading have stressed that their CICs' distinctiveness should be subservient to those of the parent charities, and communicating the CICs' strategic positions to external audiences should be curtailed.

Charity leaders therefore face a dilemma. On the one hand, a potential risk arising from this situation is mission drift in the CICs during their developmental years. On the other hand, the bespoke legal features of the CICs and their subservience to the parent charities' missions could help them avoid mission drift during the formative years of their social enterprise endeavours. The CICs would thus need to develop strategic positions that not only recognize their independence but also reflect the interdependency between them and their parent charities.

Third, there could be a risk of institutional isomorphism in CICs that have been established by the parent charities to expand their social enterprise activities. Institutional isomorphism theory argues that the greater the dependence of an organization for resources and legitimacy on another entity, the greater the risk that the dependent organization will change to become more similar to the resource-rich one (DiMaggio and Powell 1983). Laville and Nyssens (2004) suggest that VCOs adapt to their competitive operating environment by establishing hybrid organizational forms, such as social enterprises subsidiaries. This hybridization process, in theory, would enable the CICs of charitable organizations to resist institutional isomorphism because they possess a mixture of ownership (private, public and voluntary), multiple goals, stakeholders and sources of income and non-reliance on state or voluntary income.

While future longitudinal research would be useful to examine fully whether or not CICs with charitable origins demonstrate isomorphic tendencies, we propose that the risk of institutional isomorphism in CICs with charitable origins could be remote in practice. The findings from this study showed that CICs were established by their parent charities to provide a greater diversity of resources and capabilities (financial, human and knowledge-based) to complement and supplement the charities' portfolio of competencies. The mutual dependency between the CICs and their parent charities acted as an important buffer for the former to resist reverting to the latter. Moreover, the modus operandi of the CICs, which combined social and business-orientated approaches to achieve their organizational purpose, could prevent them from morphing into the likes of ‘pure’ private sector enterprises. Yet this study has found that the CICs lacked distinctive strategic positions, which had made it difficult for them to differentiate effectively from other social enterprises that provide similar services. Therefore, establishing strong strategic positions that are built on internal capabilities and competences could play a crucial role in helping the CICs avoid the tendency to model themselves on other social enterprises or private sector firms that they perceive to be successful in the long term.

Fourth, we have highlighted earlier the potential for a clash of cultures in the hybridization process of social enterprises with charitable origins. This study has surfaced an emerging tension arising from the unique symbiotic relationship between the parent charities and their CICs. This tension was exacerbated by the hybrid operating cultures of the CICs, which were partly based on the legacy values and practices of their parent charities and partly based on their newly established economic priorities. Moving away from a ‘charity culture’ to become a ‘business’ would require the charity trustees to reduce their firm custodian hold on the CIC by allowing their managers greater autonomy in building a successful enterprise entity in its own right. CIC managers would also need to be aware of the tensions that could arise in the process of establishing the identities of their organizations that are distinct from those of the parent charities. These tensions, as argued by Gioia et al. (2000), are inevitable due to the plurality of an organization's identity held by members and the fluid nature of members' interpretation of what is fundamental, distinctive and enduring about the organization. A strategic concern of CIC managers is to manage and balance a ‘flexible’ identity of the organization as it adapts to environmental changes. While this study has not investigated the governance approaches employed by CICs and their parent charities during the social entrepreneurialization process, future research could provide in-depth understanding of how the governance structures and mechanisms in these organizations are developed and have changed/restructured over time.

Conclusion

This article started on the premise that VCOs in the UK are facing growing pressures from an increasingly competitive fund raising environment to diversify their income streams in order to sustain their social-centric missions. Governmental initiatives since 2002 have been credited for promoting the benefits of the social enterprise model and the CIC organizational form to VCOs as an alternative means of delivering public services in a sustainable way. Therefore, a major contribution provided by this study is the initial empirical evidence on the motivations of UK charities in establishing CICs as their social enterprise subsidiaries and the challenges they faced during this process. It has uncovered a combination of motives of charities in establishing CICs as their social enterprise subsidiaries. Charities have made a conscious strategic choice to establish CICs after weighing the benefits and potential risks of that decision on their sustainability in the longer term. Their decision had little to do with fulfilling the Government's policy agenda of increasing public service delivery through social enterprises. Instead, charity leaders were opportunistic in taking advantage of a timely public policy development to advance their own organizational mission/goals in an increasingly competitive fundraising environment.

The article has further examined the relationship between the parent charities and their CICs, and the effects of this on their strategic positioning. The parent charities possessed defined strategic positions that were anchored in their charitable missions, and which had helped them avoid mission drift as they pursued more trading/commercial activities. However, this inherent strength has constrained the CICs in establishing distinctive identities of their own. Parent charities also tended to emphasize control, process and policies in their operating cultures, which were in contrast to the more enterprising culture of the CICs. This has led to emerging tensions in the relationship between the decision makers and organizational members in the charities and their social enterprise subsidiaries. At the theoretical level, these findings emphasize the need to develop positioning strategies and governance models that can accommodate the symbiotic (and sometimes tripartite) relationships that charities develop with their CIC subsidiaries and main beneficiaries over time, and explain how charities could use these models to respond to their changing environments. At the practice level, charity and CIC managers would need to be aware of the potential risks, tensions and challenges that could arise when the CIC organizational form is adopted for their social enterprise activities.

A lack of empirical studies on the new organizational forms adopted by VCOs to facilitate their social enterprise endeavours has necessitated the use of an exploratory and comparative case study methodology for this study. Future research could test the key themes arising from this initial study on a wider sample of VCOs that have adopted the CIC organizational form in order to enhance the validity of the initial findings. It would be interesting to conduct a quantitative mapping exercise on charities that have established formalized social enterprise organizational forms and make a comparison with those that have not done so, in order to develop a typology of positioning strategies and their relationship with organizational adaptation. Additionally, a comparison between the strategic positioning of more established (older) CICs of charities and that of younger ones could provide clues to possible isomorphic pressures faced by them. A replication study could also be conducted in a few years' time on the same case study organizations that have participated in this present study. This longitudinal research would allow for both an examination of how the hybrid organizational features of CICs have changed and a comparison of the strategic positioning between the parent charities and their social enterprise subsidiaries over time.

Acknowledgement

The author thanks the two anonymous reviewers for their very constructive comments and useful suggestions for improvement. Comments from David Stiles and Ken Peattie on earlier versions of this article are greatly appreciated.

Notes

Charities' trading activities are categorized as ‘primary purpose trading’ and ‘non-primary purpose trading’ under current UK charity law. The former category is allowed if the activities contribute directly to the charity's purpose/objects, while the latter activities are carried out in order to raise additional funds (e.g. from the sale of goods and services that are unrelated to the charity's purpose) for the charity rather than directly furthering the charity's purpose. Profits earned from non-primary purpose trading of charities are liable for corporate tax (or income tax for charitable trusts) (Charity Commission 2007a).

See Chew (2009) for a fuller discussion on alternative theoretical perspectives of strategic positioning and its applications/implications for VCOs and the non-profit context.

This study adopts Chew's (2005: 4) conceptualization of strategic positioning at the organizational level in VCOs as ‘a managerial decision process of developing a positioning strategy that aims to effectively differentiate the organization from other providers of similar services’.

The ‘asset lock’ of a CIC means that if the organization ceases to be a CIC, the remaining assets will be transferred in a way that ensures that they continue to be retained for community benefit or charitable purposes rather than distributed to members/shareholders or investors. A CIC can only cease operations by dissolution or by conversion to a charity (DTI 2005).

The ‘community interest test’ for CICs is administered by the CIC Regulator who has legal responsibility to confirm that the CIC will pursue purposes beneficial to the community instead of a restricted group of beneficiaries. The test is whether a reasonable person could consider the CIC's activities to benefit the community (DTI 2005).

A CIC can gift-aid or donate the profits or surplus from its operating income to the parent charity; it can then claim back tax (rate at 25 per cent from April 2008) on the donated income from the UK Treasury.

This definition of corporate identity follows Pratt and Foreman's (2000) conceptualization, which has its roots in organization behaviour and organizational management theories. It recognizes the influence of an individual member on the organization's identity, but argues that organizational identity is a shared construct and is therefore not based on an individual's conceptualization of the organization that s/he retains privately. Also, the definition used for the purpose of this article is not based on the marketing/consumer perspective, which involves corporate visual identity systems to represent and communicate the organization's values, mission and position to customers and other external parties, and to establish relationships with them. See, for example, Arnett et al. (2003) and Melewar and Karaosmanoglu (2006) for a fuller review on the dimensions of this aspect of corporate identity.