Editorial

This Public Money & Management (PMM) theme deals with hybrid organizations from a specific perspective. We address the following question:

How are hybrid organizations working in or for the public sector measuring and managing performance and how can we understand the particularities of performance management in those entities?

While there is a substantial body of academic literature dealing with hybrids and another stream of literature about performance measurement and management, research on performance measurement and management in hybrids is limited. Our PMM theme presents a set of research papers, new development and debate articles to shed light on these topics. In this editorial, we provide a short overview of the rich and diversified academic debate on hybrids; we connect the broad theme of performance management with the special case of hybrids; and we present a future research agenda. Our aim is to link the research traditions of hybrid organizations and performance management more closely.

The problem of hybridity through different theoretical lenses

‘Hybridity’ is a term which is widely used in different contexts, from biology to the automobile industry to the social sciences. Broadly, it implies ‘impure’ or a mix of two (or more) forms of organizing concepts, modes or perspectives. Hybrid organizations have even been described as ‘institutional weirdos’ (see Ménard, 2004). In our context, the term is quite ambiguous and sometimes blurred (Thomasson, 2009). In the field of public administration and management, hybridity is often understood in the sense of organizational hybridity, for example as a specific type of organization composed of structural elements deriving from other types of organizations.

A well-known typology of hybrids differentiates among different societal sectors (Seibel, 2015). A hybrid can be allocated within the space of a triangle enclosed by the public sector, the private for-profit sector and the third sector covering various activities and institutions of civic society. Within this triangle are several hybrids:

• Public/private for-profit hybrids like state-owned enterprises (SOEs).

• Private for-profit/third sector hybrids like social enterprises or co-operatives.

• Public/third-sector hybrids like welfare associations or other organizations sponsored by government.

In the public policy context, researchers have looked at the micro-level of single organizations, as well as institutional arrangements at the meso-level of policy sectors or subsectors—for instance in social services. At this level, there are often institutional settings composed of numerous public, private for-profit and third sector organizations bundled in sector-covering networks or associations like the Red Cross or Caritas. Interestingly, such meso-level ensembles of service providers have moved in the past 20 years from a corporatist structure to a quasi-market regime using market-type contracting and various concepts of performance measurement (Grohs, 2014). Finally, there are macro-level hybrids in which both public and private actors contribute to policy outcomes at the societal level.

Consider the policy field of R&D in different countries, which may involve government funding, activities and policies, as well as high-tech business firms, universities and their spin-off companies. To date, these macro-level hybrid arrangements have not been included in hybridity research (Johanson and Vakkuri, 2017).

Besides sector-based differentiation, various researchers have looked at the different features or dimensions of hybridity. Denis et al. (2015) proposed, for instance, four dimensions of hybridity: structures, institutional dynamics, practices, and identities. Others have differentiated between hybrid organizations and hybrid modes or mechanisms (for example Seibel, 2015), as well as between governance modes, as for example, dimensions of accountability (Grossi and Thomasson, 2015).

We think that certain institutional features of a ‘hybrid phenomenon’ are the primary denominator—for instance, a specific rationality and motivation of actors that shape structures and activities of their institutional environment. In a similar vein, a growing number of researchers are using the perspective of institutional logics to analyse and explain hybridity—for example Thornton et al. (2012); Meyer et al. (2014); Mair et al. (2015); Argento et al. (2016); Skelcher and Smith (2017, p. 425 in this issue); and Høgvold Olsen et al. (2017, p. 393 in this issue). These ‘logics’ can coexist in parallel; they can be blended or remain in conflict with each other (see Mair et al., 2015, p. 730 for a typology of hybrids along such logical patterns). Consequently, hybridity is a situation in an organization with diverging institutional logics at play at both the organizational and individual levels (Skelcher and Smith, 2015, p. 434). These logics result in different organizational structures (for example in terms of board composition) and in varying governance modes (for example hierarchy or market mechanisms).

The disadvantage of the somewhat ubiquitous concept of hybridity is that almost all organizations and individuals tend to show some degree of hybridity, i.e. mixes of different logics (Brandsen and Karré, 2011). To adapt the title of Bozeman’s (1987) seminal work, we could claim that:

All organizations are hybrid.

Even in ‘pure’, private for-profit organizations there can be elements of diverging logics, for instance through corporate social responsibility. Also, in core government bodies, there are elements of a market orientation (for example using internal markets for support services); this is particularly the case since the introduction of new public management (NPM) reforms. Thus, it may be plausible to restrict the use of the concept of hybridity to cases of substantially differing institutional logics.

Hybrid organizations, as the concept is referred to in this PMM theme, are organizations that are expected to meet financial and non-financial goals and to satisfy the needs of both internal and external stakeholders (i.e. direct ‘customers’, the government and the broader public) (Thomasson, 2009; Alexius and Cisneros-Örnberg, 2015). The tensions and confusion over these different goals imposes a cognitive burden on boards and managers that requires reconciliation (Argento et al., 2016). The complications can be seen in the academic literature where public/private for-profit hybrids have very different assessments with regard to viability and stability compared with pure public or private organizations. Some authors value them as innovative solutions and flexible adjustments to changing contextual patterns (for example Christensen and Laegreid, 2011, p. 420), while others consider them unstable and less efficient (for example Da Cruz and Marques, 2012; Vining and Weimer, 2016, p. 162).

There are two major subject areas of hybrid organizations in hybridity research:

• Public/private for-profit hybrids with SOEs and public–private partnerships (PPPs) as examples.

• Private for-profit/third sector hybrids like social enterprises.

Research in the first area is primarily based on public administration and public finance concepts, while in the second area it is predominantly the subject of management and organization theory and of social policy. The focus of this PMM theme is the first area; and we consider an organization as hybrid if meets at least one of the following criteria (Perry and Rainey, 1988; Van Helden and Reichard, 2016a):

• Ownership: A mixed ownership structure (both government and private shareholders).

• Goals: Hybrids generally have a multidimensional goal structure, including, for example, policy implementation, public interest or profit.

• Funding: Hybrids usually rely primarily on sales revenues, often based on regulated tariffs, but sometimes they receive additional funding from government (for example public transport subsidies). In the case of welfare associations and charities, donations and membership fees are an additional source of income.

• Control: External control and oversight largely depend on the legal status of the entity. SOEs usually have the legal form of a joint-stock company or a limited company. Oversight is then exercised by a supervisory board consisting of the owners’ representatives (and sometimes also of workers’ representatives). To a lesser extent, users try to co-determine the policies of a hybrid organization.

Thus, an organization may be hybrid with regard to one criterion (say ownership), but it can be purely public with regard to the other criteria.

Scholars have been researching hybridity by applying a broad and diverse set of theoretical approaches to understanding and explaining the observed phenomena. One major theoretical stream is represented by variants of institutional theory; apart from institutional logics, historical institutionalism, for example, can be helpful for understanding long-term changes in institutional patterns—see Tolstrup Christensen (2017, p. 401 in this issue). Property rights theory has also been used to explain hybrids: hybrids have been shown to have fractionalized property rights, which may result in inefficiency and in greater risks of failure (Vining and Weimer, 2016).

Finally, the concept of hybridity has been studied from the perspective of institutional economics—as a way of distinguishing between markets and hierarchies, for example about different forms of hybrid contracting (Williamson, 1991).

Performance of hybrid organizations

Understanding organizational performance is difficult. Multiple ambiguities are involved, for instance measuring the achievement of diverging goals and targets (Vakkuri, 2010; Van Helden and Reichard, 2016b). Organizations establish a performance management system (PMS) where performance is regularly measured and the results are used for various purposes, ranging from internal planning, decision-making and control to external accountability issues. Performance information (PI) covers data on inputs, processes, outputs and outcomes. It focuses on past and future performance events and therefore it comprises performance targets, as well as performance indicators. A well-designed PMS will give a good picture of the financial performance of an organization, as well providing information about non-financial aspects using a variety of tools (performance appraisals, benchmarking, evaluation techniques, balanced scorecard tools etc.).

To get a meaningful picture of a hybrid’s performance is a more complicated exercise than measuring the performance of pure public or pure private entities. Apart from the usual measurement of financial health (economic or financial performance), the achievement of the organization’s mission has also to be assessed (for example service delivery to the respective target groups or beneficiaries, achievement of certain organizational concerns like fair trade or sustainable growth). Because of plural stakeholder structures, we usually can expect a more complex and multidimensional demand for PI in a hybrid organization.

Hybrids—for example mixed enterprises— tend to have stronger efficiency incentives than purely public sector organizations. However, they can have conflicting goals (profit versus public interest), which can make them less efficient than purely private sector organizations (see the quotation from Adam Smith by Vining and Weimer, 2017, on p. 387 of this issue). Not surprisingly, the empirical picture of the relative efficiency of public/private for-profit hybrids like SOEs is very mixed and controversial. While some studies have been critical, others have found that, in a competitive setting and under effective regulation, SOEs are generally just as efficient as private for-profit enterprises (Mühlenkamp, 2013). Recent studies of social enterprises have produced a similar result (Musacchio et al., 2015).

As a result of the ‘performance management wave’ which flooded the broader public sector with NPM-reforms in the 1990s, we have observed an increase of performance measurement activities across hybrids. First, the accounting and financial reporting concepts in hybrid organizations were further developed and refined, for example by improving management accounting or by incorporating international accounting standards. Second, the mostly input-oriented financial approaches were supplemented by more output- and outcome-focused non-financial performance measures. In some countries, like the UK, ‘avalanches’ of performance indicators and audits were poured into hybrids (Kurunmäki and Miller, 2006, p. 97). Such performance measures became important not only for managing single public and hybrid entities, but also to allow central government to monitor decentralized activities (‘joined-up performance measurement’).

PI is widely used in hybrid organizations. The demand for PI depends on the goals, interests and institutional logics incorporated in the particular hybrid and in its stakeholders— see Høgvold Olsen et al. (2017). While some stakeholders use PI in a functional way, as in other types of organizations there are also variants of a more symbolic or ‘political’ use of PI (Raudla, 2012; see also Agostino and Arnaboldi, 2017, on p. 409 of this issue). Politicians, for instance on SOE boards, are often quite reluctant to use such data (except perhaps opposition politicians using PI for blame-shifting), because they fear that such data might help their political enemies. Furthermore, hybrids are often used for patronage purposes and to stabilize political power. In these cases, a PMS will most probably not be used for providing detailed and realistic data about the ‘real’ performance.

Following Van Helden and Reichard’s (2016a) framework for analysing public and private performance management practices, we assume that a PMS of a (public/private for-profit) hybrid will typically have the following features:

• The PMS design will be explicitly multidimensional because of the large variety of goals.

• The link between PMS and organizational strategies will be quite diffuse because both concepts will only be loosely coupled.

• Clear and measurable targets will be used to a moderate extent because of measurement challenges inherent in non-financial targets (see Van Dooren on p. 390 of this issue).

• PI will be used as basis for monetary rewarding of staff only to a modest extent because of measurement problems and cultural differences.

• Use of PI in hybrids will generally be medium-intensive; PI data will be used more for accounting to external stakeholders than for internal steering.

To test these assumptions, there is a need for empirical study of hybrid organizations. Such studies are rare. Our ambition with this PMM theme, therefore, is to contribute to the scientific knowledge about performance measurement and management in relation to hybrid organizations.

Overview of the theme

Our debate article by Vining and Weimer presents a skeptical view on public/private for-profit hybrids, particularly with regard to goal conflicts and to the difficulties of measuring performance. The authors refer to Adam Smith, who was similarly skeptical about hybrids, questioning the performance of the British East India Company. The authors recommend applying cost-benefit analysis for assessing the social effects of hybrids.

Next, Thynne on p. 389 discusses the effects of the multiple ownership structure of a public–private telecommunications company on goal conflicts, ethical challenges and accountability relations. He is especially interested in the multiple roles of staff, who are, at the same time, employees, shareholders of the company, civic society representatives and individual users of telecommunication services, and examines their impact on the performance of such a hybrid organization.

Van Dooren’s debate article discusses the role of performance targets and measurements in hybrid contexts. The author questions the traditional claim that, in hybrid contexts, well-functioning PMSs would have to reflect the complicated set of incongruent goals and ownership structures. On the contrary, he argues that given such heterogeneity of goals, performance measurement may serve as an instrument to cope with complexity. For this purpose, performance measurements provide standardization of frontline public sector behaviour, in some cases useful decoupling of goals and measurements, and perhaps, most of all, trust and enhanced legitimacy concerning the activities of hybrid organizations.

Two contributions (Skelcher and Smith, and Høgvold Olsen et al.) discuss how conflicting institutional logics in hybrid organizations can affect an organization’s performance. Skelcher and Smith discuss performance promises and pitfalls in hybrid organizations and identify five challenges of hybrid organizations for managers and researchers: measuring performance, innovation, governance, regulation and sustainability. The paper by Høgvold Olsen et al. is based on an analytical framework, which helps in understanding how performance measurement in boards of hybrid organizations is able to reconcile the different interests of the various stakeholders. The authors link the stakeholders (owners, municipal company and external stakeholders), different board roles (control, strategy and service), institutional logics (politics and bureaucracy, corporate governance and market, community), performance expectations and criteria (quality, efficiency, transparency etc.). Their paper should help local politicians, board members and managers of municipal companies to cope with the variations in performance expectations and performance criteria that need to be considered when solving problems and making decisions.

The paper by Tolstrup Christensen focuses on how hybridity evolved in the governance of SOEs in the case of Danish and Swedish passenger rail in the period 1990–2015. Using the institutional starting point of NPM logics and reforms in both case countries, the paper explains the gradual changes in the ways in which marketization, commercialization and professionalization take place in a hybrid context. Moreover, the paper argues that hybridity should be discussed not only through ownership structures and relationships, but also as a problem of goal ambiguity where institutional practices and rules shape and reshape the ultimate outcomes of hybridization.

Agostino’s and Arnaboldi’s paper deals with the rational and ritual use of key performance indicators (KPIs) in hybrid organizations. By analysing networks of public transportation, the authors show how KPIs have different purposes and need to fit the interests of all members of a hybrid arrangement. A hybrid’s KPIs need to include the history, as well as the heterogeneous interests of actors involved in hybrid solutions. Their findings correspond with previous research on the inherent ambiguous character of hybrids and the challenges for their managers (Thomasson, 2009; Vining and Weimer, 2016).

Cappellaro and Ricci (2017, p. 417 in this issue) introduce a performance measurement perspective of PPPs in the field of health and social services in the Italian context. Their paper discusses performance measurement of PPPs as a contingency problem. The contingency factors include the integration of a PMS with the public service network, the degree of specialization in service delivery and the links between strategies and performance measurements in healthcare organizations.

Concluding remarks and directions for future research

The contributions to this theme provide us with some important and interesting insights into the interrelations between hybrid organizations and performance measurement. While some questions are answered, others remain open and, in addition, new problems are presented that need to be explored. The following are the issues that we think are most important and need to be addressed in future research on performance measurement in a hybrid context:

• Our first issue is the state of academic research on the governance and performance of hybrid organizations. We need to take stock of theories being used to explain hybrid organizations. Is the study of hybrid organizations best served by the current focus on institutionalist and principal–agent theories? Are there any relevant alternatives to those perspectives? Is a there a need to establish a separate field of study devoted to the topic of hybrid organizations? Or should hybridity be part of the interdisciplinary study of organizations and institutions in general?

• Another important issue is the impact of ambiguous goals on the performance of hybrid organizations. To understand this, hybrid organizations need to be studied not only as a strange mix of public and private for-profit organizations, but as an institutional space of their own with distinct institutional logics. To understand these logics, the links between the goals of hybrid organizations and PMSs in use need to be explored.

• Identifying the direction of the interplay between institutional logics and hybrid organizations is another issue. Are organizational structures following institutional logics or vice versa? This is especially relevant when investigating the role of performance measurement in hybrid organizations (Vining and Weimer, 2016).

• Research on hybrid organizations has focused on the micro-level. However, all layers of hybridity needs to be investigated: society (macro); political (meso); and the organizational level (micro; see Johanson and Vakkuri, 2017). The role of individuals in hybrid organizations is of particular research interest. Pache and Santos (2013), as well as Skelcher and Smith (2015), have addressed the role of individuals in hybrid organizations, but further research is necessary. Organizations are, in the end, represented by individuals who interpret the often conflicting logics found in hybrid organizations.

Hybrids at all levels will become much more prevalent in the future; consequently, the need to understand the particularities of their performance is urgent. This editorial and the following contributions to this theme provide additional insights into the ways hybrids can be made to work effectively.

Acknowledgements

This theme mainly builds on presentations to the panel organized by the Accounting & Accountability SIG at the IRSPM conference, which was held at the University of Birmingham, UK in 2014. The authors would like to thank Public Money & Management’s editorial team for their enthusiastic support of this theme.

Additional information

Notes on contributors

Giuseppe Grossi

Giuseppe Grossi is Professor in Public Management and Accounting at Kristianstad University, Sweden; Research Professor at Kozminski University, Poland; and Visiting Professor at Nord University, Norway.

Christoph Reichard

Christoph Reichard is Emeritus Professor of Public Management at the University of Potsdam, Germany.

Anna Thomasson

Anna Thomasson is Associate Professor in Public Management at Lund University School of Economics and Management, Sweden.

Jarmo Vakkuri

Jarmo Vakkuri is a Professor in the Faculty of Management, University of Tampere, Finland.