A hybrid organization is an organization that mixes elements, value systems and action logics (e.g. social impact and profit generation) of various sectors of society, i.e. the public sector, the private sector and the voluntary sector. A more general notion of hybridity can be found in Hybrid institutions and governance.

According to previous research hybrids between public and private spheres consist of following features:^[1]

1. Shared ownership.
2. Goal incongruence and different institutional logics in the same organisation.^[2]
3. Variety in the sources of financing.^[3]
4. Differentiated forms of economic and social control.

Value creation in hybrids proceeds through three mechanisms:^[3]

1. mixing,
2. compromising,
3. legitimizing.

Mixing distinct value categories may take several forms. One common feature of these forms is the act of combining existing value categories to contribute novel variants of value. Compromising concern solving grievances among the interacting parties. From the legitimization point of view, hybrids are attuned to catering to the demands of multiple audiences: the government, citizens and clients, as well as the competitive markets.^[3]

The discussion of relational aspects of hybridity among nodes, dyads and networks raises number of questions. Sometimes governing hybridity necessitates a balancing act among parallel and opposing forces. In other instances, hybridity represents an effort to build genuinely new interaction patterns to settle the issues at hand, but it is also the case that hybridity brings out restrictions on interaction patterns.^[4]

The hybridity can be studied across levels of society in micro, meso and macro settings. However, aggregation of institutions follow different patterns within government, business and civil society.^[5] The relational aspect appears as integration and separation (node), in dyads between e.g professionals and managers and between providers and beneficiaries, and within networks as actors with different attributes.^[6]

Hybrid organization can achieve a competitive advantage because it can easily adapt into rapidly changing business environment. Organizational hybridity refers to an ability to blend features from different organizations or cultures to create solutions which suits organization's needs.^[7] In addition, hybrid organizations can achieve long-term sustainability by blending social and economic imperatives and engaging with diverse stakeholder groups.^[8]

In hybrid organizations there are private, public and non-profit organizations collaborating together. All these organizations have their own knowledge strategies and the hybrid organization needs to manage a comprehensive knowledge strategy of the entire hybrid organization. This makes the challenges of the hybrid organizations interdependent and multidimensional. In order for a hybrid organization to succeed in creating a knowledge strategy, it must pay attention to the following three things in particular:

• The most critical knowledge assets must be identified.

• The entity responsible for strategic decision-making must be determined, as well as the information on which the decisions are based on.

• A new hybrid organization needs to clearly outline its identity and how to combine the values, goals and organizational cultures of different organizations.^[7]

Hybridity in organizations, characterized by mixed ownership, governance modes, goal incongruence, and competing institutional logics, presents significant challenges for performance management, both in goal setting and performance measurement.^[9] In goal setting, hybrid organizations must balance the diverse interests of stakeholders such as taxpayers, business owners, and donors. The combination of public and private governance structures further complicates goal formation, requiring alignment of diverse electoral and ownership systems. Additionally, goal incongruence leads easily to conflicts over prioritizing public, shareholder, or social value, often necessitating compromises between societal goals and private sector outcomes. Competing institutional logics add another layer of complexity relating to the balance between the effectiveness of market interventions, mission alignment in the voluntary sector, and market performance.^[10]

In performance measurement, hybridity demands tailored metrics that reflect the diverse objectives of public, private, and voluntary stakeholders. Measuring success becomes more complex due to the need to track progress toward multiple, sometimes conflicting goals, such as financial returns, social value, and public value.^[9] The combination of governance modes places pressure on measurement systems to serve the information needs arising from public elections and share ownership. Goal incongruence further complicates measurement, as conflicts may arise over which metrics best reflect a hybrid organization’s success. Additionally, competing institutional logics require performance systems that assess the market competitiveness of private companies, the effectiveness of government market interventions, and the mission fulfillment of the voluntary sector, while also addressing the motivational needs of employees across all three sectors. Finally, the multiplicity of funding sources—including tax-based, donation-based, and private investment-based models—places pressure on tracking systems to ensure transparency and efficient resource use across these diverse funders.^[10]

Hybrid organizations are found in both the private and public sectors, but there may be differences in their goals and governance structures: private and public organizations all in all usually have different drivers and organizational structures.^[11] Basically public and private sector organizations differ from each other from the point of view of their environment, organization-environment transactions and organizational roles, structures and processes.^[12][13]

In private sector, hybrid organizations are often motivated by profit and create social or environmental value, as a means to achieve financial goals. In contrast, public sector hybrid organizations usually prioritize social or environmental objectives and use financial sustainability as a means to achieve their mission.

Furthermore, public sector hybrid organizations may be subject to more strict regulatory frameworks and may be required to report on a broader range of standards than private sector hybrid organizations.^[11]

Borys and Jemison^[14] introduced the concept of "hybrid organizational arrangements", aligning the concept with strategic alliances, R&D partnerships, joint ventures and licensing. The authors reviewed prior research and provided a qualitative framework for classification of different types of hybrid organizational arrangements consisting of breadth of purpose, boundary determination, value creation and stability mechanisms.^[14]

Later, Oliver Williamson^[15] introduced the concept of a "hybrid form" in transaction cost economics.^[15] A hybrid form can be defined as "a set of organizations such that coordination between those organizations takes place by means of the price mechanism and various other coordination mechanisms simultaneously"^[16]

As hybrid organizations combine diverse stakeholder groups, the potential for conflict within them might be greater. This is the challenge of stakeholder management.^[17] In addition, conflicts can occur because hybrid organizations need to balance between institutional demands and stakeholder interests ^[18]

This problem is similarly emphasized from the perspective of agency theory. The so-called 'multiple principal problem' combines various collective action problems that can occur with hybridity.^[19] Free-riding or duplication in steering and monitoring procedures can result in high costs. Similarly, directive ambiguity or lobbying of the corporations by individual stakeholders can induce inefficiency.^[19]

Any tensions can have positive and negative economic, performance related, cultural and governance related effects for the organization, its principles, and its customers. For instance, for state-owned enterprises, Schmitz^[20] argues that the combination of public and private interests brings an optimal combination of incentives for reducing costs and improving quality in comparison with pure production forms.^[21] In contrast, Voorn, Van Genugten, and Van Thiel^[22] hypothesize that diversity of ownership may lead to benefits such as specialization and increased efficiency, but also downsides such as increased failure rates.^[22]

Examples of hybrid forms of organization include:

• Public service organizations established by societal actors, such as (in the European context) social housing providers, public schools and hospitals.
• Public-sector organizations that behave in a business-like way, such as state-owned enterprises that also compete on the marketplace.
• Private-sector organizations that include franchising, joint ventures, and business groups.
• Benefit corporations or social enterprises who prioritize social and environmental causes while generating profit.
• Associations, especially trade associations encompassing non-profit, impact oriented (public relations, lobbying, special interest groups) with profit oriented activities (e.g. events, seminars, consulting) through a subcompany, mostly a fully-owned subsidiary.
• Microfinance organizations providing financial assistance to underserved populations.^[23]
• Islamic banks that combine religious principles and banking practices.^[24]
• Hybrid corporations engaging in corporate social entrepreneurship, progressing social and environmental activity in addition to returns for shareholders.^[25]
• Hybrid co-operatives involving multiple stakeholder groups.
• Hybrid ventures combining financial, social and environmental value into new ventures. ^[26]

Not all hybrid forms are intentional as their value creation may take place "by default".^[27] Hemingway's ethnographic study of a British-based multi-national corporation, where corporate social responsibility was found to be practised informally by some employees, in addition to their formal job roles, pointed out that unless a corporate employee was given dispensation from the profit motive in order to specifically create social value, even the most hybrid of corporations could not be described as a social enterprise staffed by social entrepreneurs (although employees' activities outside of the workplace might be). However, she did find evidence of corporate social entrepreneurship, where some employees had enlarged their own job roles to encompass social responsibility, in one or more forms.^[28]

• Agostino, D., & Arnaboldi, M. (2017). Rational and ritualistic use of key performance indicators in hybrid organizations. Public Money & Management, 37(6), 409–416. https://doi.org/10.1080/09540962.2017.1344021
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• Pache, A.-C., & Santos, F. (2013). Inside the hybrid organization: Selective coupling as a response to competing institutional logics. Academy of Management Review, 56 (4), 972–1001. https://doi.org/10.5465/amj.2011.0405
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• Hybrid organization definition
• Jonathan G S Koppell, The Politics of Quasi-Government: Hybrid Organizations and the Dynamics of Bureaucratic Contro, Cambridge University Press, 2003