Vertical Integration in Social Value Creation: Exploring Make-or-Buy Decisions in Social Ventures

An emerging body of work examines the governance of activities that create social value in private organizations. While this line of research examines firm boundary (i.e. make-or-buy) decisions in commercial ventures, it does not yet address the strategic goals of hybrid organizations, such as social ventures. Similarly, strategic management research examines the organization of commercial operations in developed markets but not the organization of social operations in highly inefficient markets. To fill these gaps, this paper examines the differences between the strategic goals and market conditions faced by social and commercial ventures. This paper argues that, in addition to extant make-or-buy logic, vertical integration of social operations in social ventures is recommended when it resolves ex-post information asymmetries about the value captured by beneficiaries, or when it protects beneficiaries from negative externalities. In making this argument, this paper provides a strategic approach to organizing social operations that can limit the waste of scarce resources and maximize social value creation.