Research Summary In recent years, strategy scholarship expanded its scope beyond the realm of private firms. Despite notable advances, the field still lacks theoretical and empirical frameworks for fully understanding how public and nonprofit organizations interact with private firms to create and appropriate value. By recognizing the inherent complexity of interactions between organizations with different purposes and the existing challenges for designing effective governance arrangements, we assess how recent scholarship addresses some dilemmas related to both private and public value creation. Based on the extant literature and on some novel aspects raised by the articles in this issue, we also propose a framework to advance strategy research in the field. We emphasize the importance of stakeholder management capabilities among public, private, and nonprofit organizations in pursuit of enhanced public value and continuous support from appreciative stakeholders. Managerial Summary Despite abundant examples of governance arrangements involving public, private, and nonprofit organizations (e.g., public‐private partnerships and alliances involving NGOs, firms, multilateral organizations, public contracting, and so on), the strategic management field has only recently given attention to value creation and value appropriation beyond the scope of private organizations. Here we connect strategic management and public management to identify relevant dimensions that shape value‐creating strategies and underpinning outcomes in public‐private‐nonprofit interactions. We highlight that public value arises from private interests and that the dynamic of value creation and value appropriation in activities involving the public interest can be influenced by not only resource endowments and organizational capabilities but also by the way organizations address and manage stakeholder expectations.

Some fear that the profit‐maximizing orientation of private entrepreneurs conflicts with societal goals expected in the provision of complex public services. Received contractual theories advocate that private involvement in public services will result in cost reductions at the expense of quality. Using prisons as our empirical context, we benefit from an event involving the outsourcing and subsequent statization of correctional facilities in Brazil. Triangulating between quantitative and qualitative information, we do not find evidence of quality deterioration in outsourced prisons and suggest that a key mechanism driving this result is the presence of public supervisors closely working on‐site with private entrepreneurs in a hybrid governance fashion. We then deliver a set of new propositions that move beyond hazard considerations to examine how the combination of heterogeneous public and private capabilities might yield learning and spillover effects unattainable through pure government management or full‐fledged privatization. Copyright © 2013 Strategic Management Society.

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This paper analyses how capabilities can reconcile conflicting objectives in policy driven public contracting. Results obtained from a quasi-experiment involving a policy intervention to favour small firms (SMEs) in Brazil show that public manager's contractmanagement capabilities can promote cost savings, increased responsiveness (government-level outcomes), and enhanced buyer-supplier coordination when favoured firms are successful in public contracting. Execution capabilities of private suppliers positively influence firm-level outcomes by attenuating the severity of sanctions against favoured firms due to deficient provision. The paper highlights the mechanisms for leveraging performance in public-private interactions when conflicting goals are present despite inherent contract incompleteness and bureaucratic rigidity, thus adding to the current knowledge of strategic management in the context of public organizations.