What if instead we tried to build a more effective philanthropy that was designed for real life, human donors?

The first step of course would be to actual ask donors what they wanted. So today I’m glad to be able to point to the newly released Money For Good report from Hope Consulting. The report was underwritten by the Hewlett and Rockefeller Foundations as well as a number of other well known organizations.

The Money for Good report tries to answer three questions, 1) how can we increase charitable giving from individuals, 2) how can we increase donations to the highest performing nonprofits and 3) how can we realize the potential of impact investing.

The report opens with this quote:

“It is our nature to see the world based on our own context, experiences, and points of view. People in all walks of life struggle with this bias every day. How can a new product fail when you and your cohort believed that it was a great idea? The need to understand the world as it is – not as we wish it were – has caused primary market research to become a multi-billion dollar industry.

The motivation behind the Money for Good project was to seek the ‘voice of the customer’ for charitable giving and impact investing.”

The report is in depth and I encourage you to read the whole thing. But today I want to focus on a particular chart that explores the opportunity to “improve the quality of giving,” which is the critical question motivating the movement for a more effective philanthropy.

The percentages refer to the amount of donors who currently do the things mentioned in the dark blue boxes. So if we want donors to give based on relative performance, to make donations that are as effective as possible, we need to help donors move from the left to the right on this chart.

The first, promising sign is that 85% of donors do care about the performance of the nonprofits they support. But only 32% of donors do any research at all to determine if the nonprofits they support are actually any good. This finding is similar to the survey that kickstarted the recent posts here and on other blogs about whether donors care.

The second major gap is how to encourage donors to use quality information. Charity Navigator proved over the last decade that donors can be encouraged to research nonprofits. The problem of course is that the overhead expense ratio metric they popularized (the Money For Good report confirms that overhead expense is the #1 most important piece of information for donors who do research) is very low quality in determining effectiveness. But Charity Navigator should be noted for their hugely successful campaign to close the Care vs Act Gap. Today Charity Navigator is working to implement a major overhaul of their rating system that they hope will increase the quality of their ratings (disclosure: I’m on the advisory board for this effort).

The Money For Good report argues that closing the “Care vs. Act” Gap and the “Quality Information” Gap so that donors go from just caring about the effectiveness of nonprofits to actually doing high quality research, means:

1. Creating many initiatives that address these issues simultaneously.
2. Providing simple information donors will use.
3. Pushing information to donors.
4. Building board awareness around select key messages.

The final goal, closing the Good vs Best Gap, or helping donors support the best nonprofits not just any that are doing a good job, is in some ways a wholly different goal. According to the Money for Good report, only 15% of donors even state that they care about supporting organizations that are better than others at achieving their goals.

To me, this means that we have two separate issues at stake,

1. We need to help the 85% of donors who already care about supporting effective nonprofits act on this interest by creating high quality information that is designed in ways that donors actual want to use it.
2. We need to work to increase the percentage of donors who care about maximizing the effectiveness of their giving by supporting the best nonprofits.

The first issue is one of meeting a pre-existing demand. The second is about creating demand. Both can be done. Both sorts of issues are tackled all the time in various markets.

But the one thing we can’t do is simply build philanthropic products and services for imaginary “rational” actors who are seeking massive amounts of data and metrics, and love to run Excel spreadsheets before every donations. These donors are as imaginary as Vulcans.

So today, I’m happy to announce the Smart Money Award.

The Smart Money Award is about bringing recognition and praise to funders who are willing to embrace the idea that sometimes, in order to maximize your impact, it is best to “follow what works.” The award celebrates funders that decide to lead by following the good work of others, helping to scale up or replicate an already proven initiative developed by someone else. We hope to remove any stigma associated with the concept of following, and instead highlight how it can be a powerful “next practice” in philanthropy.

“Smart Money” and “Following” are concepts I believe are powerful, but missing, elements in philanthropy. I blogged about my view on these concepts in a post titled Signaling, Smart Money & Philanthropy.

At the workshop, we awarded the first Smart Money Award to the W.K. Kellogg Foundation for their $16 million grant to support a project of the Buffett Early Childhood Fund. Commenting on the grant at the time it was made, Kellogg president Sterling Speirn said he “saw no reason to start from scratch when a good approach to advocacy and education was already in place.”

In announcing the award at the workshop, we gave the certificate pictured above and a check for $50 to Kellogg vice president Anne Mosle who explained the rationale behind the grant saying “we don’t believe we have to lead everything.”

Now obviously we had fun with this. But we are quite serious about the award. We believe that “following” can actually be an act of true leadership, as is so compelling demonstrated in this video:

Link to “Leadership Lessons from Dancing Guy”.

So where do we go from here? Our plan is to launch a simple website explaining the award and soliciting nominations for future awardees as soon as possible. Our goal is to announce the next award on June 26, the anniversary of the announcement of Warren Buffett’s 2006 gift of over $31 billion to the Gates Foundation—perhaps the largest act of philanthropic “followership” ever made.

I’ll keep you updated on this project as we move forward. Keep in mind that this was something that we hatched in about 45 minutes in a group of people who for the most part didn’t know each other. But the audience members at the Monitor workshop did chip in another $50 to fund our next award. So we’ll keep operating under the assumption that we’ll find what we need along the way and see what happens!

The informal working group designing the Smart Money Award:

• Sean Stannard-Stockton, Tactical Philanthropy Advisors
• Lance Fors, SV2
• Gabriel Kasper, Monitor Group
• Kelvin Taketa, Hawaii Community Foundation
• Mayur Patel, Knight Foundation
• Eugene Kim, Blue Oxen Associates
• Edward Wexler-Beron, Monitor Group
• Bob Hughes, Robert Wood Johnson Foundation

For background, I highly recommend reading Monitor’s new, still in draft format, report titled Cultivating Change in Philanthropy.

Ideas that came out of the meeting, either from Monitor or workshop participants:

• In thinking about predicting the future, Monitor Institute’s Katherine Fulton reminded us of Paul Saffo’s quote: “Never mistake a clear view for a short distance.”
• It was observed that many new forms of social impact activity, such as crisis information crowdsourcing group Ushahidi, were simply unimaginable ten years ago.
• Philanthropy needs to get comfortable with “creative tensions”. It is not “innovation or effectiveness”, it is how can we balance the internal tension between these two goals and many other competing priorities.
• “Guerilla Philanthropy” was suggested as a way to think of the many new social impact efforts operating outside of institutional philanthropy. It was observed that the emergence of guerilla warfare dramatically upended thinking within established armies and that something similar may be happening in philanthropy.
• One of Monitor’s recommendations to increase impact was to “act bigger” by “understanding your ecosystem”. The concept of Ambient Intimacy, which I wrote about here, was proposed as one key to understanding your ecosystem.
• In examining the role of sharing failure within the field as a way to increase knowledge and therefore impact, it was proposed that “It is a failure of compassion to not share failure.”
• While much of the field is struggling with assessing impact, maybe we should be more focused on assuring impact. Whereas the first is a passive observing activity, the latter is an active, interventionist activity.
• The phrase “punching above your weight”, which means for a boxer to fight successfully against larger opponents, was used to describe the value of funders using non-monetary tools to enhance their impact (watch for my next Chronicle of Philanthropy column on the importance of these types of strategies).
• In another conversation about knowledge sharing within the sector, it was suggested that projects like Glasspockets.org could create a culture of “competitive sharing”.
• The afternoon consisted of a rapid prototyping of philanthropic programs that could help address some of the issues raised during the workshop. My group ended up winning the group’s vote for best prototype, which I’ll tell you about tomorrow.

So what’s the killer app for engaged philanthropy?

What is the activity that will drive uptake of the “operating system” of engaged philanthropy? Email was a killer app because it was hugely useful and it got people to log onto their computer multiple times a day. It spurred the need for a home computer (or more than one once a family of four all had their own email accounts) for purely personal use. Email was a killer app because by itself it made people want and need a computer. But the real impact of email wasn’t just that it let people communicate easily. It also got them on the computer where they quickly picked up all sorts of other activities that they never would have bought a computer for on their own.

In my recent post about Kiva.org, I called the organization a “gateway drug to social investing”. My point is that Kiva.org is hooking people who do not participate in engaged philanthropy. But once exposed to microfinance, Kiva users suddenly become much easier to convert to other social investing activities. Kiva or more generally, well designed microfinance, may be emerging as a killer app.

So my question today is what program, activity or entity has the potential to be a killer app that drives a larger uptake of engaged philanthropy?

Here’s one idea.

Donor advised funds: With the minimum to open a donor advised fund falling to just $5,000, many, many Americans now have the ability to financially structure their philanthropy. Just like the emergence of IRAs and 401ks in the early 1980’s drove the explosion of individual investors in the stock market, DAFs have the potential to do something similar for philanthropy. But it seems to me that for DAFs to become a killer app, someone needs to launched a better designed DAF that provides a more tangible “story” that connects donors to grantees much the way Kiva’s “journals” connect lenders and borrowers.

How else might DAFs be redesigned so that they become a killer app for philanthropy? What other ideas do you have for potential killer apps?

Change ain’t easy when the world keeps moving and you have the keep the lights on…

More nonprofits need to adapt, to experiment, to take risks, to embrace change. But they need to keep on providing services while they’re doing it.

This is a real dilemma. Interestingly, the New York Times had a story about exactly this issue last week.

In Welcoming the New, Improving the Old, Sara Beckman wrote:

For decades, companies from Cisco Systems to Staples to Bank of America have worked to embed the basic techniques of Six Sigma, the business approach that relies on measurement and analysis to make operations as efficient as possible.

More recently, in the last 5 to 10 years, they have been told they must master a new set of skills known as “design thinking.” Aiming to help companies innovate, design thinking starts with an intense focus on understanding real problems customers face in their day-to-day lives — often using techniques derived from ethnographers — and then entertains a range of possible solutions.

To many, the two skill sets don’t fit together well, and Chuck Jones, vice president for global consumer design at Whirlpool, explains why that may be so. Design thinkers, he says, are like quantum physicists, able to consider a world in which anything — like traveling at the speed of light — is theoretically possible. But a majority of people, including the Six Sigma advocates in most corporations, think more like Newtonian physicists — focused on measurement along three well-defined dimensions.

…The different world views, however, can be brought together.

At Whirlpool, Mr. Jones first proved the value of design with the introduction of the Duet washer and dryer. Duet’s novel, easy-to-use, energy-efficient design made Whirlpool a player in the front-loader market. After that success, he invited Whirlpool’s Six Sigma experts to help him improve design processes. They developed various new metrics — for how customers evaluate product quality, for example — that allowed designers and Six Sigma types to understand each other better.

Progressive Insurance has also turned design and Six Sigma techniques into reasonably comfortable bedfellows. In the early 1990s, it started emphasizing showing up at an accident scene and handling situations in real time, according to a 2004 article by Michael Hammer in The Harvard Business Review. That move reflected a designer’s way of thinking about customer needs, but the company was able to execute the idea through its ability to measure, analyze and improve its processes.

Both worlds — the quantum one where designers push boundaries to surprise and delight, and the Newtonian one where workers meet deadlines and margins — are meaningful. The most successful companies will learn to build bridges between them and leverage them both.

Commenting on the article, Tim Brown, the CEO of IDEO, writes:

I have to admit that for a long time I was highly skeptical of design thinking’s ability to operate in a Six Sigma environment and I was once quoted in the Economist as saying that it was toxic to innovation.

I don’t think that anymore. Having spent more time studying companies like Toyota I have realized that high quality (the goal of Six Sigma) is a great platform for new ideas (the goal of design thinking). Similarly, as Chuck Jones implies, Six Sigma can help new ideas get better faster…

Perhaps we should think of design thinking and Six Sigma being part of a cycle, each feeding the other to create new and improved products, services and experiences. Of course the biggest challenge will be to build business cultures that are agile enough to incorporate both.

I think Tim is right that the big challenge is to “build business cultures that are agile enough to incorporate both.” This is an area where nonprofits and for-profits share the exact same challenge. There’s no simple answer to this problem. It is simply something every outstanding organization has to figure out. As it relates to the conversation yesterday about social media, great organizations need to adopt social media even while older forms of communication are paying the bills. And while older approaches are being used, they still need to be improved.

No one ever said this stuff was easy.

Aaron wrote:

Anyone who engages with new ideas must develop a certain level of comfort with uncertainty. Once an organization takes a step beyond what it has successfully done in the past—a new offering or engaging a new group of people—uncertainty becomes an uneasy factor.  At a firm like IDEO, stepping into the unknown is a daily experience, and those drawn to collaborating with us are compelled to break away from the status quo, accepting the risks and discomfort that accompany bold moves.

…Below, we suggest four approaches to help organizations increase their level of comfort while making decisions in the face of uncertainty.

He then laid out four core ideas and explained each.

• Determine what to measure early on.
• Learn by doing.
• Let indicators lead the way.
• Refine what you are measuring as you learn more.

You can read all of Aaron’s post with his explanation of each approach by clicking here.

IDEO asked me to write a response to Aaron’s post on the GOOD blog. As I prepared to sketch out my ideas, I realized that while I thought Aaron was spot on, his suggestions were ways to overcome uncertainty. I wonder if instead, we need to learn to accept uncertainty. This is what I came up with.

Originally posted on the GOOD Magazine Innovation in Evaluation blog.

In his recent post, Aaron Sklar gave an excellent set of recommendations that focused on ways to decrease uncertainty by measuring proxies for the inevitably messy business of creating social impact. But in addition to finding ways to evaluate under conditions of uncertainty, I think it is critical that we get comfortable with the discomfort that uncertainty causes.

The question under consideration assumes that we should seek comfort in the way we tackle problems of social impact. But I wonder, at the risk of sounding too Zen, if instead we need to accept the idea that the business of creating social impact is one that explicitly makes people uncomfortable.

It isn’t fun to feel uncomfortable, but it isn’t terrible. In fact, in many cases, philanthropists are attempting to fund programs serving people who are far more uncomfortable than then donor will ever be. The “discomfort” stemming from a lack of access to water or an unplanned teenage pregnancy simply dwarfs the “discomfort” that a donor might feel from grant-making under conditions of uncertainty.

Great investors in the for-profit space have come to accept the discomfort of uncertainty. Baron Rothschild, a member of the great banking family, is known to have said, “Buy when there’s blood in the streets.” And Warren Buffett warns that “You pay a very high price in the stock market for a cheery consensus.” In other words, if everyone agrees with your investment decision, then it is probably not a good one.

Blood in the streets? Investing when no one agrees with you? Talk about discomfort and uncertainty. In fact, I believe that the discomfort caused by uncertainty is a requirement of great philanthropy. Great outcomes are achieved when an appropriate level of risk is undertaken; risk is caused by uncertainty, and uncertainty causes discomfort. We should not just advocate for philanthropy to become comfortable with uncertainty, but to acknowledge that great grant-making requires funders to accept discomfort.

Humans don’t like to take risks. We are evolutionarily designed to be risk adverse. But good philanthropy, just like good investing, requires taking risks. Maybe a Zen approach to evaluation isn’t just a new age joke. Maybe accepting discomfort rather than trying to overcome it is the key to navigating uncertainty.

• How can philanthropists learn when discomfort stems from appropriate risk taking and when it signals an intuitive response to which the donor should listen?
• Behavioral finance and psychology have offered investors many lessons on avoiding the traps that encourage them to succumb to discomfort. What lessons might philanthropy learn from these disciplines?

You can find the original post here.

I briefly met IDEO’s CEO Tim Brown while we were both in Dubai last year for the World Economic Forum Global Agenda Council meeting. A few months later I started writing about T-Shaped People in Philanthropy, a phrase Tim uses to describe the types of people IDEO hires. I later expanded on the idea in an essay I wrote for the Grant Managers Network about IDEO, design thinking and consilience.

But to tell you the truth, my sense that IDEO had something powerful to contribute to philanthropy was more of a hunch than anything else. But yesterday I had the pleasure of joining IDEO’s Social Impact group for an afternoon of brainstorming.

Wow.

If you are involved with a large grantmaker or nonprofit, I strongly suggest you keep an eye on IDEO and start thinking about how you might be able to get them involved with your work. Luckily, there’s a brand new way for our field to get familiar with how IDEO thinks about solving social problems: a blog they are authoring hosted by GOOD Magazine.

The blog is called Innovation in Evaluation. The brainstorming session I attended yesterday was intended to help them decide which topics to write about. You’ll have to read the blog to learn more, but if issues like dealing with uncertainty, planning under dynamic conditions, the value of intuitive decision making and how to measure “the unmeasureable” resonate with you, this is a blog you’re going to want to watch.

Successful Grantmaking: T-Shaped People, Consilience & Design Thinking

By Sean Stannard-Stockton

How can grantmakers be successful in the 21st century?  They need to embrace design thinking and become T-Shaped People.

Philanthropy is a most cross-disciplinary practice.  While program officers must have technical domain expertise in their core area of focus, to be truly successful they must also be able to relate their unique knowledge base to the broader, interrelated context within which society operates.  The name for people who are able to pull this off?  T-Shaped People.

The phrase is becoming closely associated with the pioneering design firm IDEO and its Chief Executive Officer Tim Brown.  That a design firm has lessons to teach philanthropy should not be surprising, once you understand IDEO’s business as “problem solving.”  In a recent Fast Company article, Brown wrote:

“We look for people who are so inquisitive about the world that they’re willing to try to do what you do. We call them ‘T-shaped people.’”   They have a principal skill that describes the vertical leg of the T — they’re mechanical engineers or industrial designers.  But they are so empathetic that they can branch out into other skills, such as anthropology, and do them as well.  They are able to explore insights from many different perspectives and recognize patterns of behavior that point to a universal human need.   That’s what you’re after at this point — patterns that yield ideas.”

This belief that the individuals who achieve the most impact blend their core knowledge into a broader understanding of the world resonates with another concept that I think is relevant to philanthropy: consilience.  Consilience means “unity of knowledge” (or more literally the “jumping together” of knowledge).  The phrase was popularized by famed biologist Edward O. Wilson in his aptly named book Consilience:  The Unity of Knowledge.  I believe the key to unlocking the potential of philanthropy is to break out of our silos and embrace consilience.

Consilience recognizes that every field of study captures only a snapshot of reality.  For example, while economists might believe that economics is the study of the production, distribution, and consumption of goods and services, the fact is economic theory does not accurately describe reality until you begin to take into account the biological, psychological, and sociological behaviors of humans.  Even then, a broader systems approach is needed to understand how the market affects the environment and human culture, as well as the moral implications of market outcomes.

For philanthropy to realize the potential being presented in the 21st century, the trick will be not just to bring economists, sociologists, technologists, biologists, etc. to the table, but to truly forge a consilience of knowledge across all domains.  The whole will be more than the sum of its parts.

IDEO, it turns out, has more to offer philanthropy.  IDEO Founder David Kelley was profiled recently in another Fast Company article, where he explained the concept of “design thinking,” which he teaches at the Stanford Institute of Design (the “d.school”). From the article:

The way Kelley sees it, [the United States’] polyglot populace gives us an extraordinary advantage in generating truly creative ideas.  That idea was one of the animating forces behind the d.school — a place that would help analytical Stanford types become creative thinkers.  The school would welcome students from business, law, education, medicine, engineering — the more diverse, the better.

“When David was making the case for the d.school at Stanford,” says [David’s brother], “he went to [University President John] Hennessy and said, ‘Look, we’re good at “deep.”  We have Nobel Laureates drilling down into esoteric topics.  But what if there are problems that aren’t solved by deep, but broad?  We should have a side bet in broad.’”

This concept is the activating principal behind T-Shaped people.  In the article, Kelley explains to a group of d.school students that IDEO and the d.school are focused on “design thinking,” not “design.”

“You’re sitting here today because we moved from thinking of ourselves as designers to thinking of ourselves as design thinkers,” he continues.  “What we, as design thinkers have, is this creative confidence that, when given a difficult problem, we have a methodology that enables us to come up with a solution that nobody has before.”

“They went meta on the notion of design,” says Roger Martin, Dean of the University of Toronto’s Rotman School of Management, referring to the shift from object design to focusing on organizational processes.  “They concluded the same principles can be applied to the design of say, emergency-room procedures as a shopping cart.”

And this is where we make the connection to philanthropy.  If philanthropy is going to fund new, innovative ideas, we must engage in design thinking.  If our field is going to advance despite the absence of market forces requiring funders to make smart grants, we need design thinking.  If the social benefit sector as a whole is going to produce high-impact, systemic change, we need design thinking.

The article continues:

Design thinking represents a serious challenge to the status quo at more traditional companies, especially those where engineering or marketing may hold sway.  Patrick Whitney, Dean of the Institute of Design at the Illinois Institute of Technology (IIT), who sends many of his graduates off to IDEO, says he sees this resistance all the time.  “A lot of my students have MBAs and engineering degrees.  They’re taught to identify the opportunity set, deal with whatever numbers you can find to give you certainty, then optimize.”

But some problems need to be restated before a big, new idea can be hatched.  It often helps to take the problem and break it apart, before putting it back together in a whole new way — the synthesis or abstraction step.  That’s where the creative leap often occurs and what IDEO’s process is designed to unearth.

I cannot think of an approach more finely tuned for philanthropy.  So many problems that philanthropy seeks to fix are products of unsatisfactory, but stable equilibriums.  Producing impact in many cases is not just about “optimizing” the current situation; it is about taking the problem, breaking it apart, and then putting it back together in a completely new way.

What does it all mean?  It means none of us has all the answers.  None of us knows what is right for philanthropy.  It means that for philanthropy to truly reach its potential, we need to “jump together” all of our varied wisdom in a way that recognizes our contribution is no more or less important than that of people with domain expertise different from our own.

What does it take to pull this off?  Empathy.

Tim Brown specifically states that T-Shaped people must be empathetic to pull it all together.  If there is one skill that everyone in philanthropy has, it is empathy.  Without empathy, philanthropy simply is not an interesting subject.  If there is one field that can pull off the difficult trick of creating consilience, it is ours.

—

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In addition to founding IDEO, Kelley also founded the Stanford d.school. From the article:

The way Kelley sees it, [the United States’] polyglot populace gives us an extraordinary advantage in generating truly creative ideas. That idea was one of the animating forces behind the d.school — a place that would help analytical Stanford types become creative thinkers. The school would welcome students from business, law, education, medicine, engineering — the more diverse, the better.

“When David was making the case for the d.school at Stanford,” says [David’s brother], “he went to [university president John] Hennessy and said, ‘Look, we’re good at “deep.” We have Nobel Laureates drilling down into esoteric topics. But what if there are problems that aren’t solved by deep, but broad? We should have a side bet in broad.’ “

This concept is the activating principal behind T-Shaped people. In the article Kelley explains to a group of d.School students that Ideo and the d.School is focused on “design thinking”, not “design”.

“You’re sitting here today because we moved from thinking of ourselves as designers to thinking of ourselves as design thinkers,” he continues. “What we, as design thinkers, have, is this creative confidence that, when given a difficult problem, we have a methodology that enables us to come up with a solution that nobody has before.”

…”They went meta on the notion of design,” says Roger Martin, dean of the University of Toronto’s Rotman School of Management, referring to the shift from object design to focusing on organizational processes. “They concluded the same principles can be applied to the design of, say, emergency-room procedures as a shopping cart.”

And this is where we make the connection to philanthropy. If philanthropy is going to fund new, innovative ideas we must engage in design thinking. If our field is going to advance despite the absence of market forces requiring funders to make smart grants, we need design thinking. If the social benefit sector as a whole is going to produce high impact, systemic change, we need design thinking.

The article continues:

Design thinking represents a serious challenge to the status quo at more traditional companies, especially those where engineering or marketing may hold sway. Patrick Whitney, dean of the Institute of Design at the Illinois Institute of Technology (IIT), who sends many of his graduates off to Ideo, says he sees this resistance all the time. “A lot of my students have MBAs and engineering degrees. They’re taught to identify the opportunity set, deal with whatever numbers you can find to give you certainty, then optimize.”

But some problems need to be restated before a big, new idea can be hatched. It often helps to take the problem and break it apart, before putting it back together in a whole new way — the synthesis or abstraction step. That’s where the creative leap often occurs and what Ideo’s process is designed to unearth.

I can’t think of an approach more finely tuned for philanthropy. So many problems that philanthropy seeks to fix are products of unsatisfactory, but stable equilibriums. Producing impact in many cases is not just about “optimizing” the current situation, it is about taking the problem, breaking it apart, and then putting it back together in a whole new way.