Misguided calls for ‘business thinking’
By Michael Edwards
Published: June 7, 2008
“Philanthrocapitalism” is all the rage these days – the use of business thinking to strengthen philanthropy and the not-for-profit world, which is the world I have been working in since 1982. If I had a dollar for every time I’ve been told to “behave more like a business” I would be a successful philanthrocapitalist myself.
The problem is that these calls are misguided and possibly even dangerous. They threaten to erode the distinctive values and independence of the not-for-profit sector and reduce it to little more than a subset of the market.
And that could be disastrous for the many community organisations, social movements and campaigns that have been central to equality and social justice from the original struggle against slavery, through civil rights in the 1960s, to third world debt relief today and the global ban on landmines. Non-profit groups have always provided healthcare, education and social security to the poor, but their real impact lies in changing values and relationships at much deeper levels of society.
To many in the business world, my position may seem to make no sense, so let me explain why I have become so concerned.
The reason is that business and non-profits operate on different logics – competition and co-operation, individualism and collective action, market share and sacrifice or service. You wouldn’t use a typewriter to plough a field or a tractor to write a book, so why use business thinking in areas where different instruments are needed?
There have always been areas of our lives that we deliberately protect from the narrow calculations of cost and profit – our families for example, and our churches. Most non-profit groups are closer to these examples than to business and the market. That is because things such as love and solidarity have intrinsic value that cannot be traded off against production costs or profit, and because non-profits respond to universal rights and responsibilities rather than access according to your income.
If we lose touch with principles such as these, would society really be better off? I don’t think so.
There’s plenty of evidence that business thinking can help non-profits provide useful goods and services to people who really need them at a price point affordable to the poor. Grameen Phone in Bangladesh is a good example, having had phenomenal success in spreading cell-phone usage through female micro-entrepreneurs. SunNight Solar in the US is another, producing solar-powered flashlights that sell at a discount throughout Africa and Asia.
These are great initiatives, but by themselves cannot resolve deep-rooted problems of inequality, injustice and intolerance, and there are always trade-offs to be made between the social and financial bottom lines.
Studies consistently show that non-profits that earn income through the market face pressures to weed out clients who are more expensive to reach, to concentrate on activities with the greatest revenue-generating potential rather than the biggest impact on social change, and to steer clear of advocacy and community organising – the kinds of things that lie at the heart of successful social movements. The YMCA is a classic example.
It is easy to identify quick fixes in terms of business criteria, only to find out that what seemed “inefficient” turns out to be essential for the social and political impact of non-profit organisations.
For example, combining local chapters of an organisation might be cheaper for the central office, but maintaining them might be crucial to the health of the local community. Across America, organisations such as the Girl Scouts and Habitat for Humanity, which is being sued by one of its affiliates, are facing these difficult choices.
Would the civil rights movement have been funded by philanthrocapitalism? I hope so, but it wasn’t data-driven, it didn’t operate through competition, it couldn’t generate much revenue, and it didn’t measure its success in terms of the numbers of people who were served for the lowest cost each day – yet it changed the world forever.
There is a strong argument for concluding that working together in complementary ways is a better way forward than disguising our differences in some soggy middle ground. Jim Collins, of Good to Great fame, says: “We must reject the idea – well-intentioned but dead wrong – that the primary path to greatness in the social sectors is to become more like a business.”
We need business and markets to create jobs and expand wealth; we shouldn’t use them to create communities of compassion, solidarity and service. It’s the difference that makes the difference to society, so please let’s keep it that way.
The writer is the author of ‘Just Another Emperor? The Myths and Realities of Philanthrocapitalism’, published by the Young Foundation in London and Demos in New York
Michael Edwards in the Financial TimesJune 8, 2008 – 4:39 pm
Michael Edwards of the Ford Foundation and author of Just Another Emperor, is the most recent philanthropic op-ed contributor to the Financial Times:
If by Business-Thinking, they mean ‘profit-driven,’ then I absolutely agree, it is a mistake. However I believe this is not normally the case. The call for ‘business-thinking’ usually calls for other things.
For-profit organisations as a whole have several (inherent?) advantages. Competition and clear bottom lines. While the right investment decision may not be clear ahead of time it is clear after a period. The goal of a for-profit, is profit, so you can tell that they did a good job. If others are doing a better job they grow & expand usurping the less proficient. This darwinism not drives individual organisations & entire sectors to perform.
Not-for-profits are rarely as clear with their goals. Determining success is especially difficult even if the goal has been defined and agreed upon. Not-for-profits usually don’t go ‘out of business’ because others performs better. It may not even be known.
In the absence of a clear bottom line, not-for-profits tend to be judged for intentions rather then outcomes.
This puts not for profits at a disadvantage. The in built mechanisms that make businesses function well do not exist for not for advocacy groups.
In short, I think ‘business thinking’ can be read more as ‘set clear & measurable goals,’ or ‘be comparable to each other.’ These need to be introduced artificially into the sector, if they are to exist.
As a follow-up to the previous comment, I?d also like to suggest that profit-motive is certainly not a useful for-profit motivation that non-profit should focus on delivering. (If not because of the inherent organizational differences between non-profits and for-profits.)
But the for-profit sector has deliberately developed practices and supporting organizations that help it operate efficiently and effectively in achieving its goals. The social sector still lacks the appropriate baseline standards and a supporting cast of organizations to support a sustainable and growing sector.
The social sector that most of us generally refer are not the heralded social justice marches that generated some of our most profound social transformations (civil rights movement, anti-colonial movements, etc.). Certainly, we would not expect these transcendent and dynamic movements to adopt for-profit practices, let alone any organizational practices. They sought (or seek) to transform political institutions and cultural notions.
The current social sector, that has been the focus of so much discussion, reflects new, changing, and dynamic social entrepreneurial ventures into delivering basic services, creating or aiding the flow of opportunities, or increasing the quality and effectiveness of philanthropy in general. While the purpose and ideals of these movements are rooted in notions of a beloved community, they are built around organizations that seek to provide their services sustainably?not a simple march to victory.
To that end, the question for these organizations becomes: How will we be able to continue to do what we do for a very, very long time? Naturally, the first place to look would be the for-profit sector.
One example of a useful for-profit parallel for social impact organizations is well-articulated by Andrew Wolk and Kelly Kreitz in Business Planning for Enduring Social Impact. (I think you can pick this up on Amazon.com). The authors of this book argue that non-profits can utilize business planning processes (much like the for-profit sector) to help solicit funding to take dramatic steps towards scalability and sustainability ? as opposed to the endless year-after-year fundraising frenzy.
This serves as one example, but I would venture to guess there are many, many more examples.
I have a long promised response to Michael Edwards’ book still to come. So I won’t add my comments now. But thanks for your thoughts. I do agree that trying to make nonprofits generate a profit is most often a bad idea. But I agree that being business-like should not be taken to literally mean turn a profit.