One of the sessions we’re going to be having in the Tactical Philanthropy track at the Social Capital Markets conference is:
Replication vs. Diffusion: Does scaling social impact require scaling organizations?
A successful for-profit organization must maintain ownership of its concept while it scales in order to capture profit. But social impact accrues to the public, not the firm that owns the process that generates the impact. How should social enterprises weigh the tradeoffs between scaling their organization or scaling impact through sharing their process with others? Learn about two organizations that have successfully scaled using entirely different approaches (this session is still subject to change).
Today, I saw an interesting example of a "diffusion” strategy of scaling impact. New Philanthropy Capital, a nonprofit analysis firm in the UK which is itself a nonprofit, announced the launch of PHINEO, a new nonprofit analysis firm in Germany.
From the post:
“NPC is excited about the arrival of PHINEO, and also a little proud. As of Monday, Phineo’s team of 17 will research social problems in Germany as well as analysing charities trying to tackle them, to find those that have a large impact on the lives of beneficiaries. For this work, PHINEO has carefully adapted NPC’s charity analysis methodology for the German market, and has developed a three-staged charity analysis process…
NPC and PHINEO share a commitment to effectiveness, impact-driven funding, and the creation of public knowledge. We also believe that collaboration is essential to build the case for effectiveness and hope more and more similar organisations will spring up around the globe so we can learn from each other. We’re looking forward to following PHINEO’s progress—watch this space for regular updates.”
So NPC has essentially worked to create their own competition. This is not a one-off event. From my discussions with NPC, sharing their methodology with startups is a systematic part of their process.
This strategy would be insane for a for-profit company. As we note in the description of our SoCap panel, “a successful for-profit organization must maintain ownership of its concept while it scales in order to capture profit. But social impact accrues to the public, not the firm that owns the process that generates the impact.” This means that NPC can legitimately “claim” the impact generated by groups like PHINEO who they help get started. By sharing their knowledge, they are scaling their impact.
This approach is quite different from the more traditional approach to scaling, which generally refers to growing an organization so that it serves more people. The fact that social impact accrues to the public while profit only accrues to a single organization creates a striking difference between effective social sector strategies and for-profit strategies.
Bravo to New Philanthropy Capital for getting that their success should be measured by the degree to which they help drive “effectiveness, impact-driven funding, and the creation of public knowledge” instead of by the growth of their own organization.
Thank you for highlighting this important and sometimes spurious trade-off.
In a recent conversation with a potential IdeaEncore partner, a similar question was posed – also as an “either / or” question. My partner, Flo Green, pointed out how the question could be re-framed as a “both / and” question. That is, as social enterprises consider more than the financial bottom line, they realize that the more that information is shared, the more quickly innovations occur. This makes it easier for resources and expertise–wherever they are located, whoever developed them–to be shared, reused, combined or adapted to a new use or idea. So if the entity sharing sets themselves up to learn more and faster because they shared , sharing can create its own self-reinforcing cycle of innovative (and, yes, competitive) advantage.
This concept was adapted from the following paper http://budurl.com/TP0518a (Johnson, Paul and Martin Stewart-Weeks, The Connected Republic 2.0. New Possibilities & New Value for the Public Sector. A Point of View from the Cisco Internet Business Solutions Group (IBSG))
As I know you are also a fan, I would also mention that Creative Commons licensing provides a highly accessible legal framework to enable both control over ownership rights AND to benefit from the crowdsourcing benefits of innovation in the commons.
I found this article very interesting; scalability for nonprofits has been something that I am still trying to understand as I am just starting to get involved in the social sector.
I agree that NPC has found a way to continue to scale their social impact through spreading their knowledge to other organizations. Couldn’t adding competitors be potentially dangerous for the organization however, if it somehow threatens their own financial sustainability?
I’m still trying to wrap my head around this, but wouldn’t scaling the social impact be more effective under the same name of NPC (if it wasn’t being spread in a completely different country, that is), where systems (finance, IT, HR) could be integrated, not to mention intangible assets and brand equity also being able to be passed on to the new organization?
Thanks to anyone who responds.
Great questions Sebastian. In a for-profit context, protecting the organization is the goal, so encouraging competitors makes no sense. But in the nonprofit context, creating social impact is the goal. Protecting the organization may or may not be the best path to creating impact. Growing NPC directly is likely the simpliest approach, most most nonprofits don’t have access to the capital required to grow their own org to the extent that they can serve the entire market. So there is a very legitimate case to be made for encouraging other orgs to “steal your ideas” and work to make sure that they implement your model well.
It is counter intuitive, but if you care about serving the people you are trying to help, the goal of creating more options and more providers makes sense.