Making Social Innovation Work - Not Doing Social Work

At IXL, our leaders have spent much of the past 30 years codifying and clarifying the definitions, tools, and processes that make innovation work. Most of that work has been for large corporations or eager start-ups looking to capture new markets or new margins through what founding partner Ronald Jonash calls “The Innovation Premium” (c. 2000). The metrics we’ve developed all stem from the IXL definition of innovation; that is, the creation and capture of new value in new ways.

As you can see, this definition is perfectly set up to measure revenue, profitability and a host of other “corporate greed” dashboards to help clients tangibly track growth. When we began working with social innovation, we had to reconsider what these definitions meant.

It seemed like we would have to re-frame our metrics, our very definition of “innovation,” in order to satisfy the social goodness scale. We can’t measure non-profits, or even self-sustaining social enterprises by their margins, or really even by their revenue. The more time we spent working with these organizations, though, the more apparent it became that our definitions and metrics were exactly what social innovation needed.

Measuring progress is something non-profits and social ventures excel at. The perpetual rewards for accomplishing some task, aiding some individual, or making some discovery are the core of what most non-profits release every year in their glossy annual reports over-flowing with smiling children standing shoeless in a dusty savannah.

What most social goodness scales fail to capture is a measure of impact. Simply checking boxes and applauding unit by unit improvement is not a way to redefine industry and drastically reduce poverty. As mentioned in the Huffington Post by our very own Hitendra Patel, “NGOs' potential impact diminishes with every passing year as the size and scope of social problems are increasing at a much faster rate than NGOs are prepared to deal with.”

Using more traditional metrics and methods of competition can help traditional social ventures make impact in real ways. It’s taboo to measure a social venture in terms of “market share,” that is, the number of customers served given the total number who seek a given product or service. We can’t hold social ventures to these standards. Why? Because, to be perfectly honest, they’d all fall flat on their faces as failures if we did. We can’t even call their beneficiaries customers. It implies that the organization would have some sort of obligation to act responsibly in the eyes of these beneficiaries. Instead, in order to maintain their donor-dependent business models, the only people non-profits demonstrate an obligation to serve are wealthy donors.

IXL Center is taking a red pen to these established rules.

There are three basic premises our social innovation thought leadership aims to break: first, that social enterprises should not be expected to make impact at the levels private corporations do; second, that competition within social arenas is harmful for the end beneficiary; and finally, that social enterprises don’t need to have traditional consumers.

Make more than a drop in the bucket

Honorable as they are, non-profits are failing to make the difference they seek. This is not to minimize the importance of non-profits or the work they have done in the last decades, aiding those who suffer from some of the most horrible conditions imaginable. It is also clear that poverty is complex; non-existent infrastructure, variable (and limited) income, and geopolitical instability around the world can crumble even the strongest of solutions to poverty.

Even so, we have to stop accepting the status quo. We have to stop applauding progress one micron at a time. Every year, NGOs produce charts, tables, and heartwarming stories of progress. Any year better than the year before is proclaimed from the mountaintops as “success!” The first step we must take is changing the frame of mind that has led to this attitude. It’s important to show where donor money is being spent; it’s also important to maintain accountability. What these groups are missing, though, is targets.

Targets (when they are being set) are too small. They are too focused on the present. Arthur D. Little consultancy recognizes the importance of “Ambition-Driven Strategy,” as opposed to “Condition-Driven Strategy.” (FIGURE 1)

NGOs are facing tough conditions, no doubt, but they must turn the tables and let their strategy shape the environment. Step-change is needed to make a difference, not the steady improvement that is failing to even keep pace with increasing demand.

IXL METHODOLOGY: Help NGOs set stretch targets that are bigger, bolder and more ambitious than anything they have discussed before. Use these goals to craft strategy and identify potential partners who may be points of leverage to exponentially increase impact.

Embrace the dog eat dog world

In Kibera, a slum outside of Nairobi, Kenya, the government estimates there is one registered NGO for every 15 residents. How is it possible with each NGO responsible for only essentially 15 people that the slum has not completely eradicated poverty? Two reasons.

First, NGOs are incredibly inefficient. Part of this comes from the false belief that NGOs are not subject to the same rules as private business. There are no “shareholders” to please, and so long as donations continue to come, there is no driver to reform a governance structure that looks like a sloppy-joe-and-spaghetti-sandwich.

Second, NGOs have failed to recognize the competitive landscape they operate in. NGOs compete daily for the attention and trust of an audience who have little to spare. A poor choice at the bottom of the pyramid (BOP) is much more harmful than for someone with higher disposable income. For example, choosing to trust an NGO offering a new technology to purify water for $2 can wipe out a family’s savings. Even non-profits who charge nothing are asking their consumers to trust that spending their time in a certain way will bring them more benefit than spending it in any other.

NGOs have to recognize the “ask” they are putting on their consumers. They must recognize there is a competitive network around them that is also striving for a piece of minimal wallet share. More importantly, though, NGOs should realize that these other organizations provide more opportunity than threat. Partnerships and cooperation will lead to more effective competition and will weed out less valuable offerings.

IXL METHODOLOGY: Use competition to help drive excellence. Don’t accept that “goodwill” is a good enough reason for an organization to exist. Once NGOs have a strong market and offering, they will be a more valuable partner and will be able to recognize which partners will provide the most benefit to scale their own impact.

Turn them into consumers

Research has continuously shown the importance of value exchange. NGOs who provide solutions for free find that the money inputs run out long before demand and that solutions without a price just don’t stick.

Although consumers in the BOP have limited income, we are finding new ways every day to segment products and services to charge small fees. We are also finding ways to make technology cheaper and reach consumers who may be further away. Many NGOs have started to rebuild their business model using subsidized prices through donations. This is a step. However, NGOs should still strive to create business models that are fully sustainable.

By implementing sustainable, donor-free business models, not only do consumers place more value on the offering, NGOs too, have to work harder for the individuals who are holding up the business, their consumers. Private enterprise has been successful because of a direct accountability held to the end consumer. In fact, the revival of the “customer-focus” jargon that has hit marketing materials all over the world is a distinct representation of the fact that consumers determine the success of any organization.

IXL METHODOLOGY: Find a business model that works. Value exchange is the core of business transactions. Make allowances for variability in income and education level. Use lean operations. Look for new places and methods to capture value. Always focus on the consumer.

Building the next generation of social ventures will not be easy, but improving technology, understanding, and connectedness is making it easier than ever before.