Framework vs. Franchise: Why Business is an Ineffective Analog for Philanthropy

In the February 24, 2014 issue of the Chronicle of Philanthropy, Phil Buchanan authored another strong opinion piece, Unlike For-Profits, Nonprofits Succeed By Sharing the Work and the Glory. In a growing quest for significant outcomes and measurement, he notes “The analog seems always to be business, where the focus is on competition among institutions – a zero-sum perspective in which organizations strive to best each other.” He credits the genesis of this movement, a “conflation of performance in philanthropy and institutional competition,” to two 1990s Harvard Business Review articles. Combined, these encouraged foundations to: take a venture capitalist/investment adviser approach; establish niche pursuits/programming; and “unique positioning” relative to the field.

While Mr. Buchanan makes a compelling case for why foundations should work together to solve pressing problems, we need to examine more fully why business as an analog for philanthropy does not withstand close scrutiny. It certainly is a seductive notion. I can recall reading those very articles as a young, inexperienced program officer and thinking I had just been let in on a special secret.

Some 20 years later, it is difficult not to question the unintended consequences resulting from philanthropy’s embrace of a business approach and some related practices. One of these is found in feedback from grantees, which increasingly includes comments that they feel like contractors asked to implement foundation solutions rather than their own. It helps reveal that the parallels between philanthropy and business are more akin to those of apples and oranges. Surely, parallels exist, but the closer one looks, the more apparent it becomes that each should stand alone.

With the continued evolution of our field, the time has come to move beyond business as an analog for philanthropy. We need to explore new ways to think about our daily philanthropic work and how the manner in which we conduct it impacts those we seek to serve. Much of what follows may seem obvious. Yet, that might be the root of the problem. Amazon founder Jeff Bezos is quoted widely as saying about business, “It’s very hard to maintain a firm grasp of the obvious.” So, yes, ironically, this may be a shared problem.

At the most basic level, any business is driven by self-interest; first to survive (break even) and then to thrive (maximize profits). Raw, relentless efficiency drives profit. In stark contrast, foundations exist to help others, in some cases to survive and in others to thrive. While there are many business related methods and tools that foundations can and should adopt to maximize grant effectiveness and operational efficiencies, fundamentally, we exist to help people. Therefore, how we approach our work is of critical importance and should be shaped to account for inevitable inefficiencies.

Any social worker, teacher, nurse, pastor, parent, etc. knows the inescapable truth that helping people is inherently inefficient. It is simple human nature that people can only be helped when they are ready for help. This moment is unpredictable and comes only from within. Engineering circumstances and/or telling someone what, when and how to solve a problem may work for some in the short run, but it fails for most in the long run because the solutions originate externally. Sustainable solutions to address persistent, vexing problems must come from within the person(s) needing assistance.

The same can be said for organizations, particularly nonprofits. A business can develop a model practice or franchise and go to scale with relative ease. A restaurant, for example, can expand rapidly through franchising. A manufacturer can set up identical factories anywhere that raw materials and trained labor are available efficiently and inexpensively. Effective nonprofits, on the other hand, must operate where people need help and many must find solutions without relocating. Each location and each nonprofit is comprised of unique individuals who form unique organizational cultures to deal with unique circumstances at differing stages of their organization’s life cycle. Therefore, helping the nonprofit sector is more complex than the business sector.

This is why the notion of “frameworking” versus franchising should be a key guiding principle in philanthropy. Franchising, as it relates to problem solving, is the equivalent of relying on a toolbox with a relatively limited set of solutions. Often unwittingly or in pursuit of efficiency, a foundation will seek to “attach” solutions from its toolbox to problems they perceive in society or organizations by: heavy-handedly reshaping proposals received; too narrowly defining their guidelines or RFPs so as to hinder grant seekers’ creativity and initiative, or seeking to scale up inflexible programs and organizational structures. In other words, issues that emerge become nails that need to be hammered.

I have come to think of this as a prescriptive grantmaking approach. Truly organic, lasting solutions, which grantees feel empowered and energized to pursue, are replaced by seemingly more efficient and effective prescriptions that the foundation hopes to fund. Often, this prescriptive approach is unintentional on the part of foundation trustees and staff because the power dynamic has grant seekers wired to pursue even the slightest indication of a foundation’s interest. To the grant seeker, a “free flowing exchange of ideas” is another opportunity to figure out what a foundation really wants to fund.

This suggests that effective foundations understand how truly difficult it is to help people. They recognize the inefficient nature of this work and develop frameworks through which they practice the patience and self-discipline required to empower individuals and organizations. In replicating successful programs, they do not stamp out franchises elsewhere, but rather, fund strong, flexible program frameworks that can be customized in each location to meet unique needs. These foundations take a long-term view by partnering with grantees as they learn from mistakes and mature, which is the best way to support meaningful and lasting change. It may not be efficient immediately but it works more effectively over time. It is what Elizabeth McCormack from the Rockefeller Foundation means by “control-off” philanthropy.

Does this mean that foundations should forgo outcomes and efficiency? Absolutely not! We all should pursue them. Note that Elizabeth McCormack does not advocate hands-off philanthropy. Control-off means that we are ever mindful of the manner in which we pursue outcomes and efficiency.

For example, overplaying outcome evaluation relative to process often hinders a true partnership. One of the great ironies for trustees and staff from foundations that do this is that they would probably be distraught if their children had teachers who were teaching to a standardized test. Yet, by putting too much pressure on grantees to meet overly objective targets for helping people, they are, in effect, pushing their grantees to “teach to the test.” Grantees want more grants. They are going to do what they feel they need to do to please their funders, even if this means sacrificing what they consider important to meet inflexible, predetermined goals. This, in turn, hinders organizational learning and creativity, which eventually limits the long-term impact of those grantees.

In truly helping people, we also should not overplay new and novel approaches. Another common complaint from grant seekers is that foundations are looking for new, shiny projects and causes to fund. This is the business equivalent of venture capitalists funding creative destruction, which is inherent in capitalism. Often, this devolves into a game where savvy grant seekers, to avoid the inefficiency of starting over, rebrand their existing efforts into a “new” program or approach, then apply for a grant. What is wrong with supporting good, solid existing programs to help them improve? Foundations that invest only in novel ideas or “unique” approaches seek elusive silver bullet solutions. They risk assuming that strong ideas are derived in a vacuum. Many great ideas, even new and innovative ones, are borne from and operate best through existing platforms of strong work and lessons learned, and provide built-in efficiency. They are derived equally from knowledge and wisdom.

The philanthropic sector has matured considerably since the 1990’s. To some extent, the parallels to business were helpful in this maturation, serving as “training wheels” for thought in the sector. Now, the work we do and the needs of the people we serve are far too important for us to continue thinking of ways apples can function as oranges. Foundation staffs and boards of trustees should set aside business as an analog to embrace the notion of frameworks and the more flexible, balanced, partnership approach they require. We need to move forward and should do so without apology.

William Keator is vice president for programs at The Arthur Vining Davis Foundations. He began his career in philanthropy as the first program officer for the Jacksonville Jaguars Foundation.

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