* (a quote from the Electric Kool Aid Acid Test by Tom Wolfe)
By: Adrienna Zsakay
Note: For the purposes of this article, and despite the different roles non-government (NGO’s) and non-profit organisations (NPO’s) may play, a generic term of ‘third-sector’ will be used. In addition it is recognised that many do generate surpluses to be financially sustainable.
“Should all social innovation be primarily profit and market driven?” was the question up for debate during the recent Asian Forum on Corporate Social Responsibility in Bangkok.
It was an interesting question to raise, in turn provoking mixed reactions as was to be expected. Non-profits see their work as necessarily separate from the market and thus not bound by the same rules. Often referred to as the third-sector and according to Peter Drucker”.different and separate from both the governmental and the business sectors and their respective values and cultures.”
Whereas there is an obvious need for a third-sector in most societies and many countries, the danger that rests with this sense of separation may not just be harmful within the internal mechanisms of the organisation itself but also for the interplay with the rest of the world.
So why was this question so hotly debated? The essence of the question is in how each group, the third-sector and for-profits see themselves and each other. Many delegates at the conference agreed that the question was badly worded by the use of ‘all’ and thus the YES camp had no chance of winning. In the final count the tally was 84% against with 16% for.
Yet the question was indeed framed correctly. In fact all social innovation, regardless if it comes from for-profit companies or third-sector organisations, is already primarily profit and market driven. We are caught up in using very narrow definitions and as our society becomes increasingly more complex we have neglected to consider what profit and market drivers may mean and offer in the broader context.
For the moment, let’s leave standard definitions out of this discussion. Instead let’s look at the fundamentals behind profit and being market driven.
The common ground
All entities start by filling a need in the market either through a product, or service or, in the case of third-sector organisations where the purpose is to change human beings, further social, environmental, cultural objectives or goals and improve economic well-being . This response is the very basic fundamental of the market, the demand and supply function.
Amnesty International responds to the demand of civic society’s need for accountable political systems. Greenpeace responds to the demand that the human race may be ignorant of the strains we put on the planet. The multitude of foundations responds to the demand that governments don?t always have all the fiscal resources to provide the services a society needs.
- Drucker, Peter, “The Third Sector: America’s Non-Market Counter Culture”, Social Contract Magazine, Winter 1990-1991.
- UK National Audit Office “What is the Third Sector?”
Responding to consumer and society?s demands brings competition. There is almost no company or organisation that does not compete or have competition. Even third-sector organisations compete in what is becoming a more and more competitive environment not just for the charity dollar but also in the enlistment of the communities whom they service.
The paradox appears to be that many third-sector organisations do not see themselves or their actions as needing to embrace any of the same principals as for-profits. Why does the third-sector need to grasp the idea that they fill a demand, have a customer base and seek profit?
The rationale if this is quite sound. Companies have a range of tools available to them to generate success. These same tools can be used by the third-sector to also generate success.
For example in order to compete effectively, both for-profits and some third-sector organisations already resort to a range of sophisticated marketing methods and tools in which to build their brand, attract paid and voluntary staff, appeal to customers or seek donations.
Such tools include market research to understand their customer base, the use of the latest technology, beautifully designed websites, graphic brochures, product designs, enlisting respected celebrities to gain attention, the development of seasoned campaigns that act as product launches, fund raising, activist initiatives and the list goes on.
Yet more importantly, for-profits and the third-sector all work on the same emotional touch point of ‘trust’ or a shared ideological belief. For-profits create brands that we learn to trust and thus purchase and third-sector organisations build trust through a sense of identity or belief around a cause or social goal.
Interestingly enough, according to the PR firm Edelman, for the fifth year in a row, NGO’s have rated the most trusted institutions in the world, in 16 of the 25 countries surveyed. Among the 35 – 64 year olds in China this trust is at an all time high of 79%. Likewise in India, trust in NGO’s has surged to 68% among 35 – 64 year olds’.
Aligning to market realities
All this then translates into profit. Companies gain monetary profit and the third-sector gain profits in trust and credibility from both the people who sometimes have no knowledge other than the brand they are donating to and the recipients of the aid or service being provided.
The market is an extremely powerful and unforgiving function. Companies and, in particular, multinational corporations have often lamented that the third-sector does not understand the profit motive. And by all the standard definitions they do not. But by embracing a broader context of profit and being driven by market forces, we all share the same world.
The third-sector is growing substantially, especially due to philanthropy being seen as an off-shot of CSR. The basic functions of what makes a company profitable can be successfully applied to the third-sector without the risk of any of the ideological values being undermined.
By including the third-sector into a competitive market environment enables for better services, more bang for the charity buck and increased efficiency. By embracing market principles third-sector organisations are required to be more responsive to their customers, can help shape innovative solutions for the future, understand what competition means and achieve growth that should in turn enable more tasks to be accomplished.
‘NGOs Most Trusted Institution Globally’ Edelman Trust Barometer 2012,
Innovation, regardless if it is social or not, is now increasingly becoming hard wired into our world. It needs to be part of the evolutionary environment that all sectors of the economy and society must cultivate to survive.
There is a growing body of ideas and solutions that is increasingly drawing on the success of business practices to drive social innovation. The less hesitant the third-sector is in accepting that market functions and principles really do have a lot of offer, the easier it will be to bridge the current divide.
CSR is looking for new ways in which to keep the momentum going. It is this very divide, the divide of definitions and how we see each other that should be addressed.
The whole CSR community needs to accept that the third-sector and for-profits, all have the same beginnings, can all use the same tools and are shaped by the market they exist in. From that point it is then a small step towards accepting the broader context of profits and what drives trust and credibility other than altruistic messages of wanting to make a difference.