Effective giving is its own unique discipline because it typically involves addressing the very challenges that have defied market or government solutions. (Buchanan, Giving Done Right, 2019)
In previous issues of Invested, we have explored the intersection of business and philanthropy. From social enterprises and impact investing to ethical consumerism, we've seen philanthropic efforts increasingly adopting business strategies. This trend, often referred to as the "biznification" of philanthropy, blurs the lines between traditional charity and business ventures. However, while these business strategies can be beneficial for social enterprises, strictly charitable organizations should embrace approaches rooted in the principles of charity and community.
Strategy in Philanthropy
Phil Buchanan (2019) has extensively examined the potential pitfalls of applying business strategies to philanthropy. Many philanthropists approach complex social issues with the mindset of funding breakthrough innovations that can 'disrupt' problems, akin to how Uber disrupted the taxi industry. The issue is not with strategic thinking itself—pursuing activities that align with a foundation's goals is crucial. The problem arises when 'strategic philanthropy' is misinterpreted as a detached, top-down process, focusing on the 'uniqueness' of individual actors as if they were competitors in a market.
In philanthropy, unlike business, strategy should not be about standing out but about fostering a collective approach across institutions and communities. Tackling the most challenging issues requires recognizing the complexity of cause and effect and the importance of collaboration. In the competitive world of business, a unique strategy is essential. In philanthropy, however, an isolated strategy is almost a guarantee of failure. (Buchanan, Strategy Done Wrong, 2019)
This top-down approach can also strain relationships between funders and grantees, highlighting the need for a more cooperative, community-focused mindset in charitable endeavors.
In too many conceptions of so-called strategic philanthropy, the giver is the locus of strategy – and of control… Not only are plans often separated from implementation, they’re often developed in isolation from those doing the work – the grantees supported to execute the strategy. (Buchanan, Strategy Done Wrong, 2019)
Grantees must be treated as central partners in the strategy process. They are not only the main executors of the strategy but also possess the on-the-ground knowledge and experience essential to discerning valuable ideas from ineffective ones.
How Biznification Can Affect Philanthropic Impact
In business, the drive to quantify impact often results in oversimplified measures that offer little meaningful insight or, worse, are misleading. Over the past two decades, the push for universal metrics in philanthropy—akin to corporate metrics like ROI—has obscured essential distinctions. Venture philanthropy firms frequently evaluate the impact of the nonprofits they support using metrics such as 'lives touched' or the 'cost-per-life' ratio. While these metrics may appear impressive on paper, they often fail to reflect the true positive impact on the populations being served.
Buchanan (2019) recounts a case where a friend, a founding board member of a nonprofit, was denied funding by such a firm due to a purportedly high cost-per-life-touched ratio. Buchanan quotes, "I could give every poor child a lollipop for a low cost-per-life-touched number, but that won't create real impact." (Buchanan, Giving Done Right, 2019)
Evaluations of philanthropic effectiveness are inherently subjective and dependent on specific goals. Donors of all types should use data to enhance their effectiveness, but they must first clarify their objectives. They need to identify strategies likely to yield progress toward these goals, select robust organizations that align with their objectives and strategies, and provide these organizations with the necessary support. Continuous assessment of performance and iterative refinement of strategies based on what they learn is essential. This loops back to the previous section—grantees must be treated as central partners—and set-backs or failures are a part of the process and should not hinder the grantee’s reporting to the funder. (Buchanan, Giving Done Right, 2019)
Effective philanthropy requires a distinct approach that diverges from traditional business strategies. While the integration of business principles can benefit certain social enterprises, the application of these principles to charitable organizations often leads to misguided and ineffective outcomes. Philanthropy thrives on collaboration, community engagement, and a deep understanding of complex social issues, which cannot be adequately addressed through top-down, market-oriented strategies. Metrics borrowed from the corporate world may oversimplify the nuances of philanthropic impact, highlighting the need for more meaningful and context-specific evaluations. Ultimately, the discipline of effective giving lies in recognizing and navigating the unique challenges that philanthropy seeks to address, fostering a cooperative environment that prioritizes real, lasting impact.
Bibliography
Buchanan, P. (2019). Strategy done wrong (SSIR). Retrieved from https://ssir.org/books/excerpts/entry/strategy_done_wrong
Buchanan, Philip. (2019). Giving Done Right: Effective Data for Philanthropy. Retrieved from https://magazine.blogs.wesleyan.edu/2019/05/20/giving-done-right-effective-data-for-philanthropy/
Branson, R. (2024). Approaching philanthropy with entrepreneurial thinking: The story of founding Virgin Unite 20 years ago: Virgin. Retrieved from https://www.virgin.com/branson-family/richard-branson-blog/approaching-philanthropy-with-entrepreneurial-thinking-this-is-the-story-of