If our expectation is correct – that disruption will occur – ICSOs need to develop new business models to either complement or replace some of their existing ones. Today, many ICSOs rely on only one major business model. Should that model be hit by disruption it would be fatal for the organisation. Therefore, making sure that the organisation has several successful business models to depend on is the most important step in preparing for disruption. Other recommendations of the Centre’s 2014 working group on New Business Models point to the need for ongoing adaptation of successful business models to the changing requirements of the external world and systematically looking for new and innovative models the organisation can take up. The question we will discuss here is: which business models will serve ICSOs that want to drive the transition?
Given the predominance of the intermediary services model and its enormous financial importance the most obvious starting point for the search for new business models is here. Can we envisage a new intermediation model which is compatible with ICSOs’ endeavour to address the causes rather than the symptoms of the emerging crisis, to strengthen its activist base and to open up and attract wider support by changing from silo to platform? In addition and above all such a business model would have to secure ICSOs’ competitiveness with the new virtual CSOs that link up donors and recipients at a much lower price.
Intermediary services ‘lite’
One of the dangers of analysing a potential major shift such as the decay of ICSOs’ most successful business model is to be too confined to the logic of the past. This happened to Kodak when they assumed that China and other Asian markets, like all its customers before, would buy cameras using chemical film first before shifting to digital ones. They did not: Kodak’s fatal mistake. This can also happen to ICSOs if they make the wrong assumptions about the preferences of their ‘customers’. In a recent discussion about the threat to the intermediary model, one of the participants said: “We will have to work harder to convince donors of the advantages of our model.” A Kodak manager may have said: “We will have to improve our marketing in China”. But once disruption strikes marketing or convincing donors will not prevent change.
If an ICSO wants to drive the transition rather than mitigating the effects of our failing development paradigm, can they continue offering intermediary services at all? I believe that they can and should offer such services, however, with a significantly different approach and direction. The projects the ICSO offers to donors should aim to contribute to the transition. Examples for such projects are: sustainable energy supply, sustainable agriculture or sustainable use of fresh water as means of fighting poverty, protecting biodiversity while at the same time furthering people’s livelihoods, reducing the waste of scarce resources in the North thus creating better foundations for development in the South, and many, many more effective approaches to promote equal access and sustainable use of scarce global resources. Connecting donors and recipients in support of innovative projects which drive the transition is certainly a worthwhile endeavour. So, if ICSOs are prepared to adjust their programmes, would they be able to compete with much cheaper virtual CSOs? The answer is ‘yes’, but only if they can offer intermediation in a more open, less controlling form and at a much lower and more competitive price. How could the latter be achieved? ‘Cutting costs’ is the obvious answer: cutting costs of those services the donors consider less relevant.
For instance, programme administration can be streamlined significantly. Today you can find up to five different levels involved in one and the same programme: the global office, a national affiliate, a regional programme coordination, a national field office and a provincial/district liaison office. This structure is partly due to ICSOs’ difficulties in accommodating their nationally determined past in a globally determined present. Running such a complex structure is not in the donor’s interest. If we stick with the donor for a moment: From her perspective the provincial/district liaison office is by far the most important programme support. This office makes sure her donation arrives fully and safely at the project and that the funds are used in line with the proposal the donor accepted. All other programme structures are not meeting the donor’s immediate needs. Having a physical presence at or near the project which secures programme quality and prevents theft and fraud is certainly the biggest advantage ICSOs have left in the competition with virtual CSOs. As long as virtual CSOs do not have a comparably effective protection against fraud, ICSOs can use this feature to their advantage. From a management point of view you would want to have a second entity which the liaison office reports to and is supervised by. Whether this second entity is based in the project country, the donor country or at global level depends on the ICSO’s philosophy and governance. By scraping three of five programme support levels a significant amount of money could be saved.
Advocacy is another component donors who want to sponsor projects often do not want to support. However, the impressive success of organisations like Greenpeace and Amnesty International shows that donors for advocacy and campaigns can be found; but they seem to be different from the ones who support service delivery projects. All too often I have heard project focused donors explicitly stating that they do not want to support advocacy, which many of them see as undesirable political intervention. Taking the costs of advocacy and campaigning out of the equation and raising funds for these activities separately would further reduce CSOs’ overheads.
Facilitating direct communication between donor and project rather than compiling, selecting and distributing information themselves would not only reduce the overheads of inter-mediation it would also meet a demand, specifically of younger people who use the internet to communicate directly rather than going through an institution. This would also be an important step towards building a platform on which not only donors can meet recipients but also other donors, and recipients can not only meet their donors but also other recipients.
Fundraising is the most demanding challenge in reducing the costs of intermediation. Already, the costs of fundraising have been the focus of public debate, and many donors complain when they find out that the often considerable costs for bringing them on board have to be deducted from their donation. In the face of the very limited marketing costs virtual CSOs have to cover, the continuous increase of fundraising costs for traditional intermediation will be very difficult to justify. But, as donors move to virtual CSOs, ICSOs’ urge to ‘educate them’ in order to make them stay will further increase rather than reduce the fundraising costs. Bringing fundraising costs back under control will be the single most difficult aspect of developing a competitive intermediation model.
If we assume that virtual CSOs will be able to further reduce the risk of fraud and that with increasing economies of scale they will be able to keep their overheads at around 5-10% of donations, ICSOs will probably be competitive at a level of about 15% overheads on the basis of better average project quality which they can secure. This would mean that many ICSOs may have to halve the overheads they charge today.
While intermediary services are based on a charitable concept – those who have resources share with others who don’t – self-sustaining services need to generate the resources they need out of their own activities. Most social businesses follow this track. Two major ICSOs that have their roots in Asia – in Bangladesh, to be precise – Grameen and BRAC, have been founded as self-sustaining services. While their activities specifically focus on poor and marginalised people, most programmes are based on sustainable business models and generate the funds they need to keep going from the activities they undertake. Microcredit is the most well-known among a large range of different activities following similar principles. While social business is sometimes criticised for not reaching the poorest of the poor or for allowing poor people to accumulate relatively large debt, its basis of communal self-help is a very empowering approach. It takes poor and marginalised people out of the role of recipients of charity and provides them with a framework (microcredit, micro-insurance, agricultural inputs and advice, etc.) which allows them to emerge from poverty by their own efforts.
Many of these programmes require some initial investment or additional funds for scaling up, but once they are running they can sustain themselves. Some of the major ICSOs are running microcredit schemes or other self-sustaining activities. And, as millions of people emerge from extreme poverty and acquire more opportunities to help themselves, the scope for self-sustaining services increases. Microcredit, micro-insurance, local social security schemes and cooperatives in agriculture or cottage industry are some of the services which will be in growing demand. However, as these schemes can be and should be conducted under the leadership of the people who are supposed to benefit, they are not very suitable for a charitable model which needs to take the donor’s interests into consideration. This is probably one of the reasons why self-sustaining activities supported by ICSOs based in Europe or North America have not achieved a comparable status to the ones promoted by Asia based ICSOs – and by many national CSOs in the Global South that otherwise couldn’t sustain their work in the long run.
The main hindrances for ICSOs adopting a self-sustaining services approach are twofold: firstly, their genesis, their history and their organisational culture tie them to a donor-recipient model which contradicts the self-sustaining one; and secondly, their extensive and expensive structures cannot be maintained by the meagre overheads a project of poor and marginalised people can sustain. This means that turning self-sustaining services from a fringe activity into a core one will demand a similar, if not bigger, reduction in costs as the one described in the earlier chapter. However, with their extensive experience and global presence many of the major service delivery ICSOs would be well placed to shift into self-sustaining services as an alternative should traditional intermediation become unfeasible. A combination of intermediation ‘lite’ and self-sustaining services, both based on a much leaner structure and more efficient processes may be an attractive business model for some of the major ICSOs.
Another business model ICSOs may wish to consider is the development of business arms that generate a profit which in turn subsidises not-for-profit activities. The Oxfam shops are probably the best known example of such a venture. Areas in which ICSOs have considerable experience are usually best suited as starting points for a business venture. Services which ICSOs may wish to offer on a for-profit basis might be project implementation, monitoring and evaluation, advisory services or training in their fields of expertise. However, developing for-profit services does not just mean starting a business. It requires a significant change in the organisation’s culture and approach to work. Starting a business most probably means competition from companies which have already been working in the specific field and are not very likely to welcome a new competitor with open arms. It means securing both efficiency and effectiveness of the business arm and making sure that the venture delivers a sizeable profit as it otherwise would not justify the effort. An approach which tries to run the for-profit venture along the lines of the not-for-profit one is most likely to fail. Therefore, in order not to be held back by the traditional ICSO culture, it is probably best to separate the business arm as far as possible from the ICSO’s decision making and way of working.
Ideally, ICSOs’ for-profit activities should drive the transition. For instance, both in my office and at home my electricity supplier is Greenpeace Energy, a cooperative founded by Greenpeace Germany which supplies sustainable energy. While such a venture does not necessarily produce a profit which can maintain the ICSO’s not-for-profit programmes it very much drives the transition – here towards sustainable energy – and covers its own costs: a brilliant idea to be adopted and adapted by any ICSO wanting to drive the transition in their specific field. While these and other possibilities to develop a for-profit entity look like viable options I have some doubts whether ICSOs can and would like to develop such ventures to a level which would guarantee profits matching the size of their present income from donations. As a consequence, at least for the foreseeable future, for-profit services are likely to complement but not fully replace ICSOs’ income from donations.
ICSOs’ advocacy and campaigning can be seen from two angles. On one side there is a lack of effectiveness of all too many campaigns, especially when you compare the changes achieved with the changes which would have been necessary. On the other hand increasingly successful internet-based campaigns, which run without or with very limited ICSO participation, often attract more people and are more effective. Sooner or later this development may confront campaigning ICSOs with the choice to either change their campaigning approach or withdraw into a specialist niche or stop campaigning altogether.
ICSOs’ growing efforts to protect their valuable brands hamper cooperation with others and negatively affect the success of common campaigns. But it is not only brand protection that impedes optimal outcomes. At all levels of management one can frequently observe the endeavour to be a “big fish in a small pond rather than a small fish in a big pond”. But it is not only many managers who are hesitant to engage in partnerships with other organisations; often the staff are unwilling to cooperate with others: recently the CEO of a campaigning organisation told me how he tried to build partnerships with other organisations only to be told by his proud colleagues that they were the best in the sector and didn’t see the necessity to cooperate with the second best. This leads to a preference for smaller campaigns that can be more easily influenced and controlled. At the same time the internet has created a basis on which innumerable campaigns can coexist. More fragmented and more diverse media and a decreasing public attention span continuously raise the threshold for campaigns’ success. Campaigns which do not reach a critical mass do not generate any impact. Therefore the trend towards smaller campaigns run by a single organisation is counterproductive. Another factor preventing the emergence of powerful joint campaigns is the unsuitable global governance of many ICSOs, which forces them to turn their focus to reaching internal agreement among affiliates rather than forming a wider coalition.
ICSOs should consider two specific strategies towards more successful campaigns: the ‘all out’ approach which tries to bring on board as many interested parties as possible; and a selective ‘coalitions of the willing’ approach aiming to progress on the basis of the most advanced actors. We will look at the ‘all out’ strategy here as it requires a change to the business model. This strategy is built on common ownership and thus ICSOs cannot run and control the campaign. They should rather see themselves as providing campaigning services to the overall partnership. This also means that ICSO brand promotion needs to take a back seat to securing the success of the joint campaign.
In order to play such a role ICSOs need to overcome their habit of dividing the world into ‘them’ and ‘us’ categories. Traditionally you are inside the organisation if you are a member or supporter, an activist or employee, otherwise you are outside. While this approach is certainly effective in securing coherence and consistency throughout the organisation, it is of little help if you need to conduct mass mobilisation to achieve your objectives. Widening the supporter base for your cause – and not necessarily for your organisation – requires you to accept shared ownership, shared control and, eventually, shared success. Over the last few years the corporate world has been undertaking major efforts to lower the barrier between customers and company. The ideal is that everybody, whether inside the company, a stakeholder or a customer is part of the company’s community. It is ironic that many companies are more advanced in terms of cooperation and finding new models of relationships than the average ICSO.
Some of the larger campaigning ICSOs run impressive campaigning platforms, both in the material and in the virtual world. Placing these platforms at the disposal of the whole campaign or advising the campaign how they can develop similarly effective platforms would be a very valuable contribution. Seconding experienced campaigners, providing advice on strategy, tactics and concrete action, training others, providing legal advice and logistical support, contributing finance: the list of possible contributions is endless. In the past, ICSOs have supported wider campaigns with some of these services, but rarely in a systematic way. And, if you ask other participants of such campaigns you often hear criticism that such support often came with a strong claim of exclusive ownership of the whole campaign. If ICSOs are willing and able to provide effective services to common campaigns, without claiming sole ownership or control, without dominating decision making and without putting their brand in the limelight they can often achieve much more in advancing their mission than by promoting their own organisation. In brief: an ICSO that wants to be a good contributor to a common campaign needs to prioritise achieving ‘impact towards mission’ over all other objectives. Under such a perspective, a campaign that brings publicity, strengthens the brand and increases the number of supporters but does not achieve much progress towards the organisation’s mission cannot be regarded as a success.
The business model behind such an approach needs to be solely driven by the objective of achieving ‘impact towards mission’. All other objectives need to be de-prioritised and redefined as servants to the one overarching aim. Such an exercise of refocusing the organisation on its mission should be undertaken by any organisation from time to time. Old and large ICSOs with their baggage of history and their enormous complexity are specifically prone to mission creep and require regular re-focussing. An organisation that is solely driven by ‘impact towards mission’ will not find it difficult to provide campaigning services rather than conducting a campaign of its own if that is likely to deliver better results towards its mission.
So far we haven’t spoken about the financial dimension of this business model and I imagine the fundraisers’ arguments will rightly point out that a campaign which is not branded for the organisation will prove difficult in bringing in the funds required for running the campaign. This takes us to a relatively new funding instrument emerging as a component of internet-based activism: crowdfunding.
Crowdfunding – going viral
Crowdfunding is not a business model as such. It is a funding model which can probably be used to secure income streams for all the different business models presented here. To date, successful crowdfunding efforts are limited in both size and numbers. However, some individuals and organisations have managed to fund specific activities with the help of the crowd and recently some ICSOs have started experimenting with crowdfunding. We can expect that in a few years’ time crowd-funding will be part of many ICSOs’ fundraising portfolio.
As discussed before: driving the transition will require a broad and dynamic activist base. Building such a base will best succeed by using self-replicating, ‘viral’, processes. Developed by business and increasingly applied by ICSOs, viral marketing uses social networks to spread their messages widely. ‘Going viral’ means addressing a number of individuals, or followers, in social networks who then express that they ‘like’ the message and pass it on to their circle of friends. Ideally this spreads the message exponentially. The combination of viral campaigning and crowdfunding or viral project marketing and crowdfunding look like very promising future business models for influencers aiming to drive the transition. Viral approaches are incompatible with silo mentality, but for the influencer digital platforms for viral activities are an exciting new world which needs to be explored and used to their best advantage.