Disrupting ICSOs’ business models

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In Wikipedia’s terms, “a business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts.”12 Many in civil society don’t like the term as it originally refers to for-profit business. We will use business model for our sector for want     of a more suitable expression. A group of thought leaders the International Civil Society Centre (Centre) brought together in 2014 agreed on the following terms: ICSO business models describe how an organisation pursues its MISSION by conducting specific ACTIONS and generating INCOME to sustain its operations.13

The graph below14 shows how the three main components are interlinked.

Chapter 3 - Business Model Canvas

At present most ICSOs’ business models focus on one of two categories: delivery of intermediary services (e.g. by project support, child sponsorship or humanitarian intervention) or advocacy and campaigning. However, no matter which category they focus on, practically all ICSOs are also active in the other one. In fact, over the last few decades a trend can be observed to cover both fields more equally. In particular many traditional service delivery ICSOs – for which advocacy previously has been taboo as “detracting attention from the ‘real’ work” – have made enormous efforts to complement their practical work with well-founded advocacy. Lately also campaigning is becoming more popular with service delivery ICSOs.

We will briefly review the two main categories of business models and point to some of the sources of potential disruption. In this context it is important to underline that we cannot predict which of the potential factors will eventually turn into a major disruption and when that may happen. For our purposes it is important to point out that disruption is a very real prospect for our sector and that we can and have to prepare to be disrupted.

Intermediary Services

The special feature of this model is the existence of two ‘customers’: one who pays for the service and another who receives the service, in ICSO terms: donors or supporters, usually from rich countries, and recipients or beneficiaries, usually living in poorer countries. ICSOs play the role of intermediaries who bring both sides together. In terms of finance the Intermediary Services model is the dominant one: All of the largest ICSOs play the role of intermediary in the donor-recipient relationship and most of their income stems from playing this role.

Traditionally intermediation has been essential because a donor in the Global North who wanted to support a country or a specific group of people or a specific cause in the Global South usually did not have the information required to identify the right recipients for their donation. Getting in touch with one of the well-known service delivery ICSOs usually resolves that problem: the ICSO has partners in the Global South and transfer, monitoring and evaluation instruments in place, which ensure that the donor’s funds reach the intended recipient and are used for the intended purpose. This intermediation service, which the ICSO provides has to be paid for, and usually between 20-30% of the donation is being deducted for fundraising, administration and other overhead costs of running the ICSO’s operations. At the end of the year the donor will receive a ‘Thank You’ letter containing a report on the progress of the supported project and the donation certificate required to claim tax relief.

But ICSOs’ intermediary role is not limited to individual donors; they play a similar role – on different terms though – for governments and government agencies working in development, health, education, environmental protection and other areas, for international organisations and for foundations and other major donors that cooperate with ICSOs in the implementation of their programmes. The principle is the same: ICSOs are providing the link between donor and recipient and charge a percentage of the total amount provided by the donor to cover their costs.

The future of the Intermediary Services model is under threat from a number of different, potentially disruptive developments. The most obvious one is the emergence of the internet as a global forum where donors and recipients can meet directly without intermediation or at least with much less involvement from an intermediary. Donors who are prepared to accept a higher risk of supporting a flawed organisation can find a large selection of potential recipients on the internet. For instance, if you search for ‘women’s projects in Ghana’ or ‘health projects in Peru’ you will be offered millions of links with at least the first few dozen appearing relevant and providing you with a solid basis for further research. If donors want to reduce their risk they can go through an internet platform providing a choice of projects, the existence and quality of which can be assessed through various means. In the medium term the emergence of more and better monitoring and verification instruments can be expected to further reduce the risk of financing a fraudulent scheme.

Provided the risks of fraud can be limited to an acceptable level, the advantages of internet-based project finding, support and monitoring over the approach offered by ICSOs are significant: The choice of projects is much wider than any one ICSO could offer; rather than waiting for the ICSO’s annual report on the supported project, donors can access up to date and possibly even real time information about their project whenever they want; and finally, the overhead costs of supporting a project drop from the 20-30% which the ICSO charges to between 0-10% at the virtual CSO.15 This means that donors will get a wider choice of projects and more direct access to their chosen project at much lower cost and – eventually – at comparable risk. Given these advantages it seems unavoidable that ICSOs will lose their role as indispensable intermediary. And as intermediation is the single biggest source of income for most of the major ICSOs, it is a surprise that panic has not yet set in. Many ICSOs still seem to follow a ‘business as usual’ approach.

When I ask colleagues why this is the case they mainly give three reasons all of which might also have been used by Kodak employees to justify a continuation of their ‘business as usual’ approach in the face of digital photography. Reason number one: “the risk of fraud in internet-based project selection and support is much higher than going through our ICSO” – the Kodak employees might have said: “the digital technology is unwieldy and requires a computer” (which in 1975 few people had). Both perspectives are obviously correct, but both underestimate how fast this disadvantage of the new competitor can be overcome. Reason number two: “our (ICSO) projects are of a better quality and they are embedded in a wider strategy thus achieving multiplication effects” – the Kodak argument might have been: “the quality of our films is much higher than that of digital photos”. While this is certainly true in many cases, this is an argument which professionals value much higher than the average donor. For most donors a close personal relationship with their project, or even better, with people involved in that project, is much more important than any wider strategic consideration: not by coincidence is child sponsorship, which includes communication between the donor and the sponsored child, such a popular concept. Reason number three: “Internet-based project selection and support is available for about ten years but it still has not had a lot of impact on the traditional intermediation approach”. After the first 10 years of digital photography, in 1985, Kodak would certainly have argued similarly and after 20 years, in 1995, when Kodak was still very much in a league of its own, those who denied the possibility of disruptive change would have had even stronger arguments: ‘20 years and not much has happened…’ But after 30 years, in 2005, there was no longer a point in arguing: digital photography had prevailed and Kodak was doomed.

Even in their cooperation with governments, international institutions, foundations, business and wealthy individuals ICSOs are under threat of losing their role as intermediaries. This emerging trend does not primarily result from the rise of internet communication but from developments in the Global South and from a related shift of thinking in the North. Today, often as a result of ICSO engagement, there are many high quality civil society organisations based in the Global South which meet the standards Northern donors demand in project implementation, monitoring and reporting. As a result an in-creasing number of Northern donors no longer see the need to go through ICSOs as they can directly support local organisations.

However, a trend in the other direction can also be observed: in order to save costs, some government agencies are outsourcing the administration of smaller grants either to specialised government agencies or to external partners such as CSOs or business. The latter trend provides a perspective for future ICSO engagement but it also points to another potentially disruptive development: business is increasingly entering traditional ICSO’s fields of service delivery for major donors, often underbidding ICSO proposals. For large programmes at least, this may confront ICSOs with the alternatives of either becoming more competitive by cutting costs and slashing highly valued aspects of their programmes, or withdrawing from this specific field of competition altogether.

Another area of major change concerns the subsector of humanitarian intervention. As a result of climate change and overstepping other planetary boundaries, the number and severity of humanitarian crises has been increasing and will continue to grow. This may cause the focus of funding to shift from long-term development to short-term emergency support. Much more money may need to be spent on humanitarian intervention and, as the market grows, so will competition, and more competition will intensify the pressure on all agencies involved to further professionalise and improve their cost effectiveness. With the significant amounts of money to be made in emergencies, it can be expected that major global corporations will offer their services in large scale humanitarian crises. At that point ICSOs working in this field may be confronted with the choice of becoming more business-like and more competitive or leaving humanitarian partnership with major donors to business.

Advocacy and Campaigning

Advocacy and campaigning is not unique to civil society. We can find examples in other sectors as well: campaigns for political office, information campaigns run by the government to promote health or education services, and lobbying, advertising campaigns or general brand promotion in the corporate sector. Among ICSOs, the specialisation on advocacy and campaigning is a relatively recent development. While some of the oldest organisations like Save the Children have been involved in advocacy from their very beginnings, these activities were usually run in support of their service delivery. Only with the inception of Amnesty International, Greenpeace and later Transparency International a type of ICSO took shape with advocacy and campaigns as the main focus. Today most advocacy and campaigning organisations are also conducting specific projects in support of their core activities.

The Advocacy and Campaigning model approaches broadly the same donors as the Intermediary Services model, but between the campaigning organisations the differences are significant: while Greenpeace raises the lion’s share of its income from individuals, Transparency International is being supported pre-dominantly by institutional donors. The main difference com-pared with the Intermediary Services model lies on the recipient side: usually there is no third party involved – the final recipient of funds is the ICSO which finances its advocacy and campaigns with its income. Donors pay for environmental, human rights, anti-corruption, debt relief and many other campaigns and the ICSO runs these campaigns on behalf of the donors. Often donors or other supporters are given the opportunity to support the campaign with activities of their own such as: writing letters to political entities, international institutions or companies in support of the campaign; running local information or mobilisation initiatives to rally wider support; and participating in demonstrations or other events of the campaign.

The range of disruptive threats advocacy and campaigning ICSOs may have to brace themselves for looks far less impressive compared with the ICSOs that predominantly follow the Intermediary Services model. But there are some early indications that this situation may change quite rapidly. The most visible civil society activities recently, such as the Occupy movement, the Arab Spring and the demonstrations in Turkey, were developed and run with little if any involvement by major ICSOs. This shows the limits of their existing model, which pre-dominantly builds on identifiable groups of the organisation’s supporters. The more spontaneous and open activities developed on major social networks can be faster and much more powerful. However, recent developments seem to indicate that in the absence of agreed objectives, a shared strategy and some kind of recognised and recognisable leadership, these spontaneous efforts to secure political change may fade away quite quickly. However, an indicator that this may not be the end of our story is the emergence of internet based campaigning organisations such as Avaaz or 350.org which, in the long run, may very well replace the campaigning ICSOs we have today. I have recently seen some of the most talented young colleagues in our sector moving from the ICSO they were working with to internet-based campaigning organisations. If this should become a trend it would certainly be something ICSOs should worry about.

Today we can observe a multitude of emerging new business models, all of which have the potential to disrupt ICSOs’ existing ones but also to serve as one of ICSOs’ future lifelines. To name just a few: New ICSOs like BRAC and Grameen, the first major organisations which have their roots outside Europe or North America, deploy a very different business model, basing their interventions mainly on local resources rather than bringing in funds and technological know-how from abroad; a new generation of foundations, most prominently the Bill and Melinda Gates Foundation take more business-like approaches and are much more driven by measurable impact; social entrepreneurs apply for-profit business models to social and environmental causes developing a whole range of hybrid models such as venture philanthropy, impact investment, franchise models, etc.; finally, the internet is bringing up plenty of new and highly creative models including concepts of joint ownership, barter, leasehold and crowd-funding. And still, in our long list we may have missed the business models which ultimately will become dominant. These and other innovative efforts are changing the parameters ICSOs are measured against – and they are a call to action for ICSOs to adapt their traditional approaches in order to comply with growing expectations of legitimacy, accountability and effectiveness.

One of the major challenges that comes with disruption is to identify the most significant changes early and to react decisively. However, if the analysis is finally proved wrong and disruption does not occur the organisation may have wasted considerable resources to little or no effect. And more dangerously still, if an organisation has prepared once or twice for a major change which didn’t happen, once the disruption really arises management and staff may have become complacent and may discard the situation as ‘just another false alarm’. I still remember the global scare about the so called ‘Millenium Bug’. Companies and governments invested large amounts in avoiding disruption. Some airlines grounded their planes during the turn of the millennium in order to avoid crashes. In the end nothing major happened and a discussion arose whether this was because of the good preparation or just because it had been a false alarm. If a similar case would have emerged in the months or years right after the turn of the millennium, I am pretty sure not many people would have bothered to once again prepare so meticulously. Dealing with disruption is a challenging leadership task which requires farsightedness, courage and stamina – and it requires the right mindset: one that can see in disruption both the threats and the opportunities.