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In September, we wrote on Social Impact Investing (SII), an approach by the corporate world to investing that seeks to generate positive social and environmental outcomes alongside financial returns.

The shift to SII as a way of investing is driven, among other things, by the need for companies to demonstrate they are meeting environmental, social and governance (ESG) standards and the demand from customers and clients for businesses to contribute positively to the broader economy and environment.

SII and Return on Social Investment [SROI] – what is the difference?

SII allows companies and corporations to partner with non-government agencies (NGOs) and social enterprise businesses to create innovative solutions to complex problems; however, corporations are still seeking a return on their investment.

The question for NGOs and social enterprises is how they demonstrate their value to companies looking to invest.

The power of being able to demonstrate return on social investment

NGOs and social enterprises demonstrate their value by articulating and demonstrating their return on social investment.

What is the Return on Social Investment [SROI]?

SROI, at its core, measures whether the social value created by a program outweighs the cost of running the program [1]. Calculating the effectiveness of the social program allows the organisation to identify areas where they can improve their impact. It is in these areas that NGOs are most likely to attract companies seeking to invest and contribute because, as mentioned, SII prioritises investments with a measurable impact while generating a financial return.

Hence, the difference between SII and SROI is one measures social value, while the other is predominantly an investment strategy.

The seismic mind shift for NGOs in moving to a Social Return on Investment perspective

Many NGOs and non-profit organisations continue to operate with a mindset based in the 20^th century without realising the rapid shifts that have occurred in the last two decades, particularly in the transition towards SROI.

The changing landscape for NGOs and not-for-profit organisations

Significant shifts have occurred over the last two decades for many NGOs, including:

 1.  Increase in both demand for services and complexity of problems

Many non-profit organisations are finding that:

a)     there is an increasing number of clients presenting for assistance and

b)     clients are presenting with increasingly complex problems.

These two factors impact the organisation’s ability to meet demand in several ways.

●    The impact on Human Resources

Increasing demand often impacts issues like staff retention and burnout. When staff become burnt out with the ongoing demand, and there is high staff turnover, the results for the organisation are:

a)     Higher recruitment costs.

b)      Loss of organisational knowledge and expertise.

c)     Reputational damage as people become aware of the high turnover of staff.

d)      Impact on service delivery to clients when there is high staff turnover.

●    The need for professional staff and the impact of higher wages

Clients or communities with complex problems often require services from a multidisciplinary team of professionals who work together to address the issues.

Many NGOs do not pay the professional wages paid in the private sector to attract the professionals required. This can lead to problems in employing suitably qualified staff skilled at dealing with complex issues.

2. Reduction in donor and government funding

The ability of an NGO to offer higher wages to engage professional staff who can meet increasing client demand is further impeded by the reduction many NGOs are experiencing in donations from donors, particularly post-COVID, and greater accountability requirements from the government.

Many NGOs are caught, like hamsters in the wheel, trying to work harder and faster, doing the same things to meet increasing demand with reduced funding. Shifting to an SROI model would enable many NGOs to demonstrate their value and impact, making them attractive to companies seeking SII opportunities providing an additional funding stream.

Making the shift

NGOs seeking to make the shift need to do the following.

1.  Change the focus from a mission focus to an impact-focused mentality

Many NGOs are mission-focused. Their mission statement is a statement about what they want to achieve. Their mission statement is about the organisation’s unique reason for existence and how it will achieve its vision. The organisation’s vision statement is also about their desired future state of the world.

In other words, a mission-focused NGO talks about itself. Its uniqueness and how it works to achieve a desired future state, as it sees the world or the community. While vision and mission statements are essential, they are aspirational. They do not clearly articulate the impact the organisation is having on its community or clients.

NGOs that are impact-focused change their language from mission and vision to the impact they are having on clients and the community.

This is something companies and, increasingly, governments want to know. How does an organisation impact the lives of its clients or community? Is the funding provided to the organisation having an impact that can be measured, or does it still focus on its aspirational desires? Becoming impact-focused means being comfortable with a results-driven mentality.

2.  Become comfortable with a results-driven mentality

Many NGOs talk about the programs they run rather than the results they achieve.

One of the leading indicators many NGOs use for the success of a program is the number of clients assisted. While numbers are significant, they are only one indicator and usually not a very reliable indicator of the impact a program is having.

If we take mental health counselling as an example. One counsellor may see 25 clients a week, while the second counsellor may only see 18 clients weekly. Looking simply at the numbers, it would appear the first counsellor is more successful because they are seeing more clients. However, the second counsellor may be more successful because the impact of their counselling means clients do not need to have as many appointments because they are skilled in applying self-help techniques away from the counselling sessions.

A results-driven mentality looks beyond the numbers and thinks beyond traditional programs towards social marketing, social enterprise, advocacy, and collaborations. It is about achieving results that drive system change [2].

Many NGOs’ failure to harness social media’s power is a clear example of these organisations’ failure to shift to an SROI perspective. Many continue using organisational social media platforms as they do their personal social media profiles. They post photos of recent staff activities or events. Posts are ad-hoc and often rely on a staff member remembering to upload a post or a photo.

NGOs should have a designated line item within their budgets for social media and a clear business plan to use the power of social media to bring about change and demonstrate the impact of what they do, not just for the individual but for communities and to bring about system change.

3.  Entrepreneurial versus risk-averse mindset

Many NGOs are risk-averse. While this is understandable when dealing with government grants and donations, it can also result in an organisation being unwilling to try innovative ideas. Developing a mindset based on SROI requires considering, tolerating, and implementing new ideas that may carry some risk.

Developing an organisational, entrepreneurial mindset starts with the Board of Management. Most NGO Boards are risk averse; in part, this is often due to the make-up of Boards. Many boards, when seeking new members, think about lawyers, accountants, and other professions that, by nature, are risk-averse. NGO Boards should actively recruit entrepreneurs who can assist other Board members in developing a constructive risk appetite and seeing entrepreneurial opportunities.

In developing a constructive risk appetite, the Board needs to create a culture based around four qualities:

i)               Openness and the ability to share information and lessons learned.

ii)              Adaptability in monitoring, assessing, and responding to internal and external changes.

iii)             A commitment to tracking outcomes and impact of service delivery; and

iv)             Supporting a learning culture where everyone can learn without fear of being blamed or criticised.

Making the shift is not easy. It takes time and energy, time to step back from the demands of constant service delivery and reflect on what needs to change. Again, the Board’s responsible for providing direction; otherwise, staff must keep meeting increasing demand without reflecting on what needs to change. It also takes energy to learn to do things differently. However, being able to shift to an SROI mindset and talk about the impact the organisation is making is essential for several reasons.

1. It opens opportunities for collaboration and investment from companies and corporations looking to invest in services making a social and environmental impact.

2. Being transparent about the impact an organisation is having is positive for the workplace culture. A positive workplace culture attracts staff has lower staff turnover and greater staff satisfaction, which reduces the risk of burnout.

3. Being clear about the impact of an organisation brings clarity to its vision and mission. Also, it enables it to know where it should invest its financial and human resources, that is, in areas with the most significant impact. This reduces organisational waste and deficit.

While NGOS need to develop an SROI mindset, it is also important to understand there are some things that SROI doesn’t measure. For example, increasing self-confidence or family stability cannot be measured. However, the strength of an SROI model increases as the organisation gains evidence of its outcomes through best practices research or self-evaluation studies.

[1] https://socialimpactarchitects.com/sroi/

[2] https://socialimpactarchitects.com/nonprofit-trends-2017/

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As managing non-profit organisations becomes increasingly complex and challenging, it is necessary to step back and reflect on trends likely to impact organisations in the coming year. Times of reflection are not something we prioritise, deeming them a luxury compared with meeting current demands. Yet, such times are necessary to ensure we can lead and adapt to emerging changes and give the organisations we lead the best chance of success. 

One of the consequences of not allowing ourselves time to reflect is that we lead our non-profit organisations using outdated service delivery models that worked in the early 20th century. Unaware of the changes, we do not know how to adapt the management model to one necessary for success in the 21^st century.

This blog examines some emerging trends and what they mean for organisations.

Leadership trends in 2024

Leadership starts with the board of management. This is a simple fact that many Boards do not fully appreciate or understand. The failure of a Board to fully understand this fact is commonly seen in two ways.

– Many Boards will use the mantra “we do not get involved in operational matters” as an excuse to distance themselves from difficult leadership decisions. Boards should not involve themselves in operational matters. However, difficult leadership decisions will often impact operating procedures. Boards must understand this rather than abdicating responsibility to the CEO or Director.

– The second example where Boards demonstrate a failure to understand their role of leadership is with cultural change. Boards often fail to understand their role in setting and reinforcing the organisational culture. This failure places the CEO in a no-win situation when bringing about cultural change.

Two trends impact this area of leadership that Boards and CEOs/Directors need to consider moving into 2024.

Boards of Management

For many non-profit organisations, particularly small to medium-sized organisations, the Board of Management is made up primarily of baby boomers. That is, people born between 1946 and 1964. While not discounting the individuality of the board members, each generation has several defining characteristics when it comes to the qualities and characteristics they bring to the workplace. For example, young people who are Gen Z tend to be socially aware and entrepreneurial within the workplace. Baby boomers are often characterised by how they define themselves by their roles. Their loyalty to the role means they often struggle with work-life balance or remain in positions detrimental to their well-being. They also value hierarchical structure within the workplace.

Baby boomers bring these characteristics with them when they come onto Boards.  For example, they are concerned with organisational structure, which tends to be hierarchical. They are also job-focused and can demand the CEO or Director demonstrate the same qualities, which is often judged by how many hours the CEO puts into the role and what additional duties they take on. This can lead to tension when a CEO has a clearer understanding of the importance of maintaining boundaries and having a work-life balance.

While not denigrating the commitment and investment of baby boomers, the characteristics they bring to boards are one of the reasons many non-profits have a service delivery model based on a 20th-century model.

Some of the other characteristics are:

– They are often more wedded to preserving the organisation’s history and how services were provided than how services now need to be adapted and changed to meet the changing needs of community members.

– For many Boomers, technology is not as intuitive as it is for Millennials and Gen Zs. This means there is often a failure to understand the potential of technology and social media to enhance and build the organisation and its impact on the community.

– Boards that are predominantly Baby Boomers are strongly risk-averse, which means calculated risks that would enhance and potentially build the organisation are not taken. This reinforces the status quo and ‘doing things as they have always been done’.

One emerging trend that Boards must grapple with in 2024 is the increasing number of Millennials and Gen Zs who want to contribute by serving on Boards.

As discussed, Millennials and GenZ bring different characteristics to Boards. For example, these generations bring a digital-first approach. They are confident and skilled at using social media and digital platforms to engage with communities and causes in ways that can cause anxiety for Baby Boomers, who are generally more hesitant with social media. They also emphasise sustainability and the willingness to take risks to ensure sustainability. This takes higher priority than organisational history.

What does the influx of Millennials and GenZ mean for Boards?

When considering succession planning, Boards often discuss the need to attract Millennials and GenZ. Many times, having attracted a younger person, the Baby Boomers on the board will continue to hold power and shut down the younger person’s ideas and enthusiasm. This can set up a destructive power dynamic at a Board level. It is often portrayed as an essential disagreement between those who want to hold onto the organisation’s history and those perceived as not understanding the importance of history. In reality, it is a difference in generational perspective and how each generation wants to utilise their strengths.

Boards that have mainly Baby Boomers as members need to think through how they will share power and responsibility with Millennials and GenZ in constructive ways. Failure to adapt to the perspectives and strengths of Millennials and GenZ will condemn Boards to increasing irrelevance, particularly when staying current with technology.

USE OF FRACTIONAL LEADERSHIP

The traditional model of leadership for non-profit organisations is hierarchical. This is to have a CEO or Director who is expected by the Board to manage every situation, particularly when the non-profit is a small to medium-sized organisation. 

This expectation, which is very much a characteristic of baby boomers, is unrealistic and unreasonable in the 21^st century. 

Fractional leadership is an emerging trend where organisations temporarily hire external executive talent to fill specific roles. For example, one area where it can be productive to have a fractional executive is the HR area. Many CEOs in small to medium-sized organisations find HR matters time-consuming, emotionally draining and anxiety-producing. HR matters are also costly if mishandled, many of which are due to the inexperience of the CEO. Having an executive deal with this area on a part-time or as-needed basis provides the benefit of working with a seasoned executive without committing to long-term expenses.

These executives often bring a wealth of experience and different perspectives that can benefit the organisation.

The increasing numbers of Millennials and GenZ who want to serve on Boards of Management and the use of fractional executives are two trends that Boards and CEOs must think through in 2024.

Technology trends in 2024

Technology will continue to grow in importance for the non-profit sector in 2024. Many Boards, particularly when most board members are Baby Boomers, fail to understand the importance of investing in technology. 

This failure is usually demonstrated in two ways. 

– Firstly, investment in technology is viewed as diverting funds away from direct service delivery rather than understanding that investment in technology is essential to service delivery. This perspective is based on a failure to truly understand how society is being driven by technology and how technology impacts the social problems many non-profit organisations were set up to deal with.

– The second way this failure is demonstrated is the failure of many non-profits to budget for investment in technology. 

This failure to invest directly impacts the staff’s job performance. For example, one larger non-profit organisation had allowed their IT systems to deteriorate to such a point it would take staff anywhere between 20 to 40 minutes to log onto their work platforms in the morning because each time a staff member arrived and logged on, it crashed the system for staff who were already logged on.

Boards must understand the importance of investing in technology, particularly in the 21^st century. Technology is integral to service delivery.

Investing in technology

Technology ensures a non-profit’s adaptability, resilience, and success in the changing landscape.

It is not just the importance of staff being able to log into work systems to perform their jobs, as discussed above; the power of data analytics allows organisations to make informed decisions about service delivery. 

Many non-profit organisations will spend a day reviewing their strategic plan, yet rarely is that review conducted with data showing the trends over the past one or two years. Data is rarely used to determine where the organisation will invest its time and resources over the next one to three years to achieve its mission and vision. One reason for this is that the data is not of sufficient quality to allow such decisions to be made with any confidence.

VIDEO CONTENT and Digital Fundraising

The rise of social media, particularly the growing importance of videos in digital content, provides new opportunities for non-profit organisations to tell their story and connect with people authentically and meaningfully. With videos, stories come to life and capture attention.

The visual medium is powerful in conveying the human element of an organisation, hence making it more relatable and evoking an emotional response in people.

Telling the story through video marketing is essential for diversifying an organisation’s fundraising strategy.

Traditional fundraising techniques are increasingly ineffective both in time and human investment required to generate diminishing returns. At the same time, digital fundraising provides new opportunities to engage with a broader audience and do so cost-effectively.

The other advantage of video marketing is that it allows an organisation to target its messaging to niche audiences rather than having a blanket scattergun approach.

The emerging trends of 2024 provide both an exciting and challenging opportunity for non-profit organisations. Exciting because there are so many opportunities to do something different, to take an informed risk to message a larger audience and to create new service delivery models better suited to the 21st century. It is challenging because it requires boards of management to step outside their comfort zone and traditional ways of doing things and begin to hand over power to millennials and GenZ and build on their strengths for the future.

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