Business model innovation in the social sector
The social sector has been buzzing with activity in the last decade. As a result, there is progress — but change is incremental, not fundamental. If we want to do radically better, we have to do things in a radically different way, starting at the heart of organisational strategy: the business model. Disruptive innovation cannot happen without a significant reconfiguration of the value delivery method (1).
The hidden barrier to business model innovation
The single greatest force shaping a business model is the subjective perception of the strategist who creates it. This is both a constraint and an opportunity. Our limited ability to switch perspectives constrains us; but if we can step to the outside and look in from there, we have the power to set new norms and principles.
However, overstepping the limits of our perception and taking an innovative approach is not easy. We don’t know what we don’t know — fear of the unknown and loss aversion are bound to kick in. So how might we still invent novel business models that respond better to the complex needs of human society?
To free ourselves from ingrained thinking, we can take the approach used successfully in both negotiation science and behavioural economics: make subjectivity visible. By exploring and acknowledging the boundaries of the limited perspectives framing organisational strategies, we can step outside them.
Dominant perspectives in social sector business modelling
If we know what to look for, we can identify three dominant perspectives that have shaped business modelling practices in the social sector over time. Each has its strengths and helped society progress greatly; but each has blind spots and limitations, too.
The self-preservation perspective: Peacekeeping
The driving force behind the institutional forms of social organisation is a desire to create a societal structure that reflects principles of fairness the majority agrees with. Legislative and judiciary frameworks, constitutions, bills and treaties are well-known products of this approach and often referred to as the milestones of human progress. The perspective framing these achievements is one of self-preservation. Most often, the privileged prefer to maintain imbalance; until, one day, the camp of the mistreated grows large enough and strong enough that they become dangerous to ignore. Then and only then, when societal stability cracks under the burden of unfairness, will new, more balanced rules be drawn with the objective of restoring peace.
The perspective of peacekeeping is important, but not conductive to innovation. Once the status quo is restored, and the majority is happy, this approach helps little to those left behind. Peacekeeping models are built to be robust and enduring, not flexible and innovative.
The paternalist perspective: Charity
Whilst the peacekeeping model is the most pervasive form of human organisation for social improvement, the charity model is what most people associate the sector with. This model is created with the view that “We (donors) are better off than you (beneficiaries) are”. The purpose of the organisation is then to redistribute resources in a way that the perceived well-being gap is diminished or closed. In contrast to the peacekeeping model, charity is selfless, and doesn’t stop when the majority has reached comfort; rather, it focuses specifically on minority groups.
Charity has a different limitation and it lies in its sustainability. Charity comes from the outside and aims to support and empower: give a man a fish but also teach him how to catch one. Implicit in this model is the assumption that “you wouldn’t get there without my help”. Sometimes, this is true: Ebola victims can’t magically heal themselves, and cancer patients won’t each invent a cure in isolation, to give exaggerated examples. But on many other occasions, people solve their own problems better than others could, and don’t need permission to do so (3).
The Harvard perspective: Competition
This perspective is the latest addition to social impact organisation modelling and its emergence has been driven by two factors*. One, the failures of the paternalistic perspective when it came to beneficiary needs assessment; two, that donors started asking for improved customer service, such as more choice, higher transparency, better efficiency.
In response, the sector simply copied the model that worked well with regards to both market needs assessment and customer fulfilment: the for-profit model. The adaptation of this perspective has been accelerated by a plethora of freely available tools and frameworks; but even more so by a body of good willed professionals with business degrees who have enthusiastically dug into reforming the social sector.
The huge benefit of this approach is that the sector is learning the value of money. Social organisations used to be ashamed of financial matters; competitive MBA graduates are teaching them to embrace money as an essential enabler. The blind spot is that they are so busy pointing out the many similarities between running a social organisation and a for-profit business that they are glossing over some big differences in customer value and market dynamics. This is why we still hover on this side of a breakthrough.
[*Note that Corporate Social Responsibility is not one of them; CSR is driven from the peacekeeping perspective]
Outside the box
Each one of the above approaches, when well executed, solves for certain problems. Newer models try to cover the blind spots of earlier ones to serve unmet needs. But the analysis above uncovers what we are still not solving for. Significantly:
- None of the above models is truly collaborative;
- All of them are reactive, not proactive;
- None of them embraces the complex, circular and evolutionary nature of societies;
- None of them addresses the questions of responsibility and ownership.
This blog is dedicated to finding new models that could solve these problems. The next article will discuss one potential approach that leverages local governments.
(1) Disruptive Technologies: Catching the wave (HBR, 1995)
(2) Quintin Rares: Negotiation: Science and Practice
(3) David Marquet — https://www.davidmarquet.com/ — for more on the leader-leader model and the misconception of “empowerment”
