Continuous improvement of efficiency
Social Impact Business Modelling Principles no. 5
Three of the four business modelling principles described so far give guidance on what to invest in. Once that fundamental decision has been made, the next step is to focus on the how. If you have an important mission, you don’t want to fail on execution. Social impact organisations need to make conscious and continuous effort to maximise day-to-day operational efficiency.
Efficiency is part of the product
Efficiency in the social sector is a moral duty as much as a contractual obligation. Certain charity organisations promise customers not to spend more than 25% of their money on administrative costs. Others might promise very specific outcomes in exchange for a certain amount of money. Failing to deliver on these commitments damages trust in the sector as a whole (1).
Despite its importance, efficiency might be harder to achieve for a social impact organisation than for a for-profit firm for two reasons: return on investment is more difficult to measure and competitive pressure is lower.
Why we have to double the effort
Direct outcomes are hard to measure because the objective is complex. Sometimes even with the most careful planning and reporting, it is hard to tell if a certain investment was the best value choice under given circumstances (2). And even if results are captured, how might we compare them? Improvement often comes through experimentation with different solutions for the same problem; but in the social domain, we rarely face the same problem twice.
Competitive pressure is low because the social sector does not experience scarcity the Darwinian way like the for-profit arena. Direct competition for the same scarce resource (the target customers’ time and money) quickly weeds out inefficiencies in the for-profit sector. Social impact organisations face more indirect than direct competition and tend to learn a lot slower without the pressure and the opportunity to benchmark their achievements.
These challenges mean that we have to work harder. If we don’t put the effort in, both results and reputation of the sector will suffer, hurting global society as a whole.
So what can we do, every day, starting today, to improve operational efficiency?
The four building blocks of operational efficiency
- Value focus*
- Outcome driven business model
- Continuous leaning of operational processes
- A no-waste culture
Outcome driven business model
“Just as the physical structure of a water pipe determines the rate of flow more than any other factor, organisational structure has a greater effect on flow than any other factor” (3)
The value proposition is always delivered to customers through products and/or services. Business models should be constructed in a way that it makes it straightforward and easy to understand what each activity in the organisation contributes to those products or services. If there is no connection, or the value contributed is minimal, the activity should be altered or removed.
In recent years, methods referred loosely as “customer journey mapping” have become a popular way of identifying the value added of each activity. Such maps can be used as a starting point or guide to link tasks and activities into cross-functional, customer-to-customer process flows or value chains**. This stock-taking of organisational activities is a pre-requisite to leaning operations, the same way as a surgeon needs X-rays and MRIs to know where to cut.
[**The complexity of the process hierarchy will depend on the scale of the organisation and the size of the product portfolio. For a start-up, there might be just one, short straightforward process that doesn’t need much mapping. Larger organisations may need to consider using business modelling tools if they wish to get a grasp on their many interconnected activities.]
Continuously leaning operational processes
This is a domain where social sector organisations can easily learn from the wealth of tools and methodologies produced by the for profit sector. A solid, practical set of principles to start with is Lean Thinking (4). In a nutshell, Lean Thinking systematically eliminates wasteful activities that don’t contribute value to the customer. Without going into too much detail, here are the seven types of wasteful activities Lean Thinking identifies, with my examples on how they might manifest in a social impact organisation:
Waste of transportation: refers to moving materials from one place to another, without adding any value to the final product by the act of transportation. This is type of waste is very harmful in the social sector: think of products (grains or clothes, for example) shipped from faraway countries that could be produced locally or regionally.
Waste of inventory: stocking inventory has many hidden costs. Inventory needs space, shelter, packaging, transportation. This is a waste related to the traditional charitable action of gift-giving, but also to the lack of coordination that often happens when multiple organisations try to solve the same problem.
Waste of motion: unnecessary movement and travel are a waste that burns up vast resources. The most obvious example in the social sector is overseas volunteers executing tasks that the local community could carry out (often to a better standard). Or think of the rural area problem — the waste of motion built in the model is often prohibitive to providing or using the service.
Waste of waiting: this is wastefulness many of us are guilty of, and which can be improved with a proactive approach. Regardless of what is halting the project — waiting for a council permit, a pending invoice, a reply from a potential donor, or a shipment to arrive — most of the time something can be done to speed up the process or at least to spend the waiting time more productively.
Waste of overproduction: Producing too much, too early is a problem in a sector where there is sometimes more goodwill than strategy. Donor-led projects can yield dissatisfaction on both sides when, say, a full service structure is built without ever being used (5).
Waste of over-processing: one would be inclined to think that over-processing — delivering beyond expectations, perfecting details customers don’t care about — would not plague a resource poor sector, but unfortunately this is not true. On the contrary: often those who deeply care about the outcome are the most prone to perfectionism, which means they add dozens of just-in-case features to products and services when less, delivered faster, would be more (6).
Waste of defects: this is very common in a sector where those who pay for building a solution are often unfamiliar with and removed from the problem they are trying to solve for (7). Consequently, services and products might be ill fit for purpose; and if feedback loops are inadequate, too, defective products will keep on being produced.
+1 Waste of experience and learning: as discussed in the article on partnerships, preserving, transferring and seeking out knowledge around both problems and potential solutions before we jump in might save us from building wasteful and inefficient processes from the start.
A no-waste culture
Finally, practicing all the above — value focus, outcome-driven business modelling, lean operational design and knowledge sharing — requires that those involved strengthen key soft and hard skills and lead others to do the same. Efficiency requires cooperation; and good cooperation requires trust, humility and open-minded curiosity. It also requires accountability, which cannot work efficiently without solid governance structures and a consistent, rigorous way of measuring outcomes against goals. A customer value focused and transparent business model can help an organisation achieve both.
(2) GiveWell: https://www.givewell.org/how-we-work/our-criteria/cost-effectiveness
(3) Dave Nicolette: Maximizing the amount of work not done; https://www.leadingagile.com/2019/03/maximizing-the-amount-of-work-not-done/
(4) Womack & Jones: Lean Thinking: Banish Waste And Create Wealth In Your Corporation
https://www.amazon.co.uk/Lean-Thinking-Banish-Create-Corporation/dp/0743231643
(5) Specifically referring here to William MacAskill’s case study on PlayPumps as an illustrative example
(6) Relying on personal experience from past projects
(7) For example, the disposable period kits distributed by ActionAid are not independently sustainable — beneficiaries will have to keep relying on future donations. The lack of sustainability is a defect. This project provides more sustainable kits.
