Legacy business models in the social sector: time to innovate?
The Royal Commission’s investigation last year showed that the average UK citizen trusts charities less than they would trust a stranger in the street (1).
That is worrying. More, not less cooperation would be the only way to solve for an increasingly complex and interconnected set of global issues (2). Charity organisations are well-positioned to lead and unite our efforts in making the world a better place. For our own good, we should be closing ranks behind them, not turning away.
How did this happen, why did we lose faith? Do the public’s concerns have any foundation? And what is the way forward from here?
Why we have no faith in charities any more?
Four of the top five reasons named by survey respondents call out perceived operational issues (3). Charities are seen as inefficient; lacking in transparency, governance and management.
Public trust in a sector as a whole is often derived from the reputation of its most visible brands. In the UK third sector, the visible brands are large charities that have been around for decades, e.g. the likes of Oxfam, Cancer Research UK, Save the Children, Red Cross or the British Heart Foundation. Presumably when reflecting on the transparency and efficiency of operating models in the third sector, the public has organisations of this caliber in mind (3).
Whilst a general survey of public opinion is by no means representative of any one organisation’s real performance, the question remains: could there be room for improvement in the way long-standing charities operate, design and deliver solutions?
The long shadows of legacy in business operations
As it was pointed out by the research of Porter(4) and many others, operating models at their core are industry agnostic. Organisational theory is more representative of an era than of a particular sector.
The core operating model of most large British charities was built out in the 20th century; the prevailing management style of that era in the Western world was the so-called Taylorian scientific management. Up until today, scientific management underlies the operational and leadership principles of the majority of companies (5), especially those founded before the Millennium. It is very likely that most large British charities of today are still structured according to scientific management principles.
Why might this be an issue when it comes to transparency and efficiency?
The Taylorian method focuses on carrying out a pre-defined set of tasks with the highest efficiency (6). This approach yields great results in a predictable, stable environment. However, in rapidly changing, uncertain environments managing according to the scientific method is likely to backfire (7). Under such circumstances, rigid processes may mask underlying issues and decrease, not increase transparency and efficiency (8).
We know that as the world is becoming more interconnected and the use of technology spreads, change is the norm, not the exception. Legacy operational structures of many incumbent organisations are not poised for best performance in this environment.
Luckily, the inadequacy of scientific management principles in a changing world is well-known.
In the for-profit sector, alternatives have been sought for more than 30 years. Eric Reis wrote the first edition of The Lean Startup as early as 1978. The Agile Manifesto, aiming to address the issue specifically in software development, was born in 2001. Dave Snowden published the first article on the decision-making framework Cynefin in 2000 (9). Then in the last decade, theories and methods for managing under uncertainty have really hit the mainstream. Management teams everywhere scramble to implement new operating frameworks focused on rapid iteration, tight feedback loops and controlled experimentation. There are success stories (here is a well-known one) that show that it is possible to achieve significant improvements in transparency, efficiency and service quality.
So where does this leave charities and those who don’t trust them?
On one hand, stories of successful transformations show that the critics have a point: there is room for improvement and it can be done. Many charities could benefit from implementing tried and tested agile processes and modern systems that support continuous improvement with increased transparency and better data.
On the other hand, drive-by criticism is not the answer.
The social agenda is a collective responsibility. It’s not something to leave to charities to sort out. If we are dissatisfied with the effectiveness or transparency of charities, simply withdrawing our support is not going to lead to a better solution and might even have unintended consequences.
Despite not achieving peak efficiency, these organisations deliver great results thanks to their decades of experience and existing infrastructure. Many people would suffer if the services they provide disappeared. As a current analogue, consider Brexit. We are starting to realise that there are unforeseen and undesirable implications of quitting.
Furthermore, it is no small feat to re-haul an organisation’s operational structure whilst also maintaining existing services. Even for-profit businesses struggle to transition from rigid operational structures to responsive (or better, proactive) ones. Charities can rarely afford top talent or modern technology, which might mean the difference between success and failure. Maybe we could support their transformational efforts and help them succeed instead of standing by.
A final thought
Additional to needing to manage efficiently under uncertainty, a challenge most incumbent organisations in any industry face today, the social sector has another one. Delivering positive social change is one of the most complex products out there. Customer needs are resource-intensive to clarify, solutions are uncharted and results are hard to measure. Methods good enough for the for-profit sector often fail here due to added complexity.
Pointing fingers and withdrawing trust is one way of reacting to these challenges. Another would be to offer support, join forces and build new creative solutions — in some cases, on the shoulders of incumbent giants.
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(1) https://www.thirdsector.co.uk/public-trust-charities-at-lowest-level-2005-commission-figures-show/communications/article/1487493
(2) http://www3.weforum.org/docs/WEF_Global_Risks_Report_2019.pdf
(3) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/723566/Charity_Commission_-_Trust_in_Charities_2018_-_Report.pdf
(4) Porter, M. E. The Competitive Advantage: Creating and Sustaining Superior Performance. NY: Free Press, 1985.
(5) https://hbr.org/2007/11/a-leaders-framework-for-decision-making
(6) https://dspace.gipe.ac.in/xmlui/bitstream/handle/10973/41111/GIPE-191173.pdf?sequence=3
(7) http://ptgmedia.pearsoncmg.com/images/9780321186126/samplepages/0321186125.pdf
(8) https://cognitive-edge.com/videos/cynefin-framework-introduction/
(9) Snowden, D. (2000). “Cynefin: a sense of time and space, the social ecology of knowledge management,” in Knowledge Horizons: The Present and the Promise of Knowledge Management, eds C. Despres and D. Chauvel (Boston: Butterworth-Heinemann), 344.
