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Accion - Business Tools for Social Impact

What can non-profits
learn from business?

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Chris Wolff, Senior Director of Corporate Partnerships, Accion

Chris Wolff, Senior Director of Corporate Partnerships, Accion
Monday April 9 2012

Many people who, like me, have crossed into the social sector from a for-profit background, want to see nonprofits take advantage of business principles to generate ever better outcomes. Continuous improvement is one such tool.

To oversimplify, continuous improvement involves capturing crucial performance data in ongoing feedback loops so staff can make enhancements to better serve customers. This process is best known in manufacturing, but the principle has been applied broadly. In service industries, where products are not purchased, cycles of market research and satisfaction tracking can still shape how companies iterate in delivering benefits to customers.

The process involves noticing, capturing, and sharing data on all sorts of dimensions to uncover problem patterns or discover what could be done better. Practitioners react to the information and develop new insights. They adjust what they do and then see how that changes things, starting a new cycle of data gathering. This is exactly how we hope social causes progress. In order to use continuous improvement techniques, an organization needs to watch for leading indicators (earlier than outcome metrics) so changes can be tried sooner, more frequently, and with different subgroups. Unlike traditional monitoring and evaluation, a continuous improvement process is less concerned with maintaining a stable baseline or consistent treatment for comparison at an end point, but instead fosters regular course adjustments, observing what appears to achieve the desired effect.

For-profit businesses invest millions of dollars in market research and customer satisfaction feedback to inform this process. When driven to satisfy customers and the bottom line, companies chase questions most relevant to potential improvements and find ways to embed monitoring into daily operations. They know the resulting insights enable them to create the kind of value that leads to increased purchasing.

While continuous improvement principles can be applied by any nonprofit or social enterprise, microfinance institutions (MFIs) are especially well-placed to employ them. MFIs already operate as a business, are data-driven, and have used similar processes to achieve high repayment rates or to control costs. That’s how they can affordably provide masses of hard to reach people with loans as little as $50.

With the research of Portfolios of the Poor, microfinance is at an inflection point, more aware of the hardships resulting from erratic incomes for people in poverty and the importance of diverse financial tools like insurance to protect against inevitable shocks or savings to provide stability and asset growth. Continuous improvement could be used to assist MFIs in moving from this recognition of client needs to creating effective products and services that fulfill those needs.

It’s a balancing act to diversify services that both address clients’ needs and operate profitably enough to keep expanding into unreached markets. MFIs could apply a continuous improvement approach in these three areas: a) product designs and delivery, b) customer satisfaction feedback systems, and c) social performance management. If MFI’s can build client satisfaction feedback loops they can pay closer attention to and adjust how different products help lives improve. R&D responsive to real-time client input could more rapidly prototype products that meet client-focused needs in new ways. Social performance management can add greater value if designed to glean insights that fuel ongoing improvements vs. react to external questions of impact. Fortunately, with the spread of mobile phones, rough but real-time customer satisfaction tracking, market research, and social performance management surveys could feasibly become automated, and the resulting improvements in operations and product designs could make it worth paying for customer texts (if not covered by a corporate partner).

Thought leaders in the social sector are beginning to outline the elements of such an approach. Former American Evaluation Association President, Michael Quinn Patton “assume[s] a world of multiple causes, diversity of outcomes, inconsistency of interventions, [and] interactive effects at every level”. To address this, he says in “Evaluation for the Way We Work”, we need embedded evaluators partnering and shaping the “long-term, ongoing process of continuous improvement, adaptation, and intentional change” with more of a “probe-sense-respond” outlook. See Patton’s table in the paper that outlines the qualities different from traditional methods and case studies put in action by FSG’s Strategic Learning & Evaluation Center. Dean Spitzer, another corporate authority, applies his “Performance Measurement Cycle” to turn data into wisdom, action, and continuous learning for social objectives (“Dean Spitzer on Interactivity: The Key to Improving Performance Mea...”). Behavioral economics is incorporating psychology to tweak poverty interventions, such as through Princeton’s Eldar Shafir’s study on the role of marketing in supporting U.S. financial inclusion.

What’s necessary for continuous improvement success? It will take cost-effective feedback mechanisms, expertise, and understanding funders. The social sector needs to build expertise and incentives if it is to benefit from continuous improvement disciplines. MFIs and NGOs will see greater success by owning this problem and building capacity so they can drive the process of learning to make swift adjustments for better outcomes rather than reacting to external scrutiny. Funders need to support this process with tolerance of instructive risks and failures, flexible reporting and budget designations, and resources for social organizations to develop new expertise.

Let’s set a benchmark for an ideal percentage of budget that NGOs spend on continuous improvement (not merely tracking and reporting), similar to what companies spend on market research. And let’s not punish that as “inefficient overhead,” but rather as “sharpening the saw” for better results as Stephen Covey observes in 7 Habits of Highly Effective People. Let’s learn to publicly celebrate and reward whenever an organization discovers a mistake and makes a change to fix it or takes advantage of a new experiment. Even if trials fail, and those lessons inform other attempts, let’s learn to rejoice with Thomas Edison who found 999 ways not to make a light bulb.

We can’t wait for perfect solutions to such urgent problems, but better outcomes should evolve faster from the “speed-of-business” operations of microfinance or emerging social enterprises as they develop mechanisms for rapid response to client needs. Investing in this approach is one way the corporate world thrives at creating value, wealth, and products/services that people want, so let’s apply it in the social sector to meet human needs.

Further Reading:

  1. Development Evaluation: Applying Complexity Concepts to Enhance Innovation and Use by Michael Quinn Patton
  2. Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success by Dean Spitzer
  3. Research by Princeton University’s Eldar Shafir
  4. Leap of Reason: Managing to Outcomes in an Era of Scarcity by Mario Molino
  5. McKinsey & Company Social Sector Office
Editor's Note:

This blog was first published on the Center for Financial Inclusion Blog, and is reproduced with the permission of the author.

As ACCION International’s Senior Director of Corporate Partnerships and Adjunct Professor of Northwest University’s master’s course on sustainable organizations, Chris Wolff applies his business background to companies seeking to achieve business plus social objectives through “shared value” or corporate social responsibility. For more information, visit www.accion.org/corporate.

You can follow Chris on Twitter (@ChrisAWolff)

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2 responses to “Accion – Business Tools for Social Impact”

  1. Robin Stafford says:

    Couldn’t agree more.  Having also come from a business background into working with development NGOs, large and small, I’ve been very struck by the differences in this area.  In business and in projects (at least the better ones), one saw the process of performance measurement and progress reporting, learning and improvement, and developing best practices which can be shared, as part of a process of continuous improvement – the plan-do-check-act-act cycle if you like. 

    In contrast I’ve seen a lot of resistance to reporting, seen as an overhead imposed by others, and no recognition of the idea of linking these different aspects in a learning and improvement cycle.  This contributes to donors’ frustrations at the lack of transparency and the low level of learning and sharing that goes on, and arguably to the general failure to scale.  With honourable exceptions, that sometimes ‘prove the rule’

    But its an area thats ripe for improvement and the the exceptions are out there…

    Robin

  2. Tonie Mutesa says:

    I think an important aspect in the NGOs world, if I might say, is that it is also expected a lot less and this tend to have a negative impact on the overall process. When you are highly motivated or passionate if I might say, you are oft taken like someone who is forgetting that it is a non profit and you should slow down.

    I believe that the concept of non profit has been really viewed in a way that does not stimulate initiative, bold decision or even ambition. Yet it is only with motivation, passion and commitment that you are able to overcome the challenges of working in developing programs where oft limited resources, limited knowledge, limited finance, and….are limiting actions!

    tonie

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