INCREASING THE FLOW OF CAPITAL FOR GOOD - INVESTING AND GIVING
In this essay series three themes have been explored.
The first was that the doers and funders of social good (charities, individual and institutional philanthropists, and their expert advisors) have, for decades, been performed well below their full potential and passionate intent because charities are forced to rely on private, narrative-influenced, voluntary funding. The biggest losers from having charities and donors unwittingly trapped in this unique, systemic “prisoner’s dilemma”i are, the neediest and most vulnerable.
The second theme built on the reality that, without the invisible hand of (social return optimizing) “market forces”ii, the strategic burden of prioritizing what social problems to tackle and how to solve them falls, in principle, to the “market makers” of civil society the donors. For understandable reasons, the giving public and philanthropists prefer to “follow their heart” and are predisposed not to engage in or take the lead in collective efforts to help society tackle its greatest and, in some cases, systemically threatening social problems. The big losers in this case are not just the most vulnerable but all of us.
The third theme highlighted that we have not only underinvested in acquiring a rigorous, empirical understanding of how civil society innovates to deliver the continual stream of social value add and impact we demand, but also we have failed to innovate. We know from decades of rigorous study that in the most productive sectors, those organisations that consistently generate and execute new ideas and continually deliver improved performance over time tend to be the most effective at achieving their and societies’ goals. Private and public investment and support for innovative effort by producers is the single most important driver of the continual improvement of the welfare of citizens of the UK and every other mature industrial economy. iii
Civil society also plays a unique and critically important role, albeit different from the productive sector, in underpinning and improving human welfare. What we do not know is whether and how innovation and innovative effort features in this process. We do know, however, that the failure to innovate is handicapping its contribution to social welfare, in some areas. For example, the recent UK Humanitarian Emergency Response Reviewiv, identified that the culture of civil society sector is to stick with long-established approaches that have well-documented shortcomings.
The Review concluded that “UK humanitarian practice (is) relatively similar to that of 20 years ago, there is no coordinated innovation agenda, the pace of change has been slow, older practices have failed to be widely adopted and innovation has focused on (relatively superficial) initiatives, projects and partners rather than building capabilities and cultures for innovation.”
There are good reasons to be concerned that, like the humanitarian sector, civil society more broadly, conditioned by operating for decades in a funding/performance context that did not reward or invest in innovation, is not now fit for purpose to cope with the unprecedented pressure placed upon it by a convergence of political, environmental, economic and social trends. We simply do not know with empirical certainty how best to help civil society respond to these challenges. Instead, what we do is keep asking donors for ever more money to spend on doing good without really being sure how best to deliver it!
In the final essay in this series, I want to stay with this critical issue of how to build innovative capacities in civil society by looking further, drawing on what we already know about innovative effort elsewhere and highlighting how we might begin to make changes.
This much we know…..innovation is a collective process and an interactive system.
Innovation is not like the cartoon image – a light bulb flashes above someone’s head with a bright idea which then simply happens. Rather it is an extended process involving search, selection and implementation characterised by multiple iterations and complex interactions. Innovation in the productive economy has always been a multi-player game involving different, frequently networked actors, working in concert to create something new and of value. “Innovation in the productive economy has always been a multi-player game involving different, frequently networked actors, working in concert to create something new and of value.”vi
This picture stands in super-sharp contrast to the widely cultivated construct put forward by many (but with scant empirical justification) that the best form of social good comes from the bilateral interaction between philanthropists, operating as “hyper-agents” and as deliberate disrupters of the status quo, engaging exclusively with an elite pool of single purpose entities driven by a charismatic visionary or social entrepreneur who has had a eureka moment of insight into how to solve society’s previously insoluble problems. I oversimplify of course, but having spent a great deal of time in recent years working with both types of player and their advisers, I can attest that these character and relationship types are alive and well, and widely present. Unfortunately, we really do not know whether their mode of operation enhances innovation and measurably contributes to sustainable social value creation or if it contributes to building the civil society’s innovation capacities.
There is much more to learn from what we know about innovation elsewhere.
It is increasingly common to think about innovation not just as a network process but as taking place within an “ecosystem”. This ecosystem analogy emphasises the interdependence of all actors in the environment who “co-evolve their capabilities and roles.” This means the collective health of the actors who influence the creation and delivery of innovation is fundamental to the success of any individual organisation. And that they see their ecosystems helping them become more resilient to externally driven changes and much better able to achieve success and sustain performance. Policy agents and private and public sector investors, in mature economies, have acted on these insights to build the infrastructure to support innovation across the productive sectors. This is something that just does not happen in relation to civil society. And it should.
The most recent insights on “innovation ecosystems” place importance on improving the negotiation capabilities of players in the system; on seeking to build trust in these networks as a precondition for the diffusion of innovation; on the growing role of distributed infrastructures in a digital age; and, on ensuring policy makers and investors/funders/donors think less about value chains and much more about value networks.vii
At the sharper end of the innovation system, research has demonstrated the huge importance of “users” in the innovation process – as captured in the notion of user-led innovation.viii The concept of “users” has evolved from a focus on the structured learning interaction between productive entities and individual users, to the emerging role of “user communities” as key drivers of innovation. Linux software is a good example of a powerful innovation which did not originate in a corporation but instead is the result of a highly innovative community of users interacting and continuing to co-create robust solutions which have widespread commercial and social applications. As with the other insights mentioned, the role (or non-role as the case may be) of users within the civil society innovation process is a hugely important aspect that we really need to know a great deal more about.
And finally, research has shown that the output of so-called “open innovation systems” is greater than traditional closed systems, and that this depends on constructing effective linkages and optimising the flows across the system and exploring new ways of connecting people and idea.ix This approach has already surfaced via support from progressive US based institutional philanthropists such as the Rockefeller Foundation in those parts of global civil society looking for technical solutions to major poverty and environmental problems via innovation markets (such as Innocentive.com or ninesigma.com) which bring ‘seekers’ and ‘solvers’ together across online platforms.x UK philanthropists take heed, this sort of effort to invest significant funding in enhancing the infrastructure of innovation needs to happen in this country too as a matter of priority.
National Systems of Innovation
There is an influential body of research that has crystalized the vital role a “national systems of innovation” (NSI) can play in supporting the firm and sector originating innovation process.xi An NSI typically involves a multi-faceted, interconnected structure of public and private sector entities such as universities, policy researchers institutions research and development institutes, and technology entities, financial and educational institutions and the key users of their knowledge and resources. xii We know that deliberately designed and funded NSI in many countries has provided the infrastructure to enable value creation through innovation across the whole economy.
We have already begun
When it comes to doing something about the challenges of how best to use our resources to deliver the most social good to the largest number of needy people, we know that what really matters is the quality and quantity of resources deployed on innovation and performance improvement by all involved (civil society actors and funders).
But, compared to every other productive sector, we know little about the nature, drivers and impacts of innovation by civil society on the flow and beneficiaries of social good, that we cannot even begin to be systematic about designing and implementing policies and activities that will do good for the most people.
While many may fear that funding and launching a concerted effort to close this social innovation knowledge gap is a daunting and costly prospect, the fact is, that what we already know about innovation elsewhere means that we already have head start about how to understand innovation in civil society and how to improve it. Building on this knowledge to design a cost effective focused programme of policy research that could directly inform the policies and actions of government and private sector investors is relatively straightforward.
And the cost of such a programme would be hugely insignificant compared to the wasteful, inefficient and generally suboptimal way public and private resources are currently being allocated toward doing good.xiii
Indeed, my colleagues and I have designed a research project to get this process underway. It will take 18 months and cost less than £500K to complete. What is exciting is that we have begun to attract significant funding and will start the project in 2014. If you would like to learn more, please get in touch.
i A situation where despite the best of intentions the charity actors wind up doing much less good than they could – see my first essay in the Issue 1: Spring 2013 issue of Philanthropy Impact
ii Where the pricing system/incentive structure objectively encourages all actors to allocate their money and effort to finding and then scaling the best ways of doing good as signalled by the expressed preferences of “end-users”/beneficiaries (and not by a conflicted, artificial construct of “impact” cobbled together from questionable data by the charity or funders.
iii This point is made and documented throughout the empirical literature on public and private sector innovation. See, Bessant, J. & Tidd, J. (2007) Innovation and Entrepreneurship. London: Joy Wiley & Sons Ltd.; Bason, C. (2010), Leading Public Sector Innovation, The Policy Press, Bristol University; Davila, Epstein and Shelton (2010), Making Innovation Work: How to Manage It, Measure It and Profit From It. Wharton School Publishing.
iv Ashdown, P., (2010), UK Humanitarian Emergency Response Review
v See, for example, USA and Canadian Grand Challenges; World Bank Idea Marketplace; SIDA, Innovations Against Poverty Program; USAID’s Development Innovation Ventures
vi See Professor Chris Freeman (1986), The Economics of Innovation, Penquin
vii The concepts of value chains/value networks offers really important insights into understanding the innovation ecosystem and should be a central feature of efforts to understand the drivers and improve the performance of civil society. References available from the author on request
viii References available from the author on request.
ix References available from the author on request.
x This ‘eBay for innovation’ approach not only amplifies the range of actors involved in search for new solutions (Innocentive has around 250,000 regular ‘solvers’ available to meet R&D challenges) but also broadens the fields of search in ways that could have great impact on the search for solutions to global social problems.
xi OCED (1997), National Innovation Systems. Available online: www.oecd.org/science/inno/2101733.pdf
xii The designed in functions of the NSI as a system typically involves
- Knowledge generation through R&D
- Competence building
- Financial support
- Provision of regulatory frameworks and measures
- Facilitation of information exchange
- Stimulation of demand and creation of markets Reduction of uncertainties and resolution of uncertainties (See Edquist, C., (2004), Systems of Innovation – perspectives and challenges, in Mowery, D., C., & Nelson, R., (eds), The Oxford Handbook of Innovation, Oxford University Press: Oxford)