Week 7 - TRANSFORMATION

This article on Harvard Business School (HBS)'s website features an interesting interview with HBS school professor, V. Kasturi Rangan also known as Kash Rangan. Part of the extremely interesting interview is shown below:

Image from salesmanagement.org

Interviewer: The terms "social enterprise" and "nonprofit" seem to be used interchangeably. Are they synonymous?

Kash Rangan: No. There's an important distinction. Very early in the program we decided that we wouldn't focus purely on nonprofits. We thought it should be about social enterprise, regardless of whether it's for-profit or nonprofit. We defined social enterprise as an entity that's primarily in the business of creating social value. As long as an organization creates significant social value, we don't care how it sustains itself—with internally generated surplus or with donor funds.
Americans give roughly $300 billion a year to nonprofits, yet we really don't know much about what charitable organizations actually accomplish. Why aren't nonprofits more accountable and transparent with all this money?
That's a very big issue in this sector because there is no common measure or framework to assess whether these organizations are accomplishing their mission. Even simple measures are not widely reported, like we got X donations, and we took care of 1,000 children at a cost of $80 a child, which is less than $120 a child spent by comparable organizations. Even that amount of reporting would be very useful, but it is not the norm.
By and large the reporting focuses on the costs of raising money. The lower the better, with the logic being that more money can then go to actual programs. So an organization might report, "We spend 6 percent on fundraising, whereas the industry average is 12 to 14 percent." That's typical, but beyond that, we don't know how the other 94 percent is used. How many people came into the program, and what benefits did they get? And then the even bigger question beyond cost efficiency and effectiveness is, what impact did the organization have? Granted it is very complex to get all the way to that level, but even signposts along the way could be very useful.

Interviewer: Which is harder: raising money, building a successful organization, or achieving real impact?

Kash Rangan: They are all interrelated, but raising money is not the hardest of the three. Getting money is hard, but it is not more difficult than the other two. That's why there are over 1.4 million nonprofits, each with some amount of funding.

Putting the money to good use, building a successful organization, showing that you have a demonstrable impact in achieving your mission, and then scaling the organization are the hardest to accomplish. When you show impact, more money will flow in. 

Interviewer: Given how few nonprofits can document impact, would you say these organizations suffer from a leadership deficit?

Kash Rangan: No, I wouldn't put it that way. Many nonprofit leaders are fantastic, more than is acknowledged. They work hard, and they are very passionate about what they do. So I wouldn't call it a leadership deficit. I think there's an imagination deficit.
Leaders typically ask, "Am I accomplishing my program?" But that is too narrow a view. Nonprofit leaders need to be more visionary. They need to stretch themselves more and worry about mission impact. I believe nonprofit leaders get too bogged down in operational issues, be it fundraising, or managing the board, or program execution. They need to be more strategic.

Interviewer: Where do you see social enterprise heading over the next decade?

Kash Rangan: I am an optimist, and I believe we will see refreshing changes in that time frame. The new cadre of donors, the new family foundations, the folks who are involved in venture philanthropy, the new generation of entrepreneurs, and business leaders engaged in corporate social responsibility initiatives all will start attacking social issues in a much more disciplined way. Nonprofits too are very adaptive organizations. I expect to see some common understanding in the sector of what performance means, and how social value creation is measured and reported. From there on it is only a matter of aligning the money with the causes they care about. Perhaps investment intermediaries will emerge to ease the introductions and connections. There may be some consolidation of nonprofits at the top, but the sector will be a lot more vibrant with many new players and actors helping to facilitate the transformation.

This entire interview with Professor Kash Rangan that discusses what in his view is social entrepreneurship as a sector leading to huge transformation of the world states so many relevant points that we have learnt in our three years in BZSE. Take for example where he mentions that nonprofit and social enterprising leaders have to be more visionary. It was just last week in Mr Mao's MANSE class that we were throwing out words that in our opinion described good leaders - one of which being visionary!

How the professor describes the difference between a non-profit organisation (NPO) and a social enterprise in the very first question the interviewer asked him is so relevant to the NPO essay that Mr Damien had gotten us to write. If only I had come across this article in my research, I would have loved to cite Professor Kash Rangan where he mentioned "We defined social enterprise as an entity that's primarily in the business of creating social value. As long as an organization creates significant social value, we don't care how it sustains itself—with internally generated surplus or with donor funds".

The part where Professor Kash Rangan spoke about money and the impact of an organisation, saying that "putting the money to good use, building a successful organization, showing that you have a demonstrable impact in achieving your mission, and then scaling the organization are the hardest to accomplish. When you show impact, more money will flow in" - this is such a precious piece of advice for anyone aiming to start up an NPO, or an SE, or any business entity for that matter.

Image from hbs.edu

"The sector will be a lot more vibrant with many new players and actors helping to facilitate the transformation." - Professor V. Kasturi Rangan

References

Thompson, R. (2008, September 15). The coming transformation of social enterprise. Harvard Business School. Retrieved on 23 November 2012, from http://hbswk.hbs.edu/item/5986.html