Strategy for Philanthropic Organizations
Foundations have traditionally focused on doing good by providing funding to worthy social enterprises. Instead, foundations should set the higher goal of creating social value. A foundation creates social value when it generates greater social benefit for comparable cost, or achieves an equivalent social benefit with fewer dollars. Foundations create value in four ways: selecting better grantees, signaling other funders, improving the performance of grantees, and improving knowledge about social problems. To create value, a foundation must devise a strategy that commits to the goal of superior performance, develops a unique area of focus and approach, aligns operations to the strategy, and defines concrete goals in its chosen fields to serve as the basis of evaluation. Many foundations have failed to approach philanthropy strategically, and thus have unrealized potential.
During the past two decades, the number of charitable foundations in the United States has doubled while the value of their assets has increased more than 1,100%. As new wealth continues to pour into foundations, the authors take a timely look at the field and conclude that radical change is needed. First, they explain why. Compared with direct giving, foundations are strongly favored through tax preferences whose value increases in rising stock markets. As a nation, then, we make a substantial investment in foundation philanthropy that goes well beyond the original gifts of private donors. We should therefore expect foundations to achieve a social impact disproportionate to their spending. If foundations serve merely as passive conduits for giving, then they not only fall far short of their potential but also fail to meet an important societal obligation. Drawing on Porter's work on competition and strategy, the authors then present a framework for thinking systematically about how foundations create value and how the various approaches to value creation can be deployed within the context of an overarching strategy. Although many foundations talk about "strategic" giving, much current practice is at odds with strategy. Among the common problems, foundations scatter their funding too broadly, they overlook the value-creating potential of longer and closer working relationships with grantees, and they pay insufficient attention to the ultimate results of the work they fund. This article lays out a blueprint for change, challenging foundation leaders to spearhead the evolution of philanthropy from private acts of conscience into a professional field.
Charitable foundations justly take pride in the good works that they enable. But what does it mean for a foundation to perform well? And how can its performance be measured? These are the difficult questions that we posed during the autumn of 2001 to 74 foundation executives, CEOs, and expert observers of philanthropy.
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Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company not only to give money but also leverage its capabilities and relationships in support of charitable causes. By aligning charity and strategy, corporations don’t only give money, they donate distinctive capabilities. And that can result in greater social good even as it strengthens a company’s competitive edge.
When it comes to philanthropy, executives increasingly see themselves as caught between critics demanding ever higher levels of "corporate social responsibility" and investors applying pressure to maximize short-term profits. Increasingly, philanthropy is used as a form of public relations or advertising, promoting a company's image through high-profile sponsorships. But there is a more truly strategic way to think about philanthropy. Corporations can use their charitable efforts to improve their competitive context--the quality of the business environment in the locations where they operate. Using philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospects. Addressing context enables a company not only to give money but also leverage its capabilities and relationships in support of charitable causes. Taking this new direction requires fundamental changes in the way companies approach their contribution programs. Adopting a context-focused approach requires a far more disciplined approach than is prevalent today. But it can make a company's philanthropic activities far more effective.
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