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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.

Professor Porter is co-founder of the Center for Effective Philanthropy, an organization that provides foundation trustees and executives the management tools needed to define, assess, and improve overall foundation performance. Its initiatives include focused research studies, ongoing data compilation and analysis, and educational programs.

The Center’s first report, released in February 2002, suggests that the critically important question of what information CEOs and boards need to assess overall foundation performance requires additional attention. The report, entitled “Toward a Common Language: Listening to CEOs and Other Experts Talk About Performance Measurement in Philanthropy,” suggests that “while evaluations of specific grants, or even clusters of grants, are currently widely utilized,” a new, holistic assessment framework is needed. Based on in-depth interviews with foundation CEOs and others, the report outlines 14 current and potential measures of performance in three broad categories—achieving impact, setting the agenda, and managing operations.

Framework Publications
 

   

“Philanthropy’s New Agenda: Creating Value”
     Michael E. Porter and Mark Kramer
     Harvard Business Review, November-December, 1999.
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.
Order article at Harvard Business Online
This article is also available in the book On Competition.

 

   

"Toward a Common Language: Listening to CEOs and Other Experts Talk About Performance Measurement in Philanthropy" (pdf)
     Center for Effective Philanthropy
     Foundation Performance Metrics Pilot Study
     February, 2002.
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.

 
       
Related Publications
 

   

"The Competitive Advantage of Corporate Philanthropy"
     Michael E. Porter and Mark R. Kramer
     Harvard Business Review, December 2002
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.
Order article at Harvard Business Online

   

The Pluses in Corporate Philanthropy
     Michael E. Porter and Mark R. Kramer
     Boston Globe, January 13, 2003

 
       
In the News
 


 
     Stephanie Strom
     New York Times
     April 23, 2004

  

 
       
Recommended Links
 


Philanthropy Measures Up

     World Economic Forum
     Global Leaders for Tomorrow
     Benchmarking Philanthropy Report
     January 28, 2003
According to the
"Philanthropy Measures Up" report, released at the World Economic Forum by the Global Leaders for Tomorrow, "the stark reality is that less than 50% of donors measure the effectiveness of their giving, yet there are tremendous innovative initiatives. . . to measure the impact of philanthropy." Their report summarizes work in the field to date, citing 20 resources in measuring philanthropy, and provides a summary of best practices.


Center for Effective Philanthropy
The mission of the Center for Effective Philanthropy is to advance the practice of philanthropy by providing management and governance tools to define, assess, and improve overall foundation performance. 


 
       
For information about materials not available online, please email isc@hbs.edu.
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