Continuous innovation

Continuous innovation
Published: 
January 2013

“Innovation is imperative. But there’s no point being innovative just for the sake of it. You don’t want to re-invent the wheel. If you are doing something that works, keep doing it. But if you spot a gap, you get innovative.”

Jane Rowe is the founder of the Mirabel Foundation, Melbourne, the first-known non-profit organisation to look after the children of drug-addicted parents. As Jane moves from one innovative fundraising campaign to the next to keep Mirabel viable and vibrant, she has learnt the lessons of frugal innovation – with its balance of new ideas and careful risk management.

Not-for-profits have limited resources, and can ill afford expensive forays down new paths that don’t succeed. It’s a crowded market. A new charity was registered almost every working day in Queensland in 2011, according to the Brisbane Times. Australia-wide, the not-for-profit sector employs around a million people, with a wage equivalent of $15 billion, and more than 4.6 million volunteers.

And it is economically significant.

Revenue is expected to reach $109 billion this financial year, and according to the Australian Bureau of Statistics not-for-profits contribute around $43 billion to Australia’s GDP.

But not-for-profits are more vulnerable to economic downturns – when many of their services experience high demand. Reflecting a worldwide trend, the amount given as tax-deductible donations to not-for-profit organisations in Australia dropped 10.79 per cent in 2008–9.

Against this background of competition, and with private, for-profit operators increasingly pitching for government service contracts, non-profits must remain competitive while retaining their ‘social mission’.

Associate Professor Jay Weerawardena, leading researcher into innovation and competition in the not-for-profit sector, believes the answer lies in a balance of continuous innovation and careful financial management.

Weerawardena, whose work has influenced academics and practitioners around the world, argues that non-profits can compete effectively and achieve long-term sustainability by being entrepreneurial and innovative. Nor need they sacrifice their social mission.

INNOVATION HOW-TOS FOR NFPS

Innovation means applying new knowledge to your value creating activities.

Market learning: Understand your clients, donors and volunteers and their changing needs. Monitor competitors.

Internal learning: Run pilot projects to avoid failure. Learn from mistakes and successes.

Network learning: Attend seminars, searching new practices on the web, work with other non-profit leaders.

It’s a model that the broad business community can learn from.

“For-profits have to mainly worry about satisfying customers,” he explains. “However, non-profits have to worry about three groups: service recipients (or clients), donors who provide funding and volunteers who do much of the work.

“Non-profit leaders must be creative and innovative, sometimes more than their for-profit counterparts, as people keep hitting them with problems while their scope for acquiring resources to deliver solutions is limited.”

Not-for-profits that can be highly innovative and succeed in diversifying their income streams to minimise their reliance on government sources for project funding will have a more secure future and be more resistant to shocks like the GFC.

Associate Professor Weerawardena cites the example of the The Arvind Eye Hospital in India, which was founded to deliver affordable cataract eye surgery to the poor. “The cost of providing these expensive services is met with an innovative fee structure. The people who can afford these services are charged with a two-tier fee structure, and this income is used to subsidise the services to the poor.”

OUTPERFORMING COMPETITORS

Michael Porter suggested that business creates competitive advantage through cost leadership and differentiation. Not-for-profits can’t compete on cost leadership for services delivered free. They must, says Associate Professor Weerawardena, therefore look closely at differentiation, and adopt niche marketing strategies.

This is the path many of the small, resource-constrained NPOs successfully choose. Targeting a specialised area that fits capabilities and knowledge of the enterprise can help achieve long-term sustainability. These enterprises thrive through specialisation and penetration, building a long-term relationship with their market.

COMPETITION AND COLLABORATION

Australian non-profits have great scope for survival and growth by collaborating with others in their field. In the UK, non-profits collaborate (complementing their capabilities and resources) for government funded large projects. By collaborating, non-profit leaders are able to avoid competitive duplication and send a clearer message to potential donors.

With globally successful fundraising initiatives such as the men’s health awareness campaign, Movember, and poverty action movement, One$Day, being cultivated on these shores, the Australian not-for-profit sector has world standard innovation credentials. Combined with business discipline and financial accountability, its capacity to deliver economic value and social good offers a rich source of learning for all business sectors.