Two major announcements recently echoed across the social sector landscape. Grameen Foundation and Freedom From Hunger have united, and in Canada, the Canadian Breast Cancer Foundation (CBCF) has merged with the Canadian Cancer Society (CCS). Does this indicate the beginning of an era of consolidation in the social sector? And what does that mean for social impact?
Mergers and acquisitions are common in business. Each passing week comes with the announcement of a major consolidation, particularly in mature sectors like energy, manufacturing, or agriculture, where business models are clear and cash flows are predictable. As companies pursue growth, that central tenet of modern capitalism, they look for shortcuts. Acquiring or merging with another business can achieve growth targets more quickly (at least on paper) than by ‘organic’ growth in sales and customers.
Consolidation doesn’t necessarily mean greater social impact. Charity Intelligence thinks the greatest value from the Canadian Breast Cancer Foundation and the Canadian Cancer Society will be the streamlining of overhead and administration costs.
This is less common in the social sector, but Junxion has predicted it, and in some cases called for it, for the past few years. With millions of registered non-profit organizations in the United States alone, and with many organizations confronting each social issue, opportunities for consolidation are opportunities for impact.
Certainly, consolidation can pose risks to the organizations that are joining forces, and to the people and causes they serve. Many corporate mergers and acquisitions have failed, and painful accounts of ‘lessons learned’ fill the pages of Harvard Business Review and other business publications. These risks are also present in the social sector.
Over the past decade, we’ve seen social sector leaders adapt corporate approaches to branding, strategic planning, and other aspects of operations. For example, the burgeoning field of social innovation has evolved from entrepreneurial design thinking. These are all good contributions to the social sector, but there’s a real danger of trying to solve social and environmental problems with business tools: business approaches are often insufficient to meet the complex problems social sector organizations aim to solve.
Business approaches are often insufficient to meet the complex problems social sector organizations aim to solve.
Some approaches do translate across sectors: generating revenues in excess of expenses drives financial sustainability in both sectors. A holistic and values-driven brand engages charitable donors, just as it engages customers in the business sector. However, social sector organizations typically aim to resolve problems of a higher order of complexity than the problems that businesses aim to solve.
Whereas businesses seek stable, long-standing product or service lines that meet predictable individual customer demands and desires, social sector organizations often commit to highly dynamic challenges, identifying and addressing broad social needs. The nature of these challenges are hard to predict, and usually well beyond the control of the organization.
Take, for example, imagine1day, a Junxion client. They aim to make quality education available to every Ethiopian child by 2030. An entrepreneur might enter this context and build a healthy business selling textbooks or computers, training teachers and administrators, or providing construction and networking services to government. Each would be a valuable contribution, but none is sufficient to solve the problem imagine1day exists to solve.
In Ethiopia, drought and population migration, the threat of domestic and international conflict, the need for a massive cohort of trained teachers, and a cultural context that can often undervalue youth education all conspire to stymie imagine1day. Let alone the fact that thousands more schools are still needed. Social sector organizations like imagine1day need to develop highly adaptive strategies and operational models that anticipate diverse challenges like these, and accept that many of these challenges are beyond organizational control: For example, imagine1day surely cannot expect to control the influence of climate change on Ethiopia.
So why should social profit organizations consider mergers and acquisitions?
Economies of scale. Larger organizations can typically spread the costs of administration and overhead more broadly across people, projects and programs. When one persistent key metric used to judge non-profit organizational health is the portion of funds raised that are spent on administration, efficiency is important.
Engaging new audiences. Even the smallest non-profit engages donors, beneficiaries, staff, volunteers, and more. Of course, no two organizations share the same network, but by joining forces, each can engage a broader range of constituents, and may be able to boost their reach, capacity and social returns.
At Junxion, we were excited to see the news of Grameen Foundation’s merger with Freedom from Hunger. Their shared focus on poverty reduction and micro-finance is a strong uniting force, as is their shared history of social innovation. Applied to their distinct expertise in banking and agriculture (Grameen), and direct support for women’s groups (Freedom from Hunger), their financial and social innovation will surely drive new programs, services, and outcomes.
Accelerating impact. The very nature of complex social and environmental problems—big, dynamic and intractable—makes it difficult to predict what strategic approach will be successful. When a pair (or group) of organizations do identify and rollout programs that meet real social needs, consolidation can accelerate this pursuit of collective impact by connecting organizational governance, leadership, strategy and resources.
What are the risks of social sector consolidation?
Eroding diversity. A broad range of perspectives and ideas is essential if organizations hope to identify viable solutions to complex problems. Multiple organizations mean there are multiple venues for ideation, incubation and acceleration of diverse approaches. The more powerful of the merging organizations may dominate the merged organization’s culture and strategy—and that can mean that unique contributions from the weaker partner are lost in the shuffle.
Eroding narratives. We’ve long argued that ‘brand’ goes hand-in-hand with strategy. Brands are more than visual design assets. They’re the public face of strategy—the narratives that engage audiences, and move them to care about organizations’ plans and approaches. Consolidators typically aim to hone in on a single brand; in doing so, they risk losing ‘goodwill’—the impactful narratives that engage important allies, supporters or other groups.
Eroding impact. Ultimately, larger organizations in the social sector can fall victim to the same trap as their peers in the business sector. Bigger, more stable organizations can fail to see the next great solution or market trend; their scale and inertia can itself erode their ability to create value. ‘Creative destruction,’ the adoption of new approaches that render old approaches outmoded or obsolete, is just as valuable in both sectors, and just as rare in large, stable and bureaucratic organizations.
Seek operational efficiencies and strategic agility.
So how should non-profit and NGO leaders think about consolidation? Clearly, when two organizations are providing the same or similar services to the same or similar constituents, consolidation can drive operational efficiency. Share administrative and overhead costs, and mobilize capital to fund program and service reach.
On the other hand, if solutions aren’t yet clear, or if challenges are too dynamic for solutions to be effective through time, leaders that are considering acquiring or merging with another social sector organization should proceed with caution. Rather than consolidating every function equally, they should maintain diverse perspectives on strategy (which must blend multiple approaches), organizational culture (which must preserve diverse viewpoints) and public engagement (which must appeal to various constituents and supporters).
The more complex the challenge, and the more ambitious the mission, the more challenging will it be to drive successful consolidation.
Mike Rowlands is President & CEO at Junxion. He works extensively with non-profits and NGOs, and social purpose businesses. He has written and spoken on the innovation that emerges from the ‘space between‘ sectors.