Economist: Change Favors The Prepared Mind

November 13, 2007       Marla Nobles      

Tomorrow has arrived. For the nonprofit sector, this means changes in the nonprofit and philanthropy sectors, changes in the economic and societal environment, and changes in the way philanthropists think about their support. Read: today’s donor doesn’t think he’s donating; rather, he’s investing in something.

The changes are occurring drastically, oftentimes with unprecedented speed. “The ground is shifting underneath the entire nonprofit sector, and the result will make constant adjustment an imperative,” explained Susan Raymond, Ph.D. “Few nonprofits have the luxury of monopoly. Shifting ground means that those who adapt survive; those who don’t suffer.”

Raymond, senior managing director for research, evaluation, and strategic planning at Changing Our World Inc., a consulting firm working with nonprofits and private and corporate philanthropists, spoke about change and its implications at the recent conference of the New Jersey chapter of the Association of Fundraising Professionals. The session, “Leading the Nonprofit World of 2015,” revolved around a new spin on an old adage: Change — rather than chance — favors the prepared mind.

Raymond broke down the changes into the following three “tectonic plates:”

Tectonic plate #1: The nonprofit sector itself. According to Giving USA data, the number of 501(c)(3) organizations has increased by 200 percent since 1982. On the other side of the equation, philanthropy in the United States has increased by 136 percent from 1982 to 2005. Although Raymond believes the pace of growth in the sector will slow — due to more discriminating practices by the Internal Revenue Service — “competition is more sharp-elbowed than it has been in the past.”

More and more, nonprofits are operating like businesses. According to IRS data, only 23 percent of total nonprofit revenue comes from contributions. This is down from nearly one-third three decades ago. Over 72 percent of revenue is from programs, up from 60 percent three decades ago. And, some sub-sectors are no longer 501(c)(3) organizations. For instance, 83 percent of ambulatory care is done by proprietary organizations.

“The nonprofit sector in many areas is engaged in a very real, very meaningful marketplace,” explained Raymond. The healthcare segment relies almost entirely on earned income, said Raymond, with just around 5 percent of revenue coming from contributions.

Tectonic plate #2: Socio-demographics. “Nonprofit institutions, with the pace of change, are going to have to build within themselves and track change with regularity through their programming” if they want to best adapt to the changing environment, said Raymond.

By 2025, in every state except for California, Texas, Illinois, New York, and areas in and around Washington, D.C., according to the U.S. Census Bureau as much as 23 percent of the population will be age 65 and older. Also, by 2025 nearly 80 percent of American dependents will be elderly. Elder dependency costs three times the cost of youth dependency. Additionally, there will be 65 dependents for every 100 workers, compared to 51 in 2000.

“This has huge, huge, huge economic implications in terms of what it will take the economy to bear the burden,” said Raymond. “The implications of an aging population are huge across the board for the economy, and thus for the nonprofit sector.”

There have also been significant changes in family and social structure. According to some projections, by 2010 just more than 40 percent of children younger than the age of 18 will have no sibling in the home; 38 percent will have one sibling. Between 30 percent and 60 percent of children in urban school districts will live with caregivers other than their biological parents. Moreover, by 2010 one of 10 children will go through seeing parents divorce at least twice before the age of 16.

Since it’s start a nation of immigrants, the U.S. immigrant population is shifting as well. As recently as 1970, the majority of immigrants in the U.S. were from Europe; today that number has shrunk to just more than 15 percent.

According to Raymond, the entire nation must make strides to adapt to these changes, including nonprofits. “From the President on down, one, we are going to have to learn to speak Spanish,” said Raymond. “And two, we’re going to have to form relationships with universities…and attend luncheons with anthropologists about how you reach Islamic, Jewish, and immigrant communities.

“The real question is not just about service packaging; it’s about the very nature of management decisions in the sector,” added Raymond. She advised including immigrant community members on boards of directors, as part of staff, etc.

Nearly 46 percent of the population older than five years of age changed residence between 1995 and 2000. Cities of five million or more lost more than 2 million domestic residents, but gained 3.3 million foreign immigrants. “We are a footloose nation,” said Raymond. “What does it mean to have community if people are moving? What does it mean to have community when the mall is town hall?

“It would astound me if a nonprofit said it was close to that community but didn’t know how to find those people (that are influential in that community),” said Raymond. “Because if that’s the case, then you’re not close to the community as it is now. Maybe you were 50 years ago, but not now.”

Tectonic plate #3: Changes in definition of philanthropy. “Who are these new philanthropists? Well, they’re not dead, that’s the most important point,” said Raymond, countering a misconception that today’s best donors are baby boomers and pre-baby boomers. “They are young and largely entrepreneurial, in their 40s and 50s. They’ve created entirely new industries, technologies and ways of living. They believe that change is the status quo. They are diverse and expect the sector to look like them.”

They also live globally. “The value of merchandise trade has increased seven-fold in the last 30 years and now accounts for 25 percent of the world GDP, compared to 7 percent only 20 years ago,” said Raymond. “And most business leaders are as global as their businesses and markets. Communications and media make every problem a global problem. We’ve made globalization a household word.” Therefore, to many philanthropists problems and solutions are not bound by local community, and they expect nonprofits to keep pace with that.

So, what do today’s philanthropists want? According to Raymond, they want impact, accountability for their money, efficiency and scale

“We have new intersections with markets…technologies are of course interceding…new partnerships (are forming) between markets and need…and there are new concepts of capital, new approaches to investment,” explained Raymond. Today’s variations on philanthropy go beyond the traditional donations –> foundation –> grants –> nonprofit. “Today’s philanthropists are trying to fix the problems and get to scale, and they do not care about legal status.”

Commercial investors have found that the social commons, what used to be philanthropy, now responds capital.

For instance, Google.org moves grants to nonprofits, but also invests in for-profits to do social good (e.g. clean energy). Ephilanthropy has grown from less than $200 million in 1999 to $4.5 billion in 2005. Donorschoose.org enabled 6,000 schools to receive $12 million, “and there wasn’t a foundation to be found in the middle of it.” And rock band U2’s Bono is adamant that his Project (RED) campaign not be a philanthropic movement. “There’s just a whole different definition of what it means to be engaged in the social commons,” said Raymond.

Raymond recommended keeping in mind that nothing will be true everywhere, and the traditional approach will continue to be critical in many instances. Curiosity, along with new and ever-innovating skills and creativity are needed. Experiences in sectors beyond the nonprofit and philanthropic is crucial. Talk to professional, trade, and organizational associations to bring to conferences people who understand these changes. And, finally, the ability to communicate with and stabilize community trust amidst change is key.

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This article is from NPT Weekly, a publication of The NonProfit Times.

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