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The role of nonprofit boards in driving innovation

Innovation has become a buzzword for corporations, governments and social enterprises. 

In a survey conducted at the Social Service Institute’s Board Members Network Session in October 2017, CEOs and chairs of social service organisations in Singapore cited innovation as a major area of concern. Specifically, respondents felt that more could be done to leverage technology to increase efficiency within their organisations and create new solutions.

It is a given that resource constraints may limit the capacity of nonprofit organisations (NPOs) to innovate, given their different operating model from for-profit organisations. However, innovation – when done right – can lower the per client operating cost of NPOs, resulting in outsized benefits which free up resources for growth in other areas. 

Put simply, organisations can do more with less. Innovation can be used to make organisations more efficient, deliver better service to users, and change paradigms in society. The continuum of innovation ranges from incremental change to radical transformation. 

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The need and reason to innovate is often not discussed at the board level, and this forms a major barrier to understanding the models of innovation that are best suited to the organisation. 

For NPOs, their priorities may not push innovation to the top of the agenda. As a result, many NPOs are reactive in their approach to innovation. They would innovate only when there is a pressing, unaddressed need among their service users, or when their donors or the regulators stipulate innovation requirements and targets. 

Why do NPOs find it so difficult to be innovative and what can NPO boards do about it?

Challenges in NPO culture, structure and capacity

The first challenge is the organisational culture of NPOs, which is largely shaped by their missions, and these are often related to service to the community. Through self-selection, people who join NPOs, or their boards, typically have a passion for the cause and a service orientation. Even if they have a commercial background, they do not necessarily bring this business mindset into the boardroom. Over time, the culture and mindset in the NPO could inhibit risk-taking and openness to change.

Second is the organisational structure of NPOs which tends to be task-focused. People operate within programmes and seldom seek out other individuals for problem solving. While focus on the client is important, NPOs often lag in the area of cross-collaboration and coordination amongst their staff. This situation becomes more acute if there is no strong leader in the organisation to bring all the different functions together and focus on the big picture.

Third is the lack of capacity, expertise and resources in NPOs to innovate. For example, technological innovation would require people with specific skillsets and experience. Consultants and outsourcing require long-term resources that are not necessarily available or a priority for NPOs. The planning and implementation of new systems and change management require a different approach.

Setting the tone for innovation

NPO boards thus have a relatively big role in setting the tone for innovation. For a start, the NPO board has to state its risk appetite for innovation and experimentation. Together, the board and management should set the agenda for innovation within the organisation. 

At the broadest level, the NPO leadership should be looking to encourage a spirit of entrepreneurship and risk taking. It involves changing the mindset from one of “how can we afford the change” to “how can we afford not to change”. To stay relevant, organisations have to be ahead of the curve, in terms of new and better ways of social service delivery.

To make NPOs more entrepreneurial and risk tolerant, there are a number of best practices that boards should seek to inculcate in their management and staff. 

Becoming an innovative organisation

For innovation to be part of the culture, NPOs should have a mindset that is open to change. Internal feedback and suggestions should be encouraged, not avoided. The board should also set performance measures linked to data gathering on services and client outcomes, perform gaps analyses, brainstorm methods for improvement, and gather feedback from service users, clients and stakeholders. 

To further incentivise staff and to encourage behavioural change, boards should implement a system where being innovative is shared and rewarded. Remuneration targets can be re-designed to acknowledge the efforts to implement innovative changes.

The board should help management seek solutions to problems, gain access to resources and information, and provide mentorship and guidance. One way may be to plug the NPO into the relevant networks which encourage and support social innovation, such as the board level and senior leadership courses run by the Social Service Institute. 

The board may also need to connect management to technology partners in order to develop new technical capabilities in-house.

Last, and certainly not least, the board could drive innovation by developing jointly with management an annual action plan with department-specific key performance indicators related to innovation.

At the end of the day, limited financial resources should not prevent any NPO from considering greater innovation. This is because it is less the money required but the entrepreneurial skills within the organisation that will make any change in the NPO a sustainable one. That would be truly innovative. 

The writer is a member of the Best CEO Award Working Committee of the Singapore Institute of Directors.