Monday, October 10, 2011

What's Really Needed for Innovation?

By Martin Wera, Program Director, Charities Review Council (@mjwera)

Calls for innovation are all around us. Turn on the radio or TV, and you hear politicians calling for policy changes to spur economic growth through innovation. Read blogs or newspapers, and you see demands for schools to innovate in order to address educational disparities. And, of course, the nonprofit sector is also caught up in the wave as many are developing new, innovative programming to address social issues.

I don't have an answer for how to spark innovation in the nonprofit sector, much less anywhere else. But I do think there is an interesting conversation to be had around how to remove barriers to innovation - especially for the nonprofit sector - and allow creativity to flourish that I'd like to get started here.

Innovation and creativity
Innovation comes from the Latin word innovare for "to renew or change." This change, at its core, is a creative process. Something new is being brought into the world by the efforts of one person or (as is more common) countless people working in cooperation. And, of course, creativity is a necessary ingredient to this creative process - you need to be able to think outside the norm in order to find innovative solutions. So, if you accept the logic that you need creativity to innovate, then the question we need to ask is really how do you best spur creativity?

To answer this, we need to take a short (but interesting) detour. So, please stay with me.

Motivation and Creativity
In his book, "Drive: The Surprising Truth About What Motivates Us," Daniel Pink posits that humans have built an economic system that works on an "if-then" equation. If you do something good, then you get rewarded (e.g. you meet your annual performance goals at work, you get a bonus). If you do something poorly, then you get punished. What research has started to show is that while this system can work well in certain situations to motivate people, it can also actually work against high performance in other situations.

For tasks that are routine, motivating people with "if-then" rewards results in higher productivity, which makes sense. If someone is paid for each widget they make, and there's just one way to make a widget, then they probably will be motivated to make more of them. However, for tasks that require basic cognitive thinking and creativity, research shows that people actually perform worse when their pay is directly tied to an "if-then" situation. In other words, if solving a problem requires thinking of an out-of-the-box solution, then motivating people with a carrot or a stick actually makes the situation worse. (Here's a short video explaining this phenomenon.)

So what does this have to do with innovation in the nonprofit sector?
A huge portion of nonprofit funding is an "if-then" scenario. Government contracts are largely designed to reimburse the nonprofit when a service is completed. Pay-for-performance grants, which are now gaining some attention, also work on a similar model. Individual donors increasingly want to fund only proven programs and none of the overhead costs to administer these programs.

At the same time, the issues nonprofits are tackling are becoming more complex and demand new, innovative solutions. But if the above research is right, then most of the funding sources available to nonprofits are actually hampering the ability of the sector to tap into the creativity it needs.

Daniel Pink outlines three concepts that the research shows are important to people not only being satisfied in their work, but also high performing. If people have autonomy, mastery and purpose in their work, they can better tap into the creativity needed to be successful. I think that there is a similar thing to be said for nonprofit organizations (after all organizations are comprised of people). Here is my take on how these three concepts would relate to the nonprofit sector.

  • Autonomy - Allow people to be self-directed and they outperform others that are micro-managed. In terms of funding for nonprofits, general operating funds are the resources that allow for the greatest autonomy. I know it's very easy to say foundations, government and donors should give more general operating grants, but it's time go back to basics and allow nonprofits the freedom to best identify how to use funding. (Related to this, there's a lot to be said about engaging community about what they want the nonprofit to be doing as is articulated in this really interesting blog out of Australia.)

  • Mastery - We all want to feel like we are getting better at what we do. On the flip side, we can all conjure up a time we felt like we were set-up to fail and not given the support to succeed. In translating this to the nonprofit sector, helping organizations approach mastery is capacity building. Unlike the disappearing gen-op grant, more grant makers have started funding capacity building for its grantees. However, this is still a small number and there is a much greater need. If the philanthropic sector wants success, we need to commit more resources to improving the nonprofit sector as a whole.

  • Purpose - This one may seem like a given in relation to the nonprofit sector (after all, many people working in the nonprofit sector started out doing so because of a sense of purpose), but I think there is something more here. The past few years have pulled the curtain back on a number of nonprofits that were just fundraising to stay afloat rather than to address a community need. When this happens the social purpose of the organization is compromised. As a result, many of these organizations have decided to close down, merge or form strategic alliances, which helps gets the focus back on the mission - the social purpose - and away from just raising money to keep the doors open. Some funders have started to dedicate resources to helping nonprofits explore and carry-out mergers. This trend needs to continue.

I believe that the nonprofit sector's potential for innovation is greater than any one of us can imagine, but the way organizations are currently funded is counter-productive to fostering the creativity needed to break through to new solutions.

I know this is only a start, but even the biggest ideas start out small.

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