Nonprofits may be different from corporations, but they are not immune to disruption. Here’s a framework to understand how digital can benefit your organization.
Fundamental differences exist between for-profit and not-for-profit organizations. While a corporation may look at customer experience and investor returns, the not-for-profit (NFP) sector thinks about the stakeholder journeys of their donors, beneficiaries and partners.
Like their corporate cousins, the NFPs are eyeing digital transformation with a mix of inspiration and apprehension. Although more than half of nonprofits include technology in their strategic plans, according to a Nonprofit Technology Network survey, there remains much more opportunity to improve efficiency, engage stakeholders and fulfil the organizational mandate.
But for nonprofits to adopt technology, it must help them to demonstrate impact, strengthen trust and communicate the value of their endeavours so that they can attract the resources they need to be sustainable.
No immunity from disruption
NetHope, an enabler of technology-based innovation for nonprofits, reports that more than half of nonprofit executives in 2017 believed that digital disruption would impact their organization soon. Yet a survey of their members showed that 70 percent did not have a digital strategy in place.
If NFPs think they are immune to disruption, they are mistaken, writes NetHope CEO Lauren Woodman. Nonprofits are as vulnerable as taxis, postal services and manufacturing – “academic research validates that assumption,” she says. Woodman further argues that “the benefits of digital transformation for our sector – and more importantly, for those we serve – is significant.”
This begs the question: what is holding not-for-profit organizations back?
According to the 2017 Burk Donor Survey, 82 percent of donors will reduce or stop giving to organizations who seem to spend too much on overhead. Because of the “overhead myth”, NFPs feel pressured to keep costs as low as possible, even when investments could improve their impact.
“Traditionally the nonprofit sector’s willingness to innovate is lower than that of other industries,” points out Gregor Nilsson, CDO at World Wildlife Fund. “While other companies can try and fail as long as they deliver the desired shareholder value, investments in innovation that turn out not to be profitable or impactful enough might be linked with reputational risks for a nonprofit.”
Whether it is due to a lack of resources or an aversion to risk, nonprofits are not only missing growth opportunities, they are falling behind. The right digital tools can redeem their investment with greater efficiency and donor growth, showing impact, aiding sustainability, and strengthening trust.
Not-for-profits are under pressure to show impact
Donor demographics are shifting along with digital transformation. Younger generations prefer to support causes rather than specific organizations and today’s donors do their research before giving. Crowdfunding and increased competition raise the pressure on a nonprofit to stand out by demonstrating its impact.
Analytics are often associated with web and social media traffic, but they are increasingly being used to derive insight from business processes and customer choices. For a nonprofit, analytics can be a powerful tool for tracking their impact on beneficiaries and quantifying the immediate and longer term value created by the organization for its stakeholders.
Habitat for Humanity, for example, used their analytics to demonstrate that they generate $4 in value to society for every $1 donation. Being able to put a magnitude on an NFP’s impact helps others recognize the value of their donation or partnership.
Not only can analytics help measure impact multiples, the collected data provides a foundation for other technologies to build upon. Artificial intelligence, for one, relies on data to learn and make predictions.
Not-for-profits are under pressure to remain sustainable
While impact shows the value of a nonprofit’s work, surviving over the long haul requires sustainability. This means generating growth while keeping costs down, minimizing forward risk and maintaining a positive social dividend.
Artificial intelligence (AI) is one tool that can assist sustainability in many different ways – from optimizing donor and volunteer experience to augmenting on-the-ground decision-making and improving organizational efficiency. AI tools can save staff and volunteer time spent processing documents or answering basic questions, and this increased efficiency allows them to work on other important tasks.
Organizations also embed the technology in operational processes to predict where their help is needed most, and the most efficient way to provide that help. Resources can be diverted to where they will have the greatest impact.
Donor revenues can be fickle and uneven throughout the year. Artificial intelligence tools help discern who is most likely to give, as well as when and where, targeting marketing efforts effectively for donor growth.
AI-based chatbots can also interact with donors and encourage them to give. For example, when the Charity:Water chatbot picks up on words like “donate”, it immediately directs the website visitor to a donation option.
Not-for-profits are under pressure to show they are trustworthy
The Edelman Trust Barometer’s annual report is a gauge on the global public’s trust of business, government, NGOs and the media. Although nonprofits enjoy the highest trust among these sectors, trust in NFPs by college-educated high-earners dropped 22 points over the most recent one-year period, to 51 percent in 2018. Donors, volunteers, partners, and beneficiaries are demanding more transparency to see that resources are going where they should.
Tracing each donated dollar to its beneficial impact is one way to deliver that transparency – the challenge is doing so in a trustworthy manner. Distributed ledger technology offers a way to accomplish this. Also known as “blockchain” (a technology made infamous by its association with Bitcoin and other digital currencies) its true potential is in the digitization of trust.
As its name implies, a distributed ledger is a decentralized way to store information. Being “distributed” means that it is controlled collectively rather than centrally. However, the data are also cryptographically tamper-proof so that they cannot be altered after the fact. The properties of blockchain allow for 100 percent assurance in the chain of data – in other words, it’s trustworthy.
Distributed ledger technology is already being used to track where donations are going. Legambiente, for example, helped those affected by the January 2017 earthquake in Italy. By storing building material receipts in HelperBit’s blockchain, the organization showed donors exactly where their funds went. Donors can click a link associated with their donation to trace how their funds were spent and who benefited, all the way to the recipient. Similarly the American nonprofit Goodr uses a secure ledger to assure businesses that their donations of surplus food are handled with integrity.
Not-for-profits must get the word out
Underlying all of the above challenges is the need for NFPs to communicate with their donors, volunteers, beneficiaries, and other stakeholders. To show impact, demonstrate a trustworthy brand, and realize a return through increased donations, organizations must create a narrative that captures their good work and reaches stakeholders where and when they are ready to listen. On the flipside, this communication must also be two-way, helping beneficiaries and others give feedback on programs and services.
A study by Paul J. Zak and his team found that compelling, character-driven stories increased the chance people would donate to a related charity. NFPs can combine these stories with supporting data, while pointing to evidence in the blockchain, to demonstrate impact and improve trust while increasing the likelihood of a donation. Artificial intelligence can then help predict where and when to reach an audience with these stories: by social media, email, text message, or other communications channels.
World Bicycle Relief distributed a video to tell their story. The video showed a young girl who had trouble getting to school, but with a donated bike, her life was transformed. Viewers followed the girl on her journey and saw first-hand the potential impact of their donation, and at the same time, the beneficiary had a chance to tell her story.
Digital technologies are a positive investment
Investing in data analytics tools, artificial intelligence, and distributed ledger technologies can drive donations and improve office efficiency. According to research by Lloyds Bank, nonprofit organizations that have fully embraced digital technologies are 28 percent more likely to grow their funding.
Douglas Kelly, former consultant at the not-for-profit Compass, comments on the importance of embracing technology: “We’ve modeled the ecosystem of nonprofits to understand the impacts of increasing competition in technology and innovation. It suggests that the nonprofits that choose not to invest in necessary technology will see an ever-widening performance gap between their outcomes and the organizations that have adopted technology effectively.”
The idea is not to adopt technologies for technology’s sake. The key is to choose the right technologies and solutions that help fulfil the NFP’s mandate. In this way, digital transformation is not overhead: it is an investment in growth.
This article is part of a series that explores how not-for-profit organizations can benefit from digital transformation. It has been published as a guest posting on the Keela blog and co-published on Aluance Digital’s Acuity blog.