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Sustaining Creativity in Non-Profits

Adam Rust's picture

Posted February 10, 2010

The latest gathering at North Carolina's Institute for Emerging Issues challenged leaders to evaluate how creativity can transform businesses and local communities.  This is an important question in the era of globalization. It attempts to solve a big problem - employment and growth for a  state continues to shed traditional manufacturing jobs.

I believe that these questions also hold relevance for our non-profit community. Non-profits should be engines for innovation, but all too often, their environment put little emphasis on change.  That emphasis may be a product of the funding culture that they work within, but it also reflects how non-profits manage their own entities.

Non-profits should be where we work out problems. They can use their ability to gather funding without having to answer to shareholders.  Is that how it always works? Well, sometimes. Ask yourself - does your non-profit solve new problems, or does it meet needs at lower costs? Does your non-profit reproduce something that could be done by a private business?

The promise of non-profits is that they are freed, by their non-profit status, to produce results without market incentives. They can solve public good problems.  Remember those - the ones that are non-rivalrous and non-excludable? Think of clean air.  Think about "orphan drugs." Think about the application of knowledge.

We need a solution to prevent the onset of tuberculosis in HIV-positive patients.  The market may not find the answer.  Pharmaceutical companies are not putting adequate resources to the task of finding a solution because it is unlikely that such a vaccine would treat consumers with the ability to pay enough for the cost of the research.  Instead, our pharmaceutical companies seek to find the next diet pill or something to treat shortcomings in bed. We have more research spent on baldness than on malaria. Baldness affects older men.  Living to be old is a luxury in many parts of the world.  Moreover, if you have money to spend on resolving baldness, you probably are not someone with really big problems.  Malaria impacts poor children, often those living without adequate housing, and often in developing countries.

The restructuring of North Carolina's workforce is one of these problems. Long-term, the only way that we are going to get to a Creative Workforce is through a commitment over many years to changing how we educate our children. We need to focus on problem solving, and not merely on mastering tasks. Businesses will ultimately benefit from that achievement. Our local economy will benefit. Who pays for the cost of finding those remedies? Who pays the cost of teaching our young people, and re-training our older workers, for a period of time that can legitimately turn around their capacities? The Leandro decision tells us that we are not getting it done. We have a 30 percent dropout rate and a 50 percent drop out rate among minority men.

Bill Gates (at TED, here) wants to know how "we can make a teacher great." It seems like an important problem, he says, but the fact is that we don't spend money on this problem and we really don't even know what factors make

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teachers effective. Our workforce's value comes from the top 20 percent, but businesses are increasingly going to where they can find skilled workers.  If our teacher's can't produce, then businesses will go to Bangalore or Vienna or wherever they are located.

Non-profits should go where business won't.  They can solve problems in places where there are not adequate market incentives.  Everyone benefits, because there are instances when no firm will bear the costs of innovation. Venture capital, by contrast, will pay for innovation in some instances - when there is a clear opportunity to make a fortune

upon developing a new solution.

Non-profits are not realizing the capacity when they only seek to mirror the objectives of business, but at a lower cost based on subsidies.  A retired funder from one of North Carolina's leading foundations put it this way: "the non-profit dollar is so rare, so untethered, that it has to be used differently."

Background

The latest trend in economic development is the Creative Economy. This idea was first propogated by Richard Florida, a professor currently tenured at the University of Toronto's Rotman School of Management. Florida rightly argues that our regional economies are increasingly driven by a small fraction of workers with problem-solving skills. He has articulated that idea by defining these workers and then finding correlations between their locations and the output of their surrounding communities. His focus is at the level of cities, rather than neighborhoods or school districts or nation-states. Indeed, his latest book, Who's Your City?, seems to start with that aim.

The reception of his ideas are mixed, but like any reaction, all of it serves to spread his vision. Florida goes to great lengths to trumpet the presence of baristas and web designers as heralds of vital workforces. He preaches technology, talent, and tolerance. 

Critics argue that this is simplistic.  Sure, its a well-known phenomenon that some of the people most likely to revitalize downtrodden neighborhoods are not Jack Welch types. They are often households that are not beholden to living near schools with well-established reputations (dinks, gays, artists, and young singles). That pattern existed before the Creative Class. Many of the cities that have achieved change of this type on a wide-spread level are hardly ones that started out without unusual features. Seattle, San Francisco, and Boston were never like Oklahoma City or Mobile, Alabama in the first place.  Where people like Florida imagine that describing diversity is the basis for an entire policy of economic development, they ignore legacy.

I can see both sides. I think that merely describing the location of creative workers falls short of what is needed. To find real value in a new idea, we need policy prescriptions that can help communities get to the place where Austin, Raleigh-Durham, and Silicon Valley have already reached.

What Happened at IEI

This week, North Carolina's Institute for Emerging Issues convened a forum of leaders to find those solutions. Richard Florida was not in person, but his presence was still felt there. You can watch the proceedings through their stream. As a "think-and-do" tank, it makes sense that IEI would not just want to understand Creativity, but find ways to realize its benefits.

Here's Dan Pink at TED, talking about how creativity is something that should be harnessed by managers in their own firms.  His opening gambit - that he made the mistake of seeking a legal education - ought to serve to give evidence of how some top jobs are still not that creative. That's not his main point, though. His observation is that Creativity

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doesn't just happen unless a manager allows his staff to make mistakes.  A manager who grades his staff based upon immediate results will suffer the same shortcomings.  "'If you do this, then you get that', works in some circumstances, but in many cases, not only does it not work, it does harm" (6 minutes into the video)...there is a mismatch between what business knows and what business does."

Contingent motivators reward the accomplishment of tasks.  IF then rewards work when the path to accomplish something is well-known. Certain processes work well for this system. Pink says that a system of carrots and sticks is fine for 20th century work (Fordist industrialism), but not for the problem-solving work that now gets the highest wages.

The Implication for Non-Profits

Non-profit funding should pay attention to this paradigm.  Funders have built up a creed that says that they want to see deliverables.  They want metrics to gauge results. They want grant reports that use benchmarking. This isn't a once-in-a-while event. It has become fashionable to try to gauge the value of non-profits with the same principles that are used to manage a business.

The finances of non-profits lead to the same mistakes in internal strategic planning.  All too often, executive directors resolve to devote staff time to projects that are known to be fundable. That is reality.  It is hard to get "operational" dollars.  It is easier to get money for programs. Non-profits often work at a thin margin. In spite of being freed from the need to make a profit, they are nonetheless put in the box of having to avoid risk.

Non-profits chase funding. If housing counseling has funding, then a non-profit will set out to meet those objectives. If there are tax credits to build senior rental units, then those units will get built.

That leads to a process where non-profits deliver reports that speak to the accomplishment of objectives at scale.  We served 3,000 meals...we counseled 200 families...we built 90 units..." The reward is all about getting a lot of things done quickly, and at scale.

Those kind of metrics just don't work when solutions aren't already clearly defined.  That makes no sense for non-profits.  Freed up from having to make a profit, we ought to be engaged in the very work that solves hard-to-fix issues. We ought to looking to make a systemic difference. We ought to have the time to work without short-term expectations.

I use the niche-filling/niche-finding paradigm.  Niche-filling describes work that seeks to do known methods.  Niche-finding is the other end of this divide.  Niche-finding is often nominal - either it happens or it doesn't. Non-profits do their best work when they find niches, but they often are only able to get funding for filling niches.

Important goals are not funded.  Advocacy is important, and it is rarely funded.  It is very hard, for example, to get funding for community organizing.  It was hard before the last election, and now it is even more difficult.  Organizing doesn't get done for free, however.  It can lead to systemic change. I would argue that it makes more sense to find a way to prevent the scourge of sub-prime lending before it happens. Providing resources to pay for housing counselors to negotiate loan-modifications is valuable, but is still filling holes in a dike.  We should be diverting the river. It is one thing to pay for dental care for low-income kids with bad teeth, or to help overweight children to eat less.  But it might make sense to give money to advocates to help pass a tax on soda.

Solutions for Non-Profits

Non-profits don't have to wait for funders to change. They can take steps to improve their own problem-solving capacity. It all goes back to finances.

I believe that there are too many non-profits. In the Triangle, we have more than 4,000 non-profits.  In Durham, we have one non-profit for every 122 citizens. Many non-profits are very small.  Many only have an executive director and one or two staff members. Many exist to only achieve one function. There is no reason why this has to be the case.  I imagine that the executive director issue is actually part of the problem.

Mergers are the fix. Non-profits should do what business has already recognized and achieve internal cost-efficiencies through scale. The problem, of course, is that we would have fewer executive directors. There are costs of merging.  You need new office space.  You need to spend time restructuring.  You have to put aside program goals for a period of time.  The reward is that program funding can be diversified, leading to stability.  There is no money out there to pay for non-profit mergers.

Second, those mergers should be designed with an eye to helping funded endeavors to pay for non-funded work.  The key there is for non-profits to wean themselves off of a dependence on the next grant. Building assets is where that can occur.  Assets should include real property, intellectual property, and investment property.  Bigger non-profits should seek to buy a building.  For some, that dovetails with their mission. For a non-profit working in community development, it should be in the mission to own a building in a distressed neighborhood.  Non-profits should also make intellectual products. It is one thing to make a report.  Printing costs money, and reports don't have a value for very long. Books and videos, on the other hand, can be made into products. I have a book.  My co-workers has made three television series. We own video equipment to make that a possibility. We sell both the book and the video. Last, non-profits should put some assets into income producing vehicles. This is not so hard to imagine.  Many non-profits build real estate on their own. CDCs are largely non-profit development vehicles. They benefit from advocacy.  Advocacy has created the forces that devote funding for tax credits, for CRA investment, and for community development loans.  Yet, advocacy isn't rewarded for its own results. CDCs should add advocacy departments within their organizations.

Conclusion

The lack of funding goes back to a funding system that feels compelled to ask for measurable goals. It takes years to get legislation passed. It takes many hours to organize a community. In between, non-profits engaged in that work have very little to show to funders as evidence of progress.  I am glad that IEI is putting attention on the management approaches that address this issue.  I hope that the non-profit community listens.

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