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Business-nonprofit alliances: Value creation partnerships

Todd Haskell | July 31, 2020

The economic news today was grim. There are certainly some companies that are thriving, but overall, it's a tough time for the great majority of businesses in the U.S. In these situations, there's a temptation to think of the economy like one big pie, with everybody having one slice of that pie (some slices bigger than others, of course). When the economy contracts, there's less pie to go around. That can lead to a competitive mindset - more pie for someone else means less pie for me. There are certainly some beneficial aspects to competition, but it can also easily become a destructive force. After all, in successful human societies we don't just fight each other for resources. We collaborate, and by doing so we create more resources - making the pie bigger.

The same is true for businesses. Collaboration isn't a cure-all for our collective economic ills, but it can sure help. In this post I will focus on one particular kind of collaboration, namely a strategic alliance with a nonprofit. Part of my interest in this comes from the fact that lately I've been working with nonprofits a lot. But there's another reason as well. Nonprofits are important to the health of communities. And that's not just physical health, but economic health as well. So a business stands to benefit twice from this kind of collaboration - once through the direct benefits, and again through the indirect benefits of strengthening the community in which they operate.

Collaboration between businesses and nonprofits is hardly new, and large numbers of businesses in my community work with one or more nonprofits. However, I would argue that very few of those relationships involve creating significant amounts of new pie. That's because both businesses and nonprofits often have rather limited ideas regarding the potential of the relationship.

My favorite article about business-nonprofit collaboration is a 2000 paper by James Austin called Strategic Collaboration Between Nonprofits and Businesses. It's a bit dated and doesn't have the sexiest title, but it presents a useful framework for thinking about collaborations, and is full of practical information. The article proposes three flavors of collaboration: Philanthropic, transactional, and integrative. I'll walk through each of these in turn.

The philanthropic approach is perhaps the most familiar of these: A business donates money, goods, or volunteer time to a nonprofit in order to support its good work. I like to call this ``value transfer.'' There is a one-way flow of resources from the business to the nonprofit, and no new pie is created. In our society we tend to applaud giving for the sake of giving. But the reality is that if one organization has resources that another organization needs, but not the other way around, that creates a power imbalance - this is one of the central ideas of resource dependence theory. This article on resource dependence describes how that power imbalance can potentially have negative effects on the nonprofit. For example, wealthy businesses can end up having a disproportionate amount of influence over the agenda of the nonprofits they support, steering them in ways that reflect their own vision and value system. This kind of relationship is also vulnerable to economic downturns, as it depends on a business having excess cash, i.e., resources beyond what are needed just to keep the business afloat.

The second flavor of relationship is transactional. I like to call it ``value exchange.'' In this kind of relationship, the business still provides resources to the nonprofit, but the nonprofit provides something to the business in return. Most commonly, a business with donate money in exchange for some kind of marketing or PR benefit. One popular arrangement is cause marketing: We'll donate 10% of the proceeds from our Eucalyptus Moisturizing Cream to Save the Koalas. There is a two-way flow of resources, which reduces dependency issues. But there still isn't really creation of new pie. It's more like this: The business has a cherry pie, but no way to eat it other than their fingers. The nonprofit has plates, napkins, and silverware, but nothing to use them with. The business gives the nonprofit some cherry pie, in exchange for getting a plate, fork, and napkin. Even though no new resources have been created, it's still a better use of the existing resources, and so an overall win-win. Transactional relationships work best when one party has an abundance of something the other party needs, and vice versa. If the business is providing cash, that means there's still vulnerability to economic ups and downs, as in lean times cash may become tight.

The third flavor of relationship is integrative, which I like to call ``value creation.'' You could also call it creative opportunity seeking, because that's what it's really about. The key feature of an integrative relationship is that rather than just passing resources back and forth, the partners work on projects together. It still works best when the partners have complementary strengths and weaknesses. But rather than those being just being physical resources, they can also be things like information, skills, and capacities. Building on the metaphor for transactional relationships, it's like the business and nonprofit are talking to each other, and they decide they would really like a cherry pie. The business has a pie plate, and knows a good place to buy cherries. The nonprofit digs up flour, butter, and sugar, and they have a pie recipe. And so they go into the kitchen together and bake. This way you get actual new pie, which is the value creation.

What does new pie look like in the real world? In my next post, I'll give several concrete examples, but here's one to give you a taste (pun fully intended!) Microsoft needs employees with computer science skills. In the U.S., the educational system doesn't produce enough graduates with the necessary skills to meet demand. One response to this situation by Microsoft is to support initiativess to increase inclusiveness in computer science education, which has historically been (and continues to be) male dominated. Here is a page talking about some of the things they are doing. Note that this is not simple charity. Microsoft is addressing a real business need, and they are doing it by partnering with nonprofits whose goals are aligned with Microsoft. Nor is it just transactional; Microsoft is a very active partner in this effort. For example, they distribute lesson plans and activities on their site.

I will be the first to acknowledge that it can be challenging to build integrative partnerships of this sort. They're not going to work for every business or every nonprofit, and it's very important to ensure that the partners have a true strategic alignment, as in the Microsoft example. There are many obstacles to overcome, not the least being that business culture and nonprofit culture are quite different, and often there is a mutual distrust between the sectors. At the same time, I don't believe we're going to make it through the current crisis by talking about all the reasons we can't solve our problems. There are many businesses out there already that are showing what can be done with some patience, persistence, and creativity. In my next post I'll highlight a few of them.

Updated August 21, 2020