Data-rich, resource-scarce: the evolution of philanthropy

Back in 2004, I wrote a book about the changing nature of the philanthropic industry and argued that there was an opportunity for those involved in the work to direct those changes toward a better future.  The “giving business,” as I call it, is a slightly odd industry.  Like healthcare it includes both commercial and not-for-profit vendors, ranging from foundations, trust companies, private wealth managers, and family offices to legal and accounting firms that manage or advise on charitable giving and mutual fund companies or brokerages that sell charitable giving financial products.  Like education and financial services, it is a regulated industry, operating under a cluster of state and federal rules, influenced by several sections of the tax code, and engaging various elements of corporate law.  And like every business in developed market economies, philanthropy is affected by technological innovations, especially those that involve data storage, mining, and access.

But unlike any of the other industries noted above, philanthropy is also a passion-driven business.  Whether you work for a living donor or the twice-removed independent board of a century-old foundation, somewhere along the line personal interests and passions set guidelines on what issues the business supports, which sectors of society should benefit from the funds, or what geographic regions matter most in making decisions.  Besides the personal interests shaping the work, the endowed foundation subsector of philanthropy harbors another differentiating factor – the remarkably low death rate of enterprises in its midst.  While endowments ebb and flow, endowed foundations rarely go out of business.  Thus, foundations are like lots of other businesses, except they can change their priorities at will, pursue almost any area of interest regardless of political, public or market pressures, and rarely go out of business unintentionally.

These two characteristics matter as much on the individual level as on the sector level.  When you look at foundation philanthropy as a whole and compare it to other industries, you get the odd sensation of seeing something that looks like a duck, walks like a duck, and quacks like a duck.  Even so, it just might be a chicken.

Why does any of this matter to grants managers?  Because at the root of the changes that matter most to philanthropy as an industry is the data.  Within single institutions, foundations are often awash with data – grants, evaluations, needs assessments, and financials.  Even as endowments and financial resources shrink, the data pool about giving, issues, and relationships expands every day.  Grants managers work starts with managing data.  But that really should be just the first step – because the opportunities are ripe to unleash data to inform tactics and strategies not only for individual institutions, but also for the industry as a whole.

One example of using data to make a difference can be seen in the simple use of maps and mashups.  Foundations that view their grants data on maps often comment on how quickly they can see relationships between nonprofits, gaps in coverage, and “links” between programs that they might otherwise have missed.  At the industry level, the Foundation Center’s new Philanthropy In/Sight^TM tool is geared toward making this possible across the sector.

Grants data can also be a tool for change when leverage matters as part of a strategy. More and more foundations are seeking to not only spend their own money wisely, but also to influence how other donors spend their resources.  While the opportunity afforded the Gates Foundation by Warren Buffett’s gift is the best known example of such leverage, the Charles and Helen Schwab Foundation sought to influence other donors as a stated part of its strategy almost a decade ago.  The former CEO actively sought partners, other donors, and private foundations that shared the Schwabs’ interests; used staff knowledge and grants data to inform giving, and evaluated those grants according to “other money influenced.”  Community foundations, of course, have long been set up to do this, but only a few regularly show potential donors graphs of “dollars in action” with unrestricted funds, public sources, or other donor dollars.

Using grants data to connect foundation knowledge to the actions of individual donors could redesign philanthropy.  As most of us know, more than 80% of the $300 billion in American giving each year comes from individuals.  And individual givers are increasingly well-served by technology that lets them aggregate both their giving and their information.  In a surprising twist, some of the cooler data tools for givers have been deployed for individuals before being widely used by institutions.

Armed with tools like Kiva or Care2, individuals can organize their own giving portfolios and find partners.  Guidestar, CharityNavigator, NetworkForGood, and GlobalGiving let donors research organizations, programs, projects, and results and GreatNonprofits lets them share their own insights about an issue or an organization.  Community foundations are leading the way in connecting institutional strategic knowledge with individual donors, using systems like DonorEdge or DonorBridge.  These “long tail” tools deploy a variety of data about programs, gifts, and givers.  In doing so, they have moved hundreds of millions of dollars across a few platforms in less than a decade.

Social investment exchanges, which already exist or soon will in South Africa, Denmark, Israel, and Singapore will launch in the U.S. in 2010 in the form of MissionMarkets.  These exchanges could change the information ecosystem significantly, primarily because they will provide due diligence and investment decisions online, over time, to all registered users.  Just imagine the possibilities if the expertise of foundation program strategy was available to individual donors and investors on a mass scale and the resulting knowledge sharing, grant data, and on-the-ground insights tracked through linked data systems.  Imagine what program professionals could learn from mixing real-time individual giving trend data into their decision making as they develop an overall sector strategy or attempt to make realistic projections about the length of a specific grant.

What lies at the heart of evolving philanthropy is the ability to use data to inform donors’ passions.  Doing this well is not easy.  All kinds of data are needed to do this, from revenue flows to evaluation results, due diligence reports to outcome benchmarks, personal stories to performance measures.  We also need meaningful, common taxonomies and a cultural shift toward greater information sharing.  The good news is that grants managers know all of this – they know data, they know taxonomies, and they can guide, model, and inform discussions about the value and limits of information sharing.  In this age of data-wealth and resource scarcity, philanthropy can shape its future by unleashing the power of its knowledge assets.  Grants managers just may be the ones to guide us into the next iteration of the industry.