Friday, October 16, 2009

Would Charities Work Better if They Made Profits?

At first look this seems a rather daft question. Charities for profit? Isn't that a contradiction? Well, yes, and no. The public would certainly find NSPCC plc a hard one to throw into the bucket for. So, on one level, yes it is a non-starter.

But I raise the question because I there is a hypothesis I would like to test. Which is this: Would NSPCC deliver more social bang for buck if it were owned and managed as a for-profit venture? Part of me, you see, believes it might just do that. And if that were so, what would that mean for the charity model of raising money and spending it?

First though, how on earth might a private NSPCC deliver more for children. Well, I am fairly confident that it would very quickly focus the business on areas where the evidence suggested most gains could be made for least investment. Charities are, in my experience, not as skilled at focus full stop. Nor do they like to kill programmes that are good - but not quite good enough. Secondly, a private NSPCC would definitely have fewer staff, less bureaucracy and a more simplified and faster decision-making structure. Almost without doubt. Thirdly, a private charity would be better at driving down costs and would do this instinctively, rather than as a nice-to-do.

But there will never be a private NSPCC so why bother even thinking about it? Well, it's not quite as simple as that. Many charities now do work in fields that for-profit companies also operate.

Take my own sector, advocacy services for vulnerable groups. While charities predominate, there are a few private sector players, one of which is owned by a professional friend of mine. His business is is carefully organised to make profit (which he then puts to a variety of good uses on top of providing for his family.

But my friend believes, correctly I think, that his broad focus on profit actually leads the company in the direction of getting it right as a service. On processes. On delivery. On costs. On people. On measureable impact. Yes, a profit focus actually helps, on some level, to get these others things right.

I say all this because we have struggled, as a non-profit minded organisation, for to get some of these things sorted quickly. It is only now, when the medium term future is less certain (i.e. our top and bottom lines are under threat) that I seem to be able to generate the impetus for change.

Indeed, I have often wondered, in my darker moments, whether if we were run for profit, like my friend's business, we would have resolved the drag-factors on our business which only now we are starting to resolve.

Whatever the rights and wrongs of this, I think what comes out for me is that we need to rid ourselves of the fantasy that profit just takes from delivery. That third sector organsisations are somehow better because we don't aim for profit.

This is lazy thinking. The truth is that many charities that could make a profit toput to good use actually refuse to do so in the misguided belief that it is always better to leave costs in the business. If charities produced profit-targets - and stuck to them - I am personally fairly sure that the sector would, in a very short time, be delivering the same for a lot less money.

So yes, while I agree that charities can never be run for private profit, I do believe charities would, overall, do more good if they set ambitious targets for profit (to be reinvested or whatever) and pursued them with the same vigour and focus as would a private sector business.


Rob Fountain said...

I'm back to the earlier blog about Just Giving on this one. Transparency is what I think is the issue. I say this because my experience of charities is achieving 'profit' - or making money from charitable activity. Only it isn't profit, it's necessary unrestricted contribution towards core costs. The benefits of thinking ike a business are as, you say, a sharper focus - cutting unnecessary expenditure, charging a fair amount for work delivered, being innovative in the search for what you can offer. We don't, though, seem to be able to get beyond the opaque that is telling funders (and the public) about how 'nice' we are. Net result is struggling forever to cover the essential core costs and a reliance on project funding that encourages lazy operations (how many PCs have been bought for third sector orgs becuase "we put in for a few computers in the budget"?). There must be a place we can reach with charity that says 'our mission is good, but to deliver it we all think we should be business like: ergo, we'll agree to be as professional as we can to make your donations go as far as possible'.

rharris said...

I dont see a difference in "neccessary unrestricted contribution towards core costs" and profit (not the balance sheet version after running costs) - public sector commissioners dont want to pay for the running of a "charitable" organisation as much as they dont want to contribute to a dividend for a company director. And why should they?
I agree with your wider point about transparency but i would apply this to charities as well as private businesses; in my view most charities i know do not struggle to cover essential core costs (quite the opposite in my recent viewing of a national charities accounts - turnover 4million - surplus 1 million 2008/2009) because in the compact/contract culture they charge the same as private businesses and pay Chief Execs inflated salaries and rely on a grossly over exaggerated middle and admin management structure. I know this generalisation doesnt apply to all, but conversely i dont see many of these "charities" out on the street shaking tins or in fact doing anything that borders on charitable at all.
Time for the charity commission to reexamine status applications, HM Revenue to take the opportunity to increase tax by taxing them, and the public to fully understand how a great many charities operate.