RSM New Zealand

Fewer, deeper, longer | A philanthropic funding trend

Back in early 2013 we wrote an article on an emerging philanthropic funding trend which we called Fewer, Deeper, Longer.  Fast forward to 2015 and this trend is even more applicable with the concept also being picked up by some Government funding agencies. Hence we thought it was worth an update.

Many charities and other organisations in the not for profit (nfp) sector are heavily reliant for their on-going viability on funding from various philanthropic funders.  So what are some key trends from philanthropic trusts, foundations or individuals that these charities and nfps should be aware of?

Ask any charity or not for profit entity and they will usually quickly bemoan the fact that competition for funding remains a big and increasing challenge for their organisation.  This fact probably shouldn’t be too surprising if you consider the following key facts:

There is a lot of competition – In March 2015 we have 26,790 registered charities in New Zealand and estimates of total nfp sector size of around 100,000 entities. (Interestingly the number of registered charities was around 25,000 back in 2013 and has been up over 27,000.)

Economic times have been tough – The impact of the difficult economic times experienced globally over the past few years has been felt both by nfps as well as philanthropic trusts, foundations and individuals. Governments have also felt the pinch meaning moves to cut their spending. Simplistically the impact of tough economic times has generally been to increase demand for nfp funding and at the same time reduce supply of available funds.

However even when we come out of tough economic times there are still strong motivations to ensure our organisations are as efficient as possible and funding is a powerful motivator to effect change.

So what are some significant emerging trends?

Looking to some of the leading philanthropic bodies in New Zealand and internationally the following two trends or themes stand out.

1.  What’s our impact?

Increasingly funders are asking themselves the hard question of how much change are they actually making with funding?  It’s understandable.  They have limited funds to give and often a seemingly ever increasing demand for their funding.  Accordingly they want to ensure they are applying their funding successfully and where it is creating the most positive impact.  Quite simply they want, and should be able to demand, the best value from their funding.

This in turn is focusing the philanthropic funders’ attention on how organisations that they fund themselves measure their impact and success.  However, this is changing from the traditional form of receiving lengthy evaluation reports, usually delivered well after the funding has been applied.  Instead, there is an increasing expectation that nfp entities will themselves be focused on their outcomes, and transparent and proactive in how they report these to all stakeholders.

While individual charities and nfps may be very worthy organisations, increasingly unless they can also show they are creating positive outcomes in a very cost effective manner they will struggle for funding support.

The level or quantum of positive change is also becoming more of a factor.  Just trucking along like we have in the past is often now seen as being not good enough.  Innovative funders are looking for opportunities to fund radical or large scale change.  More entrepreneurial thinking and commercial discipline is needed to achieve this radical or large scale change.

The recent financial reporting legislation and framework overhaul in New Zealand to require registered charities to provide a performance report rather than just an annual financial report is strongly driven by focusing NFP entities on their impact.  The performance report mandatorily requires registered charities to report why they exist, what they set out to achieve and what they achieved. (See Mandatory Performance Reporting for Charities on our website www.rsmhayes.co.nz )  This will eventually greatly assist stakeholders gauge the impact made.

2.  Fewer, Deeper, Longer

These three words sum up a shift we are observing from the more innovative philanthropic funders in how they are offering, assessing, granting and monitoring the funding they make.  These are the philanthropic organisations both in New Zealand and internationally that tend to be the innovators and early adopters.  As such, they are usually the lead indicators and looked to by other funders in terms of how they should be changing their strategies in future.

This doesn’t mean that all philanthropic funding will go this way.  However, when the leaders change some of their funding strategy then, rest assured, others will follow.

So what do these 3 words mean? 

Fewer

Funding a few number of organisations.  Rather than the approach of providing “a little to a lot” there is more emphasis going into picking winners.  Examples of a recent funding round: over 300 applications and just 4 successful organisations.  This poses some big implications, both for the 4 successful organisations as well as the over 300 unsuccessful applicants.

Deeper

Funding the successful organisations to a greater dollar value.  This is to allow them a better chance of making a real difference.  Deeper also reflects the expectation of deeper engagement and a higher level of on-going relationship between funder and entity funded.  More of a partnership approach that should also provide benefits of mentoring and access to other non-monetary resources, rather than that of just cash from a donor to a donee.  A ‘hand-up’ rather than a ‘hand-out” if you like.

Longer

Rather than a one-off grant, or one that would be required to be reapplied for each year, the funding of the successful nfps is guaranteed for a longer period of time, commonly 3 – 5 years. Again, this ties with the philosophy that consistent support of a guaranteed nature is necessary to allow the focus to be solely on effecting positive, enduring change rather than a temporary fix.

Implications:

These trends certainly won’t change all philanthropic funding.  Much of this funding will likely remain more traditional in nature. However, these are emerging trends and ones we expect to grow in significance.  However it is a trend that is gathering momentum.

What has also been an interesting trend since we wrote our first article back in early 2013 is the number of Government agencies that have been changing their funding models to funding a few entities rather than funding many.  This appears to be in an effort to obtain more guaranteed delivery of service, the service and cost benefits of greater economies of scale, easier administration, and greater efficiency.  It is becoming increasingly common to see situations where once 15 – 20 entities were previously funded yet the same funding is now being put out to tender specifying a maximum of 2-4 successful tenderers.

We expect to see more of this trend.  Hence if you are involved in the management or governance of a charity or nfp entities the following are some questions you should ask yourself:

  • When was the last time you objectively sat back and really assessed your level of impact on your key stakeholders?
  • How well is your organisation focusing on this, delivering on it, and communicating it to your stakeholders?
  • What would be needed to make a quantum change to the level of impact?

Dowload this article as a pdf: philanthropic_funding_trends_-_whats_our_impact_-_and_fewer_deeper_longer.pdf

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Authors

Craig Fisher
Consultant