The keynote talk from Ruth Kaufman at The OR Society's annual conference (OR56)
What’s
so special about the Third Sector?
Ruth Kaufman
Chair of Third Sector
Special Interest Group
ruth.kaufman@btinternet.com
Abstract
The
OR Society’s Third Sector initiative has two main components: a Special Interest
Group, and a Pro Bono scheme, matching O.R. volunteers with third sector
organisations needing their input. But is there really any difference between
doing OR in the third sector and doing it with a government or private sector
organisation? Is “it’s for charity” really a good enough reason to work for
free? This talk explores these challenges, taking charities as an example of
third sector organisations.
It considers three areas of inherent difference between
charity, private and public organisations – legal form, governance, and
resourcing – and other factors such as organisational size, culture, and
business environment. It goes on to consider the implications for practising OR
in three broad areas: strategy, efficiency/effectiveness, and profitability.
Finally, it explores the rationale for volunteering.
1. Introduction
The OR Society’s Third Sector initiative has two main
components: a Special Interest Group; and a Pro Bono scheme, where OR people
offer to do free OR work for a third sector organisation.
When we established the initiative,
the emphasis was on the size of the third sector, the lack of profile of OR in
the sector, and the desire to promote and exploit OR more widely. We did not
explore the rationale for a separate third sector group – is there really any
difference between doing OR with a charity and doing it with a government or
private sector organisation. Nor did we explore the rationale for volunteering.
This talk begins to address the gap. It examines the structural differences
between sectors, and goes on to look at what this means for O.R. in practice,
and more briefly at the end, what it means for volunteering.
For the most part, this talk will
look at charities, and just touch on other third sector forms of organisation –
social enterprise, mutual, community amateur sports club, political campaign,
and more – at the end. The talk itself will use examples taken from a variety
of third sector practice; the examples are not included in this abstract.
What follows is based largely on
direct personal experience, and learning from others who have been working in
the field. It is not intended as a definitive statement of ‘what is’, based on
systematic evidence-gathering, but as a trigger for debate and reflection.
2. Differences
between charity and private or public sector organisations
I will pick out
three features that distinguish charities structurally from other
organisations: purpose, governance and resourcing.
2.1 Purpose
Every charity must
have ‘charitable purposes for the public benefit’, and these must be its only
purposes. This is the single defining characteristic. It is fairly clear how
this differentiates charities from the private sector – although many private
sector organisations include some version of ‘public benefit’ amongst their
aims. It is less clear how it differentiates them from the public sector. Many
of the state’s activities are in fact delivered by charities: around 35% of
charity income comes from statutory sources.
2.2.Governance
In private sector
and charities, unlike the public sector, ultimate responsibility lies with the
Board of Trustees. All Boards have to comply with a range of legal constraints,
including the requirement to operate within the rules set by the charity’s
governing documents. Some may also be part of a larger organisation that sets
constraints (for example, all Women’s Institutes are independent charities and
also part of the National Federation of Women’s Institutes), or be accountable
to members, or funders where contracts or grants are conditional. But private
sector and charity Boards alike have no democratic mandate, no statutory duty,
and no accountability to citizens at large.
Unlike the private sector, though, charity Board members are (usually)
unpaid, and may be elected by members rather than appointed.
2.3 Resourcing
Charity income may
come from all the same sort of sources as private and public sector: revenue
for services sold, grants made from taxation, investment interest, loans. But
around one-third of charities’ cash income is donated from members of the
public, corporates, charitable trusts and foundations or lottery funding.
What’s more, charities are massively dependent on donations in kind, and in particular,
volunteers (including Trustees).
Donations and
volunteers are not exclusive to the third sector. There are many volunteers
working with the statutory sector, and even the private sector. some in legally
designated volunteer roles, such as magistrate, prison visitor, school
governor, others informally offering their support reading to children, running
hospital tea-rooms, or litter-picking. The recent cuts to the welfare state
have blurred the lines further.
So, these
characteristics do not rigidly separate charities from other organisations.
Nonetheless, they have significant consequences for how charities behave, and
follow-on consequences for O.R. in charities.
As well as these
structural factors, it’s important to be aware of characteristics of the sector
such as organisation size, employee numbers, and activity areas[1].
But the diversity of the sector means that each charity has to be considered
independently – generalisations are dangerous.
3. Is
OR for charities different from OR for other organisations?
To begin to answer
this question, this talk considers three areas of application: strategy,
efficiency/effectiveness, and profitability.
3.1 Strategy
Although the
underlying process of strategy development and implementation is no different
for a charity than for any other enterprise, some important issues arise from
the nature of the sector.
Articulating goals
can be unexpectedly problematic. Charities are very often set up to undertake a
particular activity which seems to be a Good Thing: for example, providing
legal support to people with disabilities. But one activity can go with many
goals, and different goals may demand different priorities, or delivery models.
Stakeholders may
include staff, volunteers, trustees, funders, beneficiaries, members, and more.
Many of these will feel a deep loyalty and commitment to the cause. What
differentiates them from stakeholders in other sectors is that for many of
them, that commitment is their only
tie to the organisation. They will walk away if changes violate their view of
what the organisation should be doing, or how it should be doing it. Strategy
must take account of these relationship drivers and risks.
Any charity that
is dependent on the UK statutory sector for any of its income or activities, or
that has UK beneficiaries that are in any way disadvantaged, is going through
tough times at the moment. Financially, certainly; also because of greater
numbers and needs of beneficiaries; and because of changes in statutory sector
procurement, growth of competition both between and within sectors, reduction
in support from the statutory sector, transfer of risk from statutory sector to
its service deliverers, and pressure towards partnership working with no
recognition of the associated cost.
Charities that do
not have an IT-based operating model are similar to most other organisations
that do not have such a model – data is valuable, and they may have lots of it,
but there are problems in using it. The only difference with charities is that
it is possible for a charity to be set up and run by an entire team of people
with no expertise in business or data management, and survive for a long time
on vision and inspiration alone. Many are highly professionally run, of course
– but there is probably more scope for helping with the basic components of
systematically analysing data, planning, and forecasting.
3.2 Efficiency/effectiveness
Dan Corry, Chief
Executive of charity New Philanthropy Capital, has recently identified a number
of barriers that, in his view, militate against charities improving
productivity[2].
Some of his arguments are contentious, and will be reviewed in the talk.
Nonetheless, it is true that from the
O.R. side we have seen relatively little drive for specific efficiency or
effectiveness improvement initiatives. It has been notable within the Pro Bono
scheme, for example, that only a small proportion of project requests have been
for improvements in operational efficiency.
Instead, over the
last few years, across the whole sector, there has been growing demand for
evaluation, outcomes measurement, and impact measurement, and this has been
reflected in Pro Bono requests. Indeed Dan Corry prescribes this as a solution
to the problems identified. The assumption is that for the charity, such measurement
will help the organisation recognise what it needs to do to improve; and that
for funders, having this information enables them to channel funds to the more
efficient/effective organisations. Significantly, both these assumptions skip
over the step in the process which involves designing the efficiency
improvements. This is the very point where O.R. should have the most
distinctive contribution to make; and it is almost invisible.
Whatever the
barriers and the means for their removal, what actually is the potential for
efficiency improvement? Almost all charities are part of the service sector,
and have processes that can be improved, priorities that can be adjusted,
resources that can be better matched to need, just like any other service
industry. Scope may be limited: many will have services which are dependent on
one-to-one or one-to-few transactions between staff and beneficiaries,
transactions which cannot be shortened because the nature of the human
interaction is key; many are small organisations operating on a shoe-string
already. But that still leaves plenty of organisations with scope for improving
call-centre operations, improving logistics, improving appointment booking and
client follow-up systems, reducing transport costs, and more.
3.3 Profitability
Profitability
or, in charitable terms, breaking even or making a surplus, is an area where
charities really are different. There are many possible sources of income which
can exist independently of the service model of the charity. Taking another expression from Dan Corry’s
speech, the feedback loops between activity and funding are weak.
One
consequence is that fundraising is a significant activity. Fundraisers have
become sought-after professionals. Fundraising is an organisational function,
and service process, that doesn’t exist in other sectors, and that can be
supported by O.R.
Another
is that financial forecasting can be crucial. Many charities are dependent on a
small number of chunks of funding, much of it ‘one-off’, and which may or may not
relate to chunks of cost. This is made more complex by charity accounting
rules, which are different from private and public sector, and do not aid
transparency.
A
third is that where income is related
to activity levels – for example where charities are providing services to
local authorities under contract, or have grants to undertake specific
activities, or are running a business –costing or pricing may not be straightforward, and may benefit from
modelling support.
Finally,
in chasing profitability, charities may ‘follow the money’. This is a sensible
thing to do for private sector organisations, but dangerous for charities.
There can be a temptation towards mission drift, away from the objects for
which they were founded towards those which are currently in vogue with funders
or donors – potentially a strategic disaster.
4.
Where do values fit in?
It might be
assumed that the key difference when working with a charity is the drive to do
good, and the charitable values, that underpin the organisation and provide
meaning to all its activities.
I have already
suggested that ‘public benefit’ does not reliably distinguish charities from
public or even, in some cases, private sector. People working with any
organisation will tend to seek out meaning in their work. This may be easier to
do in a charity, and certainly charities are more likely to be staffed by
people who want meaning, and very unlikely to be staffed by people looking to
make piles of money; but there is a lot of overlap.
Values are even
less of a discriminator. Whilst most charities will have strong values relating
to the ends - their direct beneficiaries, or achieving their charitable objects
- these values do not necessarily stretch to the means: the way they treat
staff or volunteers, the way they work with partner agencies, the way they
manage their business. In practice, the values guiding charities’ day-to-day
management are as widely variable as they are in any other sector.
The charity’s
objects may not make much difference directly to the nature of O.R. work, but
they are absolutely crucial when it comes to the decision to work, and even
more to volunteer, with a charity. If you want to help bring about the same
change in the world as the charity does, then it is exciting to have the
opportunity to work with them. Whether you give your time for free is
determined only by whether you can afford to, and how you prioritise this
activity against all the others that you might do.
For Pro Bono O.R.
volunteers, there are lots of potential benefits: interest, experience,
contacts, learning, job satisfaction, building self-confidence, helping to
market your profession. For some people, some of the time, these will be enough
to justify an unpaid assignment.
Nonetheless, it is important to understand the charity’s objects[SH1] [3] and how it goes
about achieving them. Charitable purposes cover a wide range. When you
volunteer, you are helping that charity; and you need to assure yourself that
what you are helping it to do accords with your own values and your own vision
for a better world. Volunteering with a charity that does just that can be
enormously satisfying.
There is a
particular sort of opportunity that charities offer, which is relatively
unusual: the opportunity to become a trustee. The O.R. person as trustee,
especially of a small charity, can become both client and consultant. If
well-managed, this resolves the perennial problem of small organisations in all
sectors – lack of capacity to manage the consultancy they so badly need
5. The
wider third sector
The
third sector is usually defined by what it is not: neither private sector nor public sector. It covers a
surprising range of organisations, but three distinguishing qualities can be
identified:
·
they are operationally independent of
government;
·
they are “value-driven” – motivated to
achieve social aims; and
·
they reinvest surpluses in pursuit of
these social aims.[4]
What
makes such organisations special – whether in terms of the nature of the O.R.
challenge, or the reason for wanting to work with them – is a mix of the
characteristics of charities and other sectors. This mix will have different
components and different weightings, depending both on the legal form and on
the specific organisation itself.
6. Conclusions
The question was
posed at the start: what’s so special about the third sector. For the O.R.
analyst as a rational detached professional, the answer lies not in “the values”, but in the nature
of purpose, governance and resourcing. These are sufficient to generate a range
of characteristics which shape the practice and content of Third Sector
O.R. But for the O.R. analyst as a
person with wants, ambitions, and/or a sense of social purpose, what is special
is the richness of the opportunity to satisfy some or all of these.
[1]
Important sources of information are the annually-updated UK Civil Society
Almanac (NCVO, 2014) and the Charity Commission http://www.charitycommission.gov.uk/about-charities/sector-facts-and-figures/
[2]
Speech to RSA, 8 May 2014: http://www.thersa.org/__data/assets/pdf_file/0018/1543302/Dan-Corry-how-do-we-drive-productivity-and-innovation-in-the-charity-sector-RSA.pdf
(accessed 19/6/2014)
[3]
For those not familiar with charity jargon, the term ‘objects’ has a similar
meaning to ‘objectives’, but carries legal weight. A charity’s objects describe
what it has been legally set up to achieve; it may not do anything unrelated to
its objects, and can only change them with permission from the regulator (in
the UK, at least).
[4]
Improvement Skills Consulting for the Third Sector http://ianjseath.files.wordpress.com/2013/12/isc-third-sector.pdf
accessed 19/6/2014.
[SH1]Objectives? Susan, ‘objects’ is the legal term describing
objectives; it means the same, except that objects are enshrined in the
charity’s constitution and cannot be changed without permission from the Charity
Commission, so I’d prefer to keep it. Have inserted a footnote in case you
think that helps – don’t mind if it stays in or comes out
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