Nonprofits Need to Invest in Research and Development (R&D)

As I continue my journey of helping nonprofits design and deliver strategies that help them achieve greater impact, I am increasingly convinced that nonprofit organizations need to intentionally invest in Research and Development (R&D). At the same time, I am surprised at how few nonprofits are intentionally pursuing R&D.  Need a gut check? Ask yourself, “where is R&D in my budget?  In the next year, how much are we planning to spend on continuous improvement, innovation and R&D?”  If your answer is, “I don’t have time for this, I am too busy preparing for our gala event and implementing our current programs,” then you are not alone.  According to the national social sector consulting firm, the TCC Group, their 2011 study of nearly 2,500 organizations suggested that only five percent of social sector agencies engaged in R&D activities (see Success by Design). Unfortunately, when we do not think about R&D then we undermine our ability to stay at the leading edge of providing programs and services that create an impact.

So let’s start with defining the term and practice of R&D in the private sector.  R&D is the process of investing time, money and talent to either improve existing products and services or to develop new products and services. According a survey by consulting giant PwC, across sectors in the United States, companies spend, on average, 3.5-4.0% of annual revenues on R&D (check out this nifty map). For those companies investing in R&D the benefits are realized in new products, streamlined processes, and increased profitability.  In fact, a study of global firms conducted by McKinsey & Company after the 2008 economic downturn, suggested that even in the darkest days of the recession, the highest performing companies, were much less likely to scale back R&D activity; indeed, they appear to have used the downturn as an opportunity to maintain—or even increase—their long-term superiority in R&D. (Study Link)

I’ll admit that I hate it when a board member from a for-profit company says to a nonprofit leader, “you need to act more like a private sector business.” However, in a case, I would have to agree with the assessment.  Nonprofits need to invest in R&D.  “Okay,” you say, “Why?  We aren’t looking to make a more effective soap or upend Apple’s iPhone domination. What is the purpose of nonprofit R&D?

To answer that question, turn around to your bookshelf and pull off Paul Light’s Driving Social Change. Oh, it’s not on your shelf? It should be.  Light’s book is an excellent primer on the process of innovation and, by extension, nonprofit R&D.  In his book he argues that the social sector needs to be “agitators” to 1) preserve and improve what works, 2) expand and innovate beyond what works, and 3) socially explore new alternatives.

Bringing this to the agency level, if your nonprofit is content with only preserving what works, you may inadvertently find yourself selling the best darn 8 Track Tape Player on the market. That is not to say, you invest in R&D to chase the next new thing either. R&D is essential to asking yourself the question, “how can we better meet our mission?” and more importantly, answering the question.

So how does a nonprofit start to invest in R&D?  I would offer the following ideas:

1. Allocate the Money: Fire up your calculator, plug in your total revenues for the year, and multiply it by 3.5-4%. For example, if your nonprofit has revenues of $800,000 that would be $800.000  x .04 = $32,000.  There is your first step.  Intentionally creating a line item in your budget for R&D that is about $30-35,000 and resource it.  For some agencies it might mean another fundraiser.  For another, it might mean dipping into unrestricted reserves. To make R&D happen, your agency needs to make a targeted investment.

2. Develop Priorities: Once you allocate the money, the next step is to develop priorities for R&D. Hint, if your strategic plan is forward-thinking and up-to-date you already have a direction. Oh. You don’t have a plan. Create one (we can help). The point is that your agency (and board) need to prioritize the points where innovation and improvement might make the greatest impacts in your organization. Your R&D might be investing in the expansion of a small but important service area of your agency; investing in the development of a new revenue stream; or R&D might mean investing in rebuilding your board governance structure.   Remember the focus of Nonprofit R&D is to improve, expand, or jump into something new with the goal of creating a greater mission related impact.

3. Create a Plan and Outcomes: The old saying “what gets written gets done,” is the true test of a nonprofits commitment to R&D. Nonprofit R&D only has meaning when it becomes a management and board priority.  A timeline-based, written plan, with metrics, owned by specific team members, and is managed, is the key to making R&D work (more on work plans from long ago and far away: here).

4. Get Staff On Board: Never underestimate the resistance from busy staff to take on new and non-core work. I go back to my opening gut check. Even if you decide that investing in R&D is important to your agency, you might be met with staff members who say, “I don’t have time for this, I am too busy preparing for our gala event and implementing our current programs.”  Introducing a culture of innovation might take work (A couple of great articles on this subject include: 8 Essentials of Innovation and 10 Principles of Change Management).

5. Think Iterative: Finally, some of the most successful nonprofit R&D efforts I have seen start as small iterative bets. Akin to continuous improvement (see my post here), R&D can help your organization improve, grow and reach further.

The point of this article is that your nonprofit can’t afford to be static in our rapidly changing environment.  Investing in thinking, planning, and acting strategically is the new norm.  Framing this practice as R&D, placing a dollar value on the activity, and pursuing it relentlessly will pay off in new ways to reach those you serve, in streamlining processes, and increasing your impact.

As always your thoughts are welcome.


Photo Credit  Luis Llerena

Mark Fulop

Mark founded Facilitation & Process in 2009 to help organizations and communities bridge the gap between where they are today and where they want to be tomorrow. He’s led dozens of Portland nonprofits, government agencies and philanthropic organizations through complex change initiatives including strategic planning, revenue planning, board development, collaboration, and facilitation.