By Gabriel Kasper & Justin Marcoux
The term “innovation” is now used so widely and
so vaguely that it has come to mean almost anything,
or almost nothing at all. Long before it
became a buzzword, though, innovation played
an essential role in philanthropy. The field has
a rich history of private funders using their resources
to seed experiments with the potential
to produce outsized social returns.
This innovative spirit prompted the Robert Wood Johnson Foundation
to support the regional pilots that spawned the national 911
system almost 40 years ago, at a time when ambulance services were
provided largely by morticians (partly because their hearses were one
of the few vehicles that could accommodate a stretcher, and partly because
if you needed urgent trauma care, your odds of survival weren’t
high).1 And it was philanthropy’s willingness to take risks that spurred
the Aaron Diamond Foundation to dedicate a large share of its resources
to propel the field of HIV/AIDS research and establish one of
the first dedicated AIDS research labs, which produced the drug cocktail
that transformed the fight to control the virus in the late 1980s.2
But over the last decade, many funders have lost their appetite for
experimentation and risk, even as they trumpet their desire to make
big bets. The strategic philanthropy movement has swept across the
field and helped funders align their programs and grantmaking with carefully designed theories of change to produce
clear and quantifiable results. But the pendulum
may now be swinging too far, to a place
where foundations are willing to support only
safe, established programs. Funders are often
treating grantees as mere subcontractors, paid
to execute pre-designated plans and outcomes.
Yet in many cases, existing approaches are
proving insufficient to truly crack the intractable
social and environmental problems that
we face. The solutions to these large, complex issues—what design
theorist Horst Rittel called “wicked problems”—are not yet known.
So philanthropy needs to experiment and find new approaches to
create breakthrough change.
Over the past few years, a small group of funders have begun to
return to their roots by deliberately reintroducing innovation into
their philanthropic processes and portfolios. They seek out ideas
with transformative potential, take risks on less proven approaches,
open themselves up to exploring new solutions, and recognize that
innovation requires flexibility, iteration, and failure.
For more than a decade, the Monitor Institute3 has been working
with many of these modern-day innovation funders—including the
W. K. Kellogg Foundation, Rockefeller Foundation, David and Lucile
Packard Foundation, Robert Wood Johnson Foundation, New Profit
Inc., and Acumen. Over the course of our work, we have interviewed
many of the world’s leading innovation strategists, corporate innovation
specialists, venture capitalists, and social entrepreneurs to help
us build a picture of what it means to find and fund social innovation.
Now, as part of Deloitte Consulting LLP, we have begun to convene
an emerging community of practice focused on funding innovation.
The effort began with a gathering of representatives from 10 early innovation
funders in Chicago in November 2012. With support from
the Robert Wood Johnson Foundation, the session brought together practitioners from the Bill & Melinda Gates, California Healthcare,
David and Lucile Packard, John D. and Catherine T. MacArthur, John
S. and James L. Knight, J. W. McConnell Family, Lemelson, Open Society,
Robert Wood Johnson, and Rockefeller foundations, providing
them with an opportunity to jointly explore emerging best practices
in promoting social innovation. Although the group acknowledges
that supporting breakthrough innovation is challenging and still
much more of an art than a science, it’s becoming clear that there
is a growing body of experience about what it takes to fund innovation,
and how doing so differs from more traditional grantmaking.
Transformation and Experimentation
Funding innovation starts with a fundamental shift in mindset. Innovation
funders intentionally trade off probability of success in return
for greater potential impact. Instead of just supporting proven,
incremental solutions, they focus on transformation—investing in
approaches that may have a higher risk of failure, but the potential
to be lasting and truly game changing if they succeed. “When you’re
doing innovation, the first question is not ‘Is this going to work?’
but rather, ‘If it works, would it matter?’” says Eric Toone, the former
principal deputy director of the US Department of Energy’s
Advanced Research Projects Agency (ARPA-E).
In addition to distributing bed nets to reduce the spread of malaria,
for example, an innovation funder might also pursue research to genetically
alter mosquitos so they can’t transfer the parasite (an effort
the Gates Foundation is now actually exploring).4 With these types of
high-risk, high-reward bets, the impact from one or two big, transformational
successes in a portfolio can justify the opportunity cost of
many failures. The approach is similar to venture capital, where the
outsized returns of a single “home run” investment can offset nine or
ten less profitable enterprises. (See “Rethinking Risk,” below.)
RETHINKING RISK
Risk and reward stand at the core
of the innovation process. But risk
can be somewhat hard to understand
in a philanthropic context, because
money given away for social purposes is
effectively gone, regardless of outcomes.
In general, risk for funders can take
two forms: opportunity costs and reputational
concerns. Opportunity costs refer
to the price of diverting funds away from
grants with more predictable impact and
toward experiments with a potentially
higher likelihood of failure. Reputational
concerns arise if a foundation’s actions
could tarnish the name or brand of the
donor and potentially limit the organization’s
ability to use its influence later in
productive ways.
Either way, risk stands at the center
of an inherent creative tension within the
field. Endowments, by definition, are tools
for conserving resources, and as stewards
of those resources, foundations are
obliged to make prudent use of their assets.
Yet foundations are also uniquely
positioned to take risks. Whereas businesses
are responsible to their shareholders
for quarterly financial returns, and
governments are accountable to voters
for the careful use of public money, foundations
have extraordinary discretion to
experiment and try new things.
So as funders contemplate risk, it’s
worth remembering the idea’s early
roots. As investment writer Peter Bernstein
noted in his book Against the Gods,
“The word ‘risk’ derives from the early
Italian risicare, which means ‘to dare.’ In
this sense, risk is a choice rather than a
fate.” For the early seafaring adventurers,
risk was a powerful choice that carried
a strong sense of reward and opportunity,
as well as danger and potential peril.
The Spanish crown and Italian investors
who backed Columbus’s voyages knew
he and his crew might never return, but
the rewards of finding a new route to Asia
pushed them to support him as he sailed
into the unknown.
Over time, however, the concept of risk
has largely shed its upside and become
something to be avoided, mitigated, and
managed at all costs. If funders are going
to create social change, they will once
again need to see beyond the potential
for reputational damage and lost opportunities
to rediscover the upside of risk,
recognizing that innovation offers the potential
for tremendous reward and opportunity
as well.
To find and support these types of breakthroughs, innovation
funders are also re-embracing the importance of experimentation as
a core part of their work. An experiment, in scientific parlance, is a
test or a trial undertaken to make a discovery. And because wicked
problems like entrenched poverty and climate change rarely have clear
and technical solutions, innovation funders constantly seek out and
test new approaches. “Van Jones [a senior fellow at the Center for
American Progress and a former special advisor to President Obama]
once told me that what’s needed is for funders to stop giving grants
and instead to fund experiments,” says Linda Wood, senior director for
leadership and grantmaking at the Evelyn and Walter Haas, Jr. Fund.
The idea of “funding experiments” requires foundations to develop
a deep appreciation for iteration, failure, and learning. Social
change is a messy and uncertain process, and innovations rarely
follow a linear path. They move ahead in fits and starts, through
repeated trial and error. And because it’s hard to know the path
forward from the start, supporting this type of experimentation
requires an unusual degree of flexibility. Innovation funders often
use an emergent approach, adapting their strategies as they learn
more about issues and leverage points. They leave themselves open
to possibilities. And they trust and support recipients as they learn
and find new solutions that are built on the backs of early failures.
Innovation funders also experiment with their own strategies,
trying continuously to challenge their thinking, adapt to changing
circumstances, and take advantage of serendipitous opportunities.
They work hard to improve their peripheral vision and to explore
trends and strategies that may emerge from beyond their usual field
of view. As Lori McGlinchey of the Open Society Foundations explains,
“We don’t want our ideas to get stale. So we often look for
ways to refresh and sharpen our thinking within the foundations.
We’re encouraged to seek out interactions with contrarians—people
who may be approaching the issues we work on from a different
perspective. The question is how to increase our access to forwardthinking
people and ideas that will help us anticipate future challenges
coming five or ten years down the road.”
Injecting Innovation into the Philanthropic Process
Intentionally injecting these two interrelated innovation principles—transformation and experimentation—into philanthropic processes
and systems can bring a greater degree of risk-taking, openness, and
flexibility into funders’ work.
Although these approaches often take a different shape within
each institution, innovation can typically be introduced at five different
stages of the funding process: sourcing, selecting, supporting,
measuring, and scaling. (See “Stages of Funding,” below.) To
get a flavor of what these activities look like in practice, let’s dive
into the stories of a few pioneering innovation funders.
Sourcing New Ideas | Finding ideas with the potential to create
lasting transformation means reaching beyond the “usual suspects”
to scout for promising new solutions.
When Bill Gates announced the Grand Challenges in Global
Health initiative at the 2003 World Economic Forum in Davos,
Switzerland, he was using a model inspired by mathematician David
Hilbert’s grand challenge nearly a century ago. Hilbert’s list of
important unsolved problems spurred innovation in mathematics
for generations, whereas the Gates Foundation and its partners’
goal was to open up innovative thinking from across disciplines and
fields—including many who historically have not been involved in
health work—to develop new solutions that could lead to radical
improvements in health in the developing world.
To encourage even broader participation and even less conventional
approaches, the foundation then began a new program, Grand
Challenges Explorations (GCE), in 2008. Open to all and requiring
only a short, two-page application with no preliminary data, the program
provides those with the most promising new ideas $100,000
to prove their concept and up to $1 million to continue successful
explorations. To date, the foundation and its partners have received
more than 40,000 applications from around the world, and they
have awarded more than 850 initial exploration grants in 57 countries,
with 51 projects receiving follow-on support.5 Explorations
have included everything from a breath test for tuberculosis to the
design of the next-generation condom.
GCE’s competitive model for sourcing has many advantages,
notes Steve Buchsbaum, the deputy director of discovery and translational
sciences, who oversees the program. The challenge program
intentionally markets to problem-solvers across disciplines,
thereby attracting a wide range of new investigators and perspectives
to global health issues. In addition, the foundation finds that
it receives more innovative and ambitious proposals because challenge
applicants are aware that they are competing against others in
the quality and potential impact of their ideas, rather than in their
preliminary data and results. And by reviewing a wide array of applications,
the foundation can better understand the full landscape
of potential solutions in each challenge area, an effort that would
otherwise be time-consuming and costly. Mayur Patel, vice president
of strategy and assessment at the Knight Foundation, believes
that contests can also help change entrenched foundation behavior,
creating a “safe zone” to take risks and fund unconventional ideas.6
Many other funders, including the Knight Foundation, the X Prize
Foundation, Ashoka Changemakers, and the Case Foundation,
are experimenting with different types of prizes and contests. But
these competitive approaches aren’t the only way to find new ideas.
Innovation funders can use a range of other approaches to do the
scanning necessary to identify promising perspectives and emerging
new solutions. In some cases, that simply means that foundation
staff members spend additional time outside their comfort zones,
regularly tracking blogs or Twitter feeds of influencers in tangential
fields, attending or hosting conferences where nontraditional ideas
are being discussed, and listening to futurists and other provocative
thought leaders to push the boundaries of their thinking.
Other funders deliberately build formal and informal networks
of advisors—board members, experts, academics, grantmaking
peers, grantees, investors, and others—that help them understand
emerging trends and see into areas beyond their normal scope. The
Rockefeller Foundation, for example, uses its grantees to help with
scanning, providing additional funding to a group of “searchlight
partners” who report back from the front lines about the latest
trends and opportunities.
Other organizations, such as Ashoka, Echoing Green, the MacArthur
Foundation, and the Open Society Foundations, use fellowship
programs to find breakthroughs. They invest in innovative and entrepreneurial
leaders, rather than in specific ideas, and provide those
leaders with relatively unrestricted support to pursue their interests.
Selecting New Ideas | Once a funder identifies promising ideas,
the next question is how to select the ones to fund. Because innovation
funding is rooted in taking risks on less-proven approaches,
grant decisions must balance rigorous analysis with intuition about
a project’s potential for transformative change. This is similar to the
approach venture capitalists take. “We have to constantly remind
ourselves of our purpose because it can be so easy to slip into risk
aversion. If we aren’t taking big swings, then we aren’t doing our
job,” says Will Rosenzweig, co-founder of Physic Ventures, a health-oriented
venture capital firm in San Francisco.
Like venture capitalists, foundations that choose to fund unconventional
ideas can easily shy away from risk during the vetting
process. Innovation funders still conduct thorough due diligence
and uncover whatever is knowable about a new project, but they
try hard not to let the need for proof and certainty screen out potentially
transformative opportunities.
This isn’t to say that funders blindly trust some sort of magical,
innate instinct for knowing the right projects to choose. Recent research
on decision theory suggests instead that what we often call
intuition is actually the result of the accumulation of experience and
clear feedback over time—we build our ability to recognize patterns of success and failure over years of practice and experience. So an
important part of the vetting process for funding innovation relies
on trusting individual intuition and building judgment over time,
rather than on the safety of group consensus.
In the Gates Grand Challenges Explorations, after initial screening
by internal staff for relevance, the foundation uses a “champion-based”
review process that allows an idea to receive initial funding
with the strong support of only one reviewer. The foundation selects
an external panel of innovators, and each member reviews a subset
of applications and gives a gold award to the best idea and a silver
award to other promising ideas. The foundation then collects all the
gold awards and funds those projects—trusting the experience and
intuition of its experts—and views the silver awards in aggregate to
decide what additional projects to fund. The system is deliberately
designed to ensure that the advisory group doesn’t screen out unconventional
ideas. Of the 850 initial exploration grants, approval for
more than one third was based on the judgment of just one reviewer.7
Still, the competition model isn’t right for all situations. Funders
who have tried using contests and competitions often find it difficult
to boil down challenges to a simple, solvable problem, and the GCE
program and others have experienced confusion among problem
solvers when challenges could not be precisely articulated. In other
cases, funders have found the workload of processing a large volume
of applications difficult, and many foundations have struggled
to attract enough problem solvers without the leverage of a strong
global brand like the Gates Foundation—although platforms such as
the X-Prize, InnoCentive, and Ashoka Changemakers can now help
funders establish systems to help screen proposals and publicize
competitions. And even when funders use these types of platforms,
it remains unclear whether contest “winners” end up exceeding the
quality of more traditionally sourced grantees.
Although contests may not be the best approach for every foundation,
the Grand Challenges Explorations program nevertheless highlights
many of the essential elements needed to help funders find and
vet breakthrough ideas: casting a wide net; engaging unconventional
problem solvers; and allowing high-risk, high-reward ideas to pass
through the selection filter. Once those ideas are through the filter, the
challenge becomes how to support the new ventures as they develop.
Supporting Innovation | A short drive from the heart of Silicon Valley,
the California Healthcare Foundation (CHCF) aims to invest in
ideas and innovations that improve health care for all Californians.
CHCF’s Innovations for the Underserved Program and the Health
Innovation Fund support market-based solutions that bring health
care breakthroughs to vulnerable populations. “We strongly believe
that foundations can play a role in funding companies developing
lower-cost, high-quality care for the underserved,”8 says director
Margaret Laws. About half of the program’s funding is dedicated to
investing in for-profit companies chosen from a network of investors
and health care professionals.
Virtually all foundations try to support the work of their grantees,
but CHCF and other innovation funders take an especially hands-on
approach in helping shape and guide early-stage ideas as they move
from concept to implementation. CHCF, for example, hosts events
at which recipient companies are able to present prototypes to doctors
and low-income patients, who then share feedback and insights
about their individual user needs. In addition to exposing health care
professionals to promising new solutions, the events provide early
feedback that helps recipient companies iterate faster and significantly
improve product design. This type of assistance often requires extra
staff time and specialized expertise on the part of the funder, but the
foundation recognizes that early ideas are often malleable, and that
targeted interventions that better connect services with potential
users can dramatically increase the chances of success.
Measuring Progress | Innovation funders can also play a similarly
formative role in helping recipients assess progress toward their
goals. Foundations need to be careful not to mistake wrong turns
for roadblocks, and to account for the fact that successful innovations
often follow a long and circuitous path. Many innovation
funders have begun to embrace Michael Quinn Patton’s idea of
developmental evaluation, which includes broad and ongoing participation
in the measurement process by foundations, nonprofits,
service partners, and clients, with the intent to foster iteration and
improvement, not to judge success or failure. Over time, foundations
may measure individual process milestones that help them
divert funding from weaker innovation experiments and guide it
to the most promising ideas. And although the measurement of social
impact is a perennial challenge, the funding of innovation adds
a unique tension between “failing fast” and allowing enough time
for ideas to percolate, iterate, and emerge.
CHCF’s Health Innovation Fund addresses this tension in a
number of ways. The fund starts with an explicit goal: investing in
companies that have the potential to serve 100,000 Californians or
to deliver $25 million in annual cost savings to the California healthcare
system.9 By starting with a clear target, the fund and company
agree on the goal toward which everyone is working. Then they work
together to set milestones for progress toward that goal, which can include
measures such as securing follow-on funding, achieving specific
numbers within target populations, or developing critical partnerships.
For each investment, the fund also makes a grant for an independent
evaluation, ensuring a fair and critical progress assessment. The fund
also typically stages its investments, providing smaller amounts of
capital when outcome information is scarce and then following with
additional resources if the company shows signs of success.
Scaling Up Successes | Because innovation funders are typically supporting
small, early-stage ideas, they also need to work more deliberately
to help scale up these programs. Innovation funders often help
their recipients develop partnerships with market-based investors, governments,
and other social sector funders to build necessary expertise
and growth capital. The venture philanthropy fund New Profit Inc.,
for example, provides strategic and growth-planning support along
with a multi-year financial commitment to help portfolio organizations
scale up their programmatic and systemic impact. Meanwhile,
impact investments from funders like the W. K. Kellogg Foundation
have helped organizations such as Revolution Foods (which provides
healthy and sustainable school lunches) form critical marketplace relationships
with traditional venture capital investors.10 And seed funding
from the Robert Wood Johnson Foundation’s Pioneer Portfolio
helped Project ECHO (a new approach to providing virtual health-care
education and delivery in remote communities) prove its model and
leverage large implementation grants from the US Departments of
Veterans Affairs and Health and Human Services.11
Whereas partnerships such as these can help scale up individual projects and organizations, other innovation funders focus less on
growing specific organizations and more on broadly promoting new
ideas, processes, or approaches. The Rockefeller Foundation has
taken such a tack in its work with social impact bonds. Rather than
simply funding individual bonds, the foundation sponsored research
to understand the new investment vehicle and partnered with the
Kennedy School at Harvard to create the Social Impact Bond Technical
Assistance Lab (SIB Lab). With funding from the foundation, the
SIB Lab then ran a competition offering free technical assistance to
states or municipalities with the strongest social impact bond plans,
garnering 28 applications and naming six winners across the United
States.12 The foundation has also supported intermediaries, such as
Social Finance and Third Sector Capital Partners, and has funded
the Nonprofit Finance Fund to serve as an information hub for the
field and to conduct boot camps for nonprofits looking to test the
bonds as a new revenue stream.
Regardless of the approach, many innovation funders find similar
challenges in their efforts to scale up emerging ideas. Scaling up
almost always takes more time and money than foundations initially
estimate. One venture capitalist candidly told us that funders need to double the amount of time and money they initially think scaling up an innovation will take. And although funders want both to try new
ideas and to provide additional funding to successful ones, for relatively
small innovation portfolios, scaling up can quickly crowd out
experimentation. Finding partners can help ease this tension. New
people bring new perspectives, allowing foundations to stretch their
strategies, and providing cover if investments head south. There was
uniform agreement across corporate innovation units, venture capital
firms, government agencies, and foundations that the search for
scaling partners must begin early, often as soon as a project is funded.
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h3 class="title"Creating the Infrastructure for Innovation
Many innovation funders focus on finding, vetting, and supporting
specific breakthrough ideas within their designated issue areas, and
others have chosen to invest in strengthening the broader ecosystem
of innovation. To use a botany analogy: instead of growing individual
plants, these funders invest in building a greenhouse that
can help many plants thrive.
One such greenhouse funder is The Lemelson Foundation, founded
in 1992 by Jerome Lemelson, one of the twentieth century’s most
prolific inventors.13 Rather than focusing on innovation in one issue area, The Lemelson Foundation works to build the infrastructure for promoting invention and innovation around the world. Its executive
director, Carol Dahl, explains that the foundation supports systems
that promote inspiration among a younger generation to dream big,
education to develop the skills needed to create something new, and
incubation to grow inventions into self-sustaining enterprises.
The foundation’s support for the Jerome and Dorothy Lemelson
Center for the Study of Invention & Innovation at the Smithsonian’s
National Museum of American History, for example, aims to encourage
inventive creativity in young people. The center engages children
and their families by making invention fun through award-winning
programs like Invention at Play, which investigates how four types
of activities—tinkering, make-believe, social play, and puzzles—can
help develop creativity in children. Beyond the millions of annual
visitors to the center, the foundation has also distributed educational
materials to more than 35,000 US classrooms.14
The Lemelson Foundation further develops the infrastructure
for education and incubation through programs like the National
Collegiate Inventors and Innovators Alliance (NCIIA). With a membership
of nearly 200 higher education institutions, the NCIIA allows
schools to apply for funding to create new classes on applied
invention where students gain experience in creating new products and approaches. Student-faculty teams can then apply for three-stage incubation grants that help them plan, refine, and implement
their projects by providing financial support along with specialized
training and potential connections to follow-on investors. Since its
inception in 1995, NCIIA has funded 341 experimental collegiate
courses and 465 exploratory teams, which have created 180 new
corporations and raised $365 million in follow-on funding.15
Other innovation funders have also embraced this greenhouse
approach. The J. W. McConnell Family Foundation supports Innoweave,
an online platform that shares resources to help nonprofits
build their innovation capabilities, and Social Innovation Generation,
a cross-sector partnership between the foundation and three
national institutions that aims to build systems and interest that can
help develop, encourage, and support continuous social innovation
in Canada. The Knight Foundation provided substantial seed funding
to launch the MIT Center for Civic Media, which helps incubate
community-based news experiments. And the Rockefeller Foundation
has supported the development of tools and methods that
promote social innovation—for example, funding the adaptation
of InnoCentive, an online platform that crowdsources innovation
to a broad network of problem solvers, to address social challenges.
Organizing for Innovation
Even as funders change their processes to support individual and
systematic breakthroughs in the social sector, they also need to pay
attention to the way they allocate resources and structure their innovation
activities—how they organize for innovation.
When the Robert Wood Johnson Foundation (RWJF) adopted a
new “impact framework” in 2003 that focused its giving on six critical
targeted strategies, the foundation also created a seventh team,
the Pioneer Portfolio, to search for fundamental breakthroughs in
health and health care as a complement to the more targeted program
areas. “The other teams at the foundation are laser focused
on their goals,” explains Brian Quinn, assistant vice president of
research and evaluation at RWJF. “But when you’ve got your head
down, doing everything you can to push toward a set of ambitious
objectives, sometimes you can miss opportunities for impact that
are emerging outside your areas of concentration. Pioneer helps the
foundation continuously look up and look out into the future to see
potential game-changers.”
Establishing this type of separate innovation group—an approach
also espoused by many corporations looking to systematize
their innovation work—has some distinct advantages. Specialized
innovation units typically have the benefit of being removed from
day-to-day activities and hierarchies, allowing staff a high degree
of autonomy to explore and focus their attention on the changing
external landscape and emerging trends. They are able to create an
environment that emphasizes taking risks, encourages open inquiry
and experimentation, allows for iteration and the slow progress of
new ideas, and learns from failure.
But creating a separate innovation team isn’t the only way to introduce
innovation into an organization. Many innovation funders
are instead seeking ways to embed innovation capabilities throughout
their organizations and operations. In the corporate world,
companies such as 3M have attempted to build a widespread culture
that supports innovation by investing heavily in research, promoting
cross-department projects, and allowing engineers to devote as
much as 15 percent of their time to exploring tangential ideas.16 These
approaches have yielded many of 3M’s most innovative products,
including Scotch Brand Tapes, Post-it Notes, and Scotchgard Fabric
Protector. Within the philanthropic space, the Case Foundation’s
“Be Fearless” campaign encourages program officers and grantees
across the foundation to set transformative goals, experiment, learn
from failures, and connect across issue areas.17
Both separate and embedded innovation models have their challenges.
Although members of specialized innovation units are often
able to develop a highly entrepreneurial culture and specific expertise,
how the team’s discoveries are translated to the work of the rest
of an organization can often remain a challenge, even with concerted
effort to bridge the gap. Because these “skunk works” units are specifically
tasked with innovation, there is an implicit suggestion that
the rest of the organization is not, creating the impression of a set
of “cool kids” and innovators who then can have trouble integrating
lessons and new ideas with the rest of the organization.
Alternatively, one of the risks of embedding innovation into an
organization is that it gets lost when added to the to-do list of already
busy staff. As Diana Scearce, the director of evaluation and learning at the David and Lucile Packard Foundation, explains,
“It’s going to be hard unless we can we make innovation fit within
our program officers’ ‘day jobs.’ Or, better yet, how do we reframe
what that ‘day job’ is?”
Regardless of which approach a funder takes, organizing for innovation
also means making very real shifts in how budgets and
time are allocated. Sourcing for innovation, for example, requires
a time investment to allow staff to scan for trends and adjacent developments,
attend conferences, make connections, actively build
networks, and share learning. And funding innovation may require
additional budget as well, for items such as travel, expert advice,
convenings, evaluations, and developing the infrastructure to enable
internal networking and cross-disciplinary creation.
It’s also important that foundation leaders and trustees make
a commitment to funding innovation on an ongoing basis. The
Pioneer Portfolio receives a dedicated annual budget for its investigations,
as opposed to regularly seeking approval for each funding
opportunity it wishes to pursue. Other foundations note that
without a dedicated budget, it can be difficult to make the case for
an uncertain, high-potential idea next to grants that produce more
definitive (although often more incremental) improvement. And
whereas foundations can dip their toe in the water of supporting
innovation, a committed approach requires foundation leaders to
balance making clear progress on urgent needs with taking a chance
on higher-risk transformational grants.
EIGHT WAYS TO INJECT INNOVATION INTO GRANTMAKING
Not everyone is ready to launch an innovation
fund or to start comprehensively
shifting an organization’s culture. There
are, however, some simple ways that
funders can begin to embed innovation
principles in their work. Here are a few
baby steps one can take to get started:
1. Make deliberate out-of-strategy
grants. Dedicate 10 percent of your
grantmaking budget to support projects
that seem promising but don’t fit neatly
into your strategy. Each quarter, hold a
meeting to discuss what has been learned
from this “out-of-strategy” grantmaking.
2. Ask your grantees. Grant recipients
bring a perspective on the field very
different from foundation staff’s. Solicit
ideas from your grantees about emerging
ideas and who is doing work that is pushing
the envelope.
3. Assess your portfolio. Review your
grantmaking portfolio, giving each
grant a subjective score for its level of risk
and its potential for reward. Plot the results
on a graph and have a conversation
with stakeholders to discuss whether you
are taking enough risks and what type of
balance between risk and reward feels
appropriate.
4. Tap into your network. Select a
small, informal group of advisors,
and every six months, ask them to tell you
about the most interesting new ideas that
they’re seeing, whether the ideas are a fit
for your grantmaking or not.
5. Use your special opportunity fund.
Many foundations have a fund that is
used to support pet projects from board
members and other ad hoc requests. Use
a portion of that fund to explore a new area
that is tangential to your primary strategies
but shows potential.
6. Host an innovation contest. Hold
a conversation with staff about how
they define innovation, and then run a contest
to identify one or two grantees that
the staff feels are most innovative. Provide
the winner(s) with a small, flexible grant to
encourage the behavior.
7. Bring in a futurist. There are many
experts who look ahead, trying to see
and understand trends and patterns as
they emerge. Invite one of these forward
thinkers in to talk with your board or staff
to see if they prompt new thinking.
8. Follow provocative thinkers. Find
10 people who are exploring new
concepts and approaches and follow
them via Twitter or blog posts, cataloging
the ideas they mention. Then host a discussion
among staff or board members
to see what new thinking the ideas might
prompt.
Integrating Innovation into a Philanthropic Portfolio
Even as funders begin to embrace the benefits of deliberately funding
innovation, it’s important to recognize that this isn’t necessarily the
right approach in all cases, or for all funders. In their Stanford Social
Innovation Review article “Embracing the Paradoxes of Innovation,”
Zia Khan and Kippy Joseph of the Rockefeller Foundation note that
proponents of innovation, in making the case for the need to find new
solutions, have inadvertently helped to create “a kind of cult” where
“innovation has become the default mode for people in almost any
situation where some change or improvement might be desirable.”18
For issues where existing solutions are already working, it’s often
more important to focus on scaling up and incrementally improving
tested approaches, rather than on experimenting with new approaches.
Even in areas where new solutions are needed, Christian Seelos and
Johanna Mair of the Stanford Center on Philanthropy and Civil Society
remind us that practitioners need to “treat innovation as a process,
not primarily as an outcome.”19 The most effective innovation
strategies pay special attention to the methods and systems needed
for sourcing, selecting, supporting, measuring, and scaling new ideas.
It’s also important to understand that funding innovation is not
an alternative to strategic philanthropy. On the contrary—funding
innovation is an essential part of strategic philanthropy. As Kristi
Kimball, executive director of the Charles and Helen Schwab Foundation,
explains, “A necessary piece of strategy is actually reserving
some of your resources to go outside your strategy, so that you are
continually adjusting to new ideas and finding even more transformative
ways of doing things.” Or as Jeff Ubois, a program officer at
the MacArthur Foundation, puts it, “Peripheral vision is a necessary
complement to focus.”
It’s helpful to think of funding innovation as an important component
of a truly strategic portfolio. Much as financial investors try
to build a diversified portfolio—placing the majority of their assets
in investments with safe and steady returns, but using a smaller percentage
for higher-risk opportunities with the potential to produce
outsized rewards—funders too should consider using a portion of
their resources to support innovation alongside their investments
in more consistent and proven approaches. The trick, of course, is
for each grantmaker to figure out the right balance for its portfolio,
given its predilections for risk and reward.
There’s no single answer for the proper balance, but Google executive
chairman Eric Schmidt provides some insight on this subject
when he refers to his 70/20/10 rule for managing innovation. He
contends that 70 percent of management’s time should be dedicated
to core business tasks, 20 percent should be focused on projects
related to the core business, and 10 percent should be dedicated to
unrelated but high-potential new businesses.20
These specific figures—70 percent on the core, 20 percent on
adjacent spaces, and 10 percent on radical innovation—may or may
not be right for philanthropic portfolios. But they nevertheless serve
as a starting point as funders try to find the right balance between
supporting core programs and funding innovative new ones. At
the very least, the ratio highlights the drawback of focusing 100
percent of resources on core activities alone, which can close off a
foundation to important new opportunities and impact. And as an
emerging group of innovation funders is beginning to demonstrate,
embracing exploration, experimentation, and risk may actually help
strategic philanthropy find the right balance and do an even better
job of tackling the world’s most daunting social problems.