The Emerging Capital Market for Nonprofits

Robert S. Kaplan; Allen S. Grossman

Article | Harvard Business Review | October 2010

The Emerging Capital Market for Nonprofits

by Robert S. Kaplan and Allen S. Grossman

Abstract

Many of our largest and most successful companies today did not exist 50 years ago. During this same time interval, companies that ranked among top in the 1960s have disappeared, been merged out of existence, or become much smaller presences in the U.S. industrial scene. These shifts in fortunes are vivid examples of the private sector's cycle of Schumpeterian creative destruction. In contrast, the list of the largest nonprofit organizations has remained stable over decades. Large nonprofits do not disappear and few new ones—Habitat for Humanity and Teach for America are among the exceptions—scale to national size. Schumpeter's cycle apparently does not operate in the social sector. This paper proposes that the disparity arises from the nonprofit sector's historically immature infrastructure and poor mechanisms for channeling funds from donors and foundations to the most effective nonprofits and away from underperforming ones. We illustrate how innovative information and financial intermediaries, using new measurement approaches tailored for the nonprofit sector, have recently arisen to help direct funds to the most effective nonprofits. These innovations have the potential to enable the sector to become far more responsive, effective, and efficient in creating positive social impact at a national scale.

Keywords: Capital Markets; Investment Funds; Philanthropy and Charitable Giving; Corporate Accountability; Management Practices and Processes; Infrastructure; Corporate Social Responsibility and Impact; Performance Effectiveness; Nonprofit Organizations;

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Kaplan, Robert S., and Allen S. Grossman. "The Emerging Capital Market for Nonprofits." Harvard Business Review 88, no. 10 (October 2010).

The federal government mandated adoption of certified electronic health record systems (EHR), at least in part, to reduce administrative costs for physicians. This study used time-driven activity-based costing to determine the administrative costs associated with billing and insurance activities at a large academic health care center that had a certified EHR system. The center enjoyed economies of scale by concentrating its bill paying functions within a single, dedicated unit. The study found that costs for processing a single bill ranged from $20 for a primary care visit, about 20% of revenues, up to $215 for an inpatient surgical procedure. The high costs were not caused by wasteful, inefficient processes, duplicate or redundant tasks, or the inappropriate use of high-wage personnel to perform low-skilled tasks. Rather, they were driven by the heterogeneous payment requirements across the multiple payers and health plans contracting with the academic health center.

Partners in Health, a global NGO focused on delivering health care to residents of rural underserved communities, conducts a project on the cost of primary care at five sites in the Central Highlands of Haiti. It devises a simple approach for tracking the resources used by patients being treated for diverse medical conditions, as an input to a time-driven activity-based costing model. The results show considerable cost diversity across the five sites, but organizational leaders differ on the interpretation and action implications of the findings.

Article | Harvard Business Review | January–February 2018

Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality

Robert S. Kaplan, George Serafeim and Eduardo Tugendhat

More than a billion people in the developing world remain in extreme poverty and outside the formal economy. Traditional CSR programs have done little to alleviate the situation and rarely produce transformative change.
Instead of trying to fix local problems, the authors argue, corporations need to reimagine the regional ecosystems in which they participate. They should search for systemic, multisector opportunities; mobilize complementary partners; and obtain seed and scale-up financing from organizations with a mission to alleviate poverty. They should also align the various stakeholders around the new strategy, using proven tools such as a co-created strategy map.
These principles are informed by the authors’ experience with several successful inclusive-growth projects. An initiative in Uganda is bringing small maize farmers into the mainstream regional economy, while a training program in El Salvador is giving unemployed youths the skills to work in the country’s growing service sector.

Keywords: inclusive growth; sustainability; social impact; Business Strategy; shared value; impact investing; inequality; Poverty; corporate governance; balanced scorecard; strategy execution; Economic Growth; Developing Countries and Economies; Poverty; Equality and Inequality; Corporate Social Responsibility and Impact; Strategy; Investment;

Citation:

Kaplan, Robert S., George Serafeim, and Eduardo Tugendhat. "Inclusive Growth: Profitable Strategies for Tackling Poverty and Inequality." Harvard Business Review 96, no. 1 (January–February 2018): 127–133. View Details

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The Emerging Capital Market for Nonprofits

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