Are foundations losing their appetite for risk and experimentation?
Philanthropy’s innovative spirit—one of its hallmarks for more than a century—has yielded breakthroughs as far ranging as the 911 emergency system, public libraries, and the human-genome project.
But ironically, at a time when the buzz about innovation couldn’t be greater and emerging technologies and scientific advances are now allowing us to approach social problems in entirely new ways, many foundations are actually beginning to shy away from high-risk, high-reward projects. As the movement toward “strategic philanthropy"—with its focus on calculating impact—has gained traction over the last decade, many grant makers are looking for safe investments, essentially subcontracting to established organizations to provide clear, measurable, and predesignated results.
This approach can yield tremendous results in areas in which the existing solutions are already known. Yet for many of the toughest problems we now face, simply investing in incremental improvements and proven approaches will not be enough. We need to experiment and find new solutions that have the potential to create transformative change. And while government must answer to voters and businesses to their shareholders, philanthropy remains one of the only sources of flexible risk capital for the public good.
Over the last several years, a small group of foundations has begun to reintroduce innovation into their grant making, opening themselves up to explore new strategies and recognizing that the process of innovation requires flexibility, iteration, and failure.
Through nearly a decade of work with these types of innovative foundations, we and our colleagues have looked not just at the “why” of funding innovation but also at the “how.” And while it remains more art than science, we’ve identified two goals that grant makers should focus on in sparking innovation:
Transformation: As Eric Toone, the former principal deputy director of the U.S. Department of Energy’s experimental Advanced Research Projects Agency, puts it, “When you’re doing innovation, the first question is not ‘Is this going to work?’ but rather ‘If it works, would it matter?’ "
Experimentation: Problems like entrenched poverty and climate change rarely have clear and technical solutions, so we need to find and test new approaches, which can require trial and error and challenging old assumptions.
Injecting greater transformation and experimentation into philanthropy, however, is easier said than done. But we have found that seeking out and supporting breakthrough innovation differs from more traditional grant making in five key aspects of the philanthropic process:
Finding new ideas. Uncovering ideas with the potential to create transformation means reaching beyond the “usual suspects” to scout for promising new solutions. The Rockefeller Foundation, for example, is building networks of “searchlight partners"—grantees who report back from the front lines about the latest trends and opportunities and serve as an advance sensing mechanism to help identify new problems and solutions as they emerge.
Selecting new ideas. Because innovation funding is rooted in taking risks on less-proven approaches, funding decisions must balance rigorous analysis with trusting individual intuition about a project’s potential for transformative change. The Bill & Melinda Gates Foundation’s Grand Challenges Explorations program, for instance, allows an idea to receive initial funding with the strong support of just one “champion” from its panel of experts.
Supporting innovation. Organizations that fund innovation often need to provide more hands-on support to help guide early-stage ideas from concept to adoption. The California Healthcare Foundation, for example, hosts events at which recipients present early prototypes to doctors and low-income patients so they can get critical early feedback on new approaches from the people who will use them.
Measuring progress. Successful innovations often follow a long and circuitous path. They need to be careful not to mistake wrong turns for roadblocks, so organizations like the J.W. McConnell Family Foundation have begun to embrace developmental evaluation approaches that promote testing and continuous improvement rather than the judgment of success or failure.
Expanding what works. Starting small makes sense for getting innovative ideas off the ground, but foundations often need to help expand successful programs by developing partnerships that help build expertise and growth capital.
The Robert Wood Johnson Foundation’s Pioneer Portfolio, for example, has helped grantees attract additional capital from sources ranging from government agencies to private investors.
In many cases, it’s too early to know whether these approaches will bear fruit. But they represent an important counterbalance for grant makers at a time when the pendulum of strategic philanthropy may be swinging too far in the direction of certainty, safety, and control.
This isn’t to say that innovation funding should somehow replace strategic philanthropy. On the contrary: Innovation funding is an essential part of strategic philanthropy.
Just as financial investors seek to maintain a diversified portfolio—placing the majority of their assets in investments with safe and steady returns and using a smaller fraction for higher-risk opportunities with the potential to produce outsize rewards—foundations, too, should consider using a portion of their resources to support breakthrough innovation.
What’s the “right” balance?
While there’s no single answer, Eric Schmidt, Google’s executive chairman, has provided some insight on this subject with what he refers to as his 70/20/10 rule for managing innovation. He contends that 70 percent of an organization’s resources should be dedicated to core business tasks, 20 percent toward new projects related to the core business, and 10 percent to more radical new businesses.
These figures may or may not be right for foundations, but they nevertheless remind us of the importance of finding a balance between supporting traditional programs and funding innovative ones. Because if we want to find breakthroughs to tackle today’s most intractable public problems, philanthropy will likely need to look beyond incremental sure things. Foundations will also need to figure out how to re-embrace the upside of risk and innovation.
