Many Cs in Collaboration; And what Value-based funding has to do with it

It is the end of the panel discussion - Prepared speeches are followed by comments masked as questions to panelists. The moderator eyes the "TIME UP" card at the end of the room. She thanks the panelists and wants to close with one final question - What is the one thing that we should see more in the social sector. The answer from everyone is just as predictable as "World Peace" from beauty pageants. "Collaboration". "We need more Collaboration". "More Collaboration".

The truth however is that Collaboration is very hard. In private meetings with donors and partners alike, CEOs acknowledge that they would rather get on with it by themselves than get everyone in the room aligned on a common purpose. However, "Collaboratives" are the new oil and we see one springing up every other week. It is about time we have a first principles conversation on Collaboration.

First C - Convergence

Why are Collaboratives difficult? Because Collaboratives always have a cost associated with it that often outweigh the value that they create. In their famous book, Ajay Shah and Vijay Kelkar made an argument that "every time the government spends one rupee to intervene in the economy, the actual cost to the society is three rupees". If we apply the rule of three to Collaboration, every time we spend one rupee in a collaborative effort, the true cost to philanthropy (if one includes intermediaries, time spent in alignment, cost of transactions, administrative overheads) is actually three rupees. So, what we do in Collaboratives should not just be as effective as what we can do alone. It has to be THREE times more effective for Collaborative efforts to be successful.

A few months ago, I started an LinkedIn thread where I asked examples of successful collaboration. The answers can be broadly classified into two types: Collaborations were successful where (A) There was a crisis and needed a collective response (E.g. COVID response) (B) Stakeholders with complementary capabilities came together to do things that was clearly beneficial for both, inline with their original purpose and something they could not do alone (E.g. Brand endorsements).

The first type makes sense. Firstly, crises create high level of uncertainty, disrupt our strategies and our default responses, require us to work with limited data. Collaboration during that time is favourable because it hedges risks in an uncertain environment and the wisdom of the group serves as a validation of our response in the absence of absolute data. Secondly, crises requires immediate deployment of large capital that no one donor or investor has. A pooled fund creates sufficient capital to be relevant and have a meaningful dent to the problem. It is part of the reason why we saw (and continue to see) more collaborative action during crisis.

The reasons Collaboratives are successful during crises is because the "Rule of Three" holds. Individual stakeholders gain more than 3x value of what they want to achieve than what they could have alone. It is also the same reason why most of the collaboratives whittle away once the crises is over.

Second C - Capability

The second types of Collaboratives - the ones based on complementary capability - are often rare in the social sector. The honest and provocative reason for it is the systematic absence of investment or acknowledgement of capability in the social sector.

If I ask a non-profit leader to name the organisation that, say, has the best capabilities in designing curriculum in skill development or education, there are (slim but possible) chances that they would name an organisation which is very good at it. If I ask the same leader whether the said organisation's capabilities are worthy of having three times higher leverage than what they can themselves do, the answer almost always is NO.

Why is this the case? Firstly, there are limited incentives to differentiate on capability. There is limited difference in funding for an organisation that is good at something vs. an organisation that is extremely good at something. Secondly, our mode of engagement with each other is through programs than capabilities. Unlike donors who can pool cash to create more value, social organisations can rarely combine programs to create a "1+1=3" type of value. Thirdly, building capabilities requires investments, which no one is footing the bill for. In a cost-based funding model, there is limited money to build capabilities and hence is often ignored. Lastly, there are no platforms to signal capabilities. In other words, if there were an organisation that is very good at building curriculum, they cannot showcase their capabilities easily to other organisations.

Net result - We are building adequate enough capabilities to execute our programs but not enough for us to collaborate with each other.

Third C - Cost

When you use Google to search for something, are you really collaborating with them? No - because Google has created an interface, enabled access and ensured fulfilment in a manner of least resistance. Imagine having to call someone at Google, have three workshops, attend a training and then search for something. Would you search for anything at all? Now can you think of similar transaction in the social sector where you can leverage an existing capability with zero friction? Another reason why Collaboration based on capability is hard is because friction of any engagement is high

Sure - part of the answer is technology. Technology enables codification of expertise, sharing of interactive tools, collection of data at scale, all of which helps in creating seamlessness that we experience. The availability of technology expertise in this sector is vastly limited for many organisations to be able to do this at scale.

But an equally important reason (at the risk of sounding like an economist) is the lack of incentives to create such seamless products. Nonprofits continue to think from a program paradigm than a capability or product paradigm because our current funding environment needs everyone to impact the final beneficiary at the lowest cost. Hence, the interoperability that value-based organisations design for to maximise value, is absent in nonprofits.

We need value-based funding for more collaboration

As I had argued in my first post on value-based funding, the flow of capital has a significant impact on how many systems react. So how would value-based funding influence Collaboration? Suspend your disbelief and read on -

• Value-based funding creates a continuum of capital where there is a range of capital for different levels of capability. While organisations with varied levels of capabilities maybe funded, the organisation with greater capability gets a larger grant.
• This in turn forces organisations to pick capabilities that they will invest internally to develop and differentiate themselves. And consciously not build capabilities that they know other organisations are better at (knowing that they can partner to leverage)
• In addition, nonprofits have the freedom in using the money they receive to invest in building products and capabilities that will help them strongly differentiate in the mid-term. Organisations will also showcase these capabilities by demonstrating how other organisations have benefited from leveraging their capabilities.
• Nonprofits also have the agency to onboard technology and knowledge partners who can support them in codifying capabilities and enabling ease of use. This in turn creates an ecosystem of intermediaries invested in nonprofits since they have a critical mass of market need in the ecosystem
• Organisations (and not funders) orchestrate partnerships with fellow nonprofits to bring together relevant capabilities to solve a particular problem. They are not limited by their programs but leverage capabilities, products and programs to create the right solution to a problem and bring the donors to support them
• Soon platforms emerge as signalling channels for organisations to highlight their capabilities, receive recognition from their partners and also to discover other organisations that are very good at a capability that they want to leverage.
• Over time, clear categories of organisations emerge that are Product builders (E.g. Curriculum, tools), Communication specialists, Assessment providers, Territory experts (who have the best networks in a particular geography). In each of these, the best organisations stand out.
• All of this in turn, result in creating high quality solutions, attracting diverse talent in the social sector, building better career paths for people - all of which will result in greater impact on the poor, who we serve.

As I write this, I realise all of this sounds like a pipe dream. But as Lennon said, "I am not the only one". The Social Stock Exchange talks of differentiators that organisations can highlight to receive funding in the future. Differentiators link directly to capabilities and create a vocabulary for donors and nonprofits to engage with each other.

Would love to hear your thoughts on this? Do my arguments resonate with you? Is there anything that is missing? What can we do to make this happen?