Reinventing the international NGO

(Devex) In the old days, rich countries had NGOs which focused on helping poor countries. The world’s not so simple anymore.

Now, most poverty is in big and rapidly growing economies which, by and large, have their own vibrant and growing NGO communities. At the same time, there are dozens of countries mired in conflict and facing nearly universal poverty.

Traditional donors – cash-strapped and pressured to redirect funding toward domestic programs – are cutting their aid budgets and expecting more return on their investments. They are increasingly partnering with local groups and corporations, adding to already stiffening competition in the age of untied aid.

Private investment in the developing world dwarfs aid from foreign governments, forcing the NGO community – which has been accused in recent years of having become too bureaucratic, ineffectual and pandering to donor interests – to rethink its core values and modus operandi.

So what will happen to the big international NGOs formed in a different era? To find out, Devex embarked on a series of wide-ranging interviews with top officials representing some of the largest NGOs in the world, including Save the Children, CARE, Mercy Corps, Merlin, ActionAid, VSO and Christian Aid.

It’s a rare glimpse into how these institutions are reinventing themselves as they try to broaden their reach globally while delivering anti-poverty solutions ever more locally.

The strengths of iNGOs

Civil society organizations have been proliferating in the developing world, and funding agencies are ramping up their support for these local groups. But even government officials in India and other booming economies realize that despite recent successes, it takes experienced hands to fight hunger and provide basic services to the poor.

That’s become the main selling point of international NGOs: their experience in scaling up community projects and achieving real results for thousands more than a local grassroots organization could. Few small NGOs, for example, would dare to aim at saving the lives of 50 million minors – Save the Children’s goal over the next five years.

As a result, many international NGOs are increasingly focusing on capacity-building efforts, both in government and civil society. Groups like CARE and Oxfam are helping institutions in the Middle East, Africa and elsewhere fundraise, train staff and advocate for change.

Some industry veterans say that high-performing local NGOs as well as international NGOs with a strong brand are the most likely to survive as civil society gets ever more engaged in development issues. That may spell trouble for midsize NGOs, including those operating on the international stage, which may be drawn to refocus on niche issues to stay viable, or on campaigning for more aid transparency, accountability, climate change adaptation or other causes.

“Big iNGOs will grow globally; small ones may do well in emerging markets,” says Richard Miller, CEO of ActionAid. “The problem is probably for the ‘squeezed middle,’ those middle-sized specialist technical NGOs based in the north, such as the U.K. or U.S., where there are cheaper organizations in India or in country growing up.”

At this point, many iNGOs are hedging their bets, as Carolyn Miller, CEO of Merlin, suggests.

“There will be some big-scale work,” she says, “but an increasing portion will be smaller things that have a big impact, such as working with a middle-income country government who has had major crisis who can take most things over but needs help with small things.”

NGO leaders may differ on exactly how much they should focus on one particular area over another, but most of them seem to agree that their future lies in fragile or middle-income states, or both, where a growing number of poor people is clamoring for support.

The so-called “New Bottom Billion” – low-income people in emerging economies – provides a challenge especially for international NGOs that depend on public donations: The face of poverty is changing, and as high-tech and manufacturing jobs are being outsourced to China and India, it has become increasingly tough to fundraise for anti-poverty campaigns in those countries. And yet, India now is the home of more poor people than the entire continent of Africa.

“There is more nuanced complexity, and we have to reframe the way we present that,” 

says David Pain, associate director of Christian Aid.

Value for money

Quite apart from what they do, international NGOs are being forced to reconsider how they do it as well. The main reason: To raise funds, it’s become crucial to prove value for money to cash-strapped donors and a sometimes world-wary public.

That focus on value for money may seem prudent, but it’s not without critics: Some experts fear that it may contribute to NGOs losing their independence, focusing more on the needs of donors – and their ever-changing reporting requirements and other bureaucratic hurdles – than the poor and disadvantaged they’re meant to serve.

“We live or die depending on our reputation with the public as well as with the donors,” says Justin Forsyth, CEO of Save the Children’s U.K. branch.

To increase value for money, aid groups are slashing overhead costs, red tape and transaction costs. They are enhancing coordination between headquarters and field offices. They are harmonizing global operations, rooting out fraud and waste, and optimizing the use of their resources.

Oxfam, for instance, has started to implement a “single management structure” to improve the coordination among its affiliates and streamline relations with partners on the ground. Save the Children is building up the capacity of in-country campaign staff, which is working closely with a newly created policy and advocacy division in London.

Plan, the development charity, has generated significant savings by digitizing and streamlining its child sponsorship program. It has adopted a global talent management system that allows the group to better train and place its 8,000 employees, from headquarters to the field.

Many NGOs are sharpening their business ethos when it comes to hiring and project implementation; performance-based pay and cost-benefit analyses, once considered a corporate mainstay, have now entered the nonprofit realm.

“I think you’re going to see more experimentation around blurring for-profit and not-for-profit business models,”

 says Neal Keny-Guyer, CEO of Mercy Corps.

Bond, the U.K. alliance of development-focused NGOs, suggests three steps toward value for money: compare, manage and demonstrate.

Comparing the cost and impact of projects and programs requires investments in data collection – but it can pay off handsomely. From its cost analyses, the International HIV/AIDS Alliance, for instance, was able to generate detailed data on costs per service and beneficiary, both intended and indirect. The exercise has provided the basis for discussions on how member organizations can improve operations.

To manage value for money is to ensure proper and prudent use of resources. The Malaria Consortium, a U.K.-based NGO, regularly audits its programs in Africa and Southeast Asia, and questions budget officers about variances in projected spending. Donors are insisting on strong compliance and anti-corruption measures – as proof, look no further than AED, the Washington stalwart acquired last year by FHI after allegations of mismanagement in its Afghanistan and Pakistan projects surfaced and the U.S. Agency for International Development temporarily suspended new contracts.

After evaluating programs rigorously, it’s a matter of articulating the results. Catholic development charity Progressio did just that when it examined its practice of deploying development workers to help build the capacity of local partners. It looked at the relationship between deployment costs and benefits to partners in Somaliland and the Dominican Republic.

As they improve aid effectiveness and showcase the results of their labor, iNGOs are being challenged not just by local competitors, but by social entrepreneurs and tech firms that are pushing the envelope with innovative ways to assist communities even in the remotest corners of the globe. For every “tree-hugging” do-gooder, then, NGOs now seem to be looking for one expert in social media, online fundraising or mobile banking. If the business of development is to work itself out of business, a smart – and cost-effective – approach for iNGOs may be to empower the masses to drive their own change.

Another way to achieve economies of scale is to partner with like-minded groups or acquire them. Under the ACT Alliance, for instance, Christian Aid has banded together with Norwegian Church Aid and Dan Church Aid to implement development projects in Zambia. The Danish Association for International Cooperation has combined operations across Africa with ActionAid, which has made mergers part of its business strategy.

Mergers and acquisitions may access local talent, increase market share, boost fundraising or grow an organization, but impact doesn’t necessarily grow with size.

“The mindset that the greatest good is to see your overall income go up and up and up and that’s an end in itself is misguided,” Pain of Christian Aid says. “It’s about what can you do with that money.”

To make such alliances work, a commonality of purpose is key, industry experts say. Without a clear vision for the future and frank communication among stakeholders, an organization risks becoming amorphous and losing support from staff and the general public.

Going local

All development is local, the saying goes – and to go local, many international NGOs are changing the way they operate.

“Generally speaking,” says Helene Gayle, president and CEO of CARE USA, “we’ve all traveled the path from giving commodities to building local capacity and helping communities develop their own capacity, and then moving to the stage where our value becomes even more being global connectors in ways that even large, very empowered national NGOs may not have the reach to do. Within that path, different countries are at different stages and our approach has to be nuanced based on the local needs.”

CARE, for instance, sees itself less as a provider of services than an organization which tackles the root causes of poverty especially for the most marginalized people of society, Gayle suggests.

More and more international NGOs are registering as a legal entity in the countries they operate in. With local incorporation, iNGOs, through their subsidiaries, stand a better chance of accessing funding from local institutions and money funneled by international donors through partner governments. They may also become eligible for corporate social responsibility funds, especially in countries where companies are legally bound to invest their CSR funds solely in local entities.

Training local staff and preparing them to manage resources effectively often requires a huge investment – as well as trust and a fail-safe system of checks and balances. But investing in local capacity building can be cost-effective in the long run. Hiring national experts – and paying them in local currency – eliminates transaction costs and may generate more sustainable solutions to local challenges like access to food, education and health care.

Most of all, these partnerships demonstrate iNGOs’ commitment to country ownership, a principle global development leaders have been pushing.

Says Mercy Corps’s Keny-Guyer: 

“I think you will see that if you don’t have a legitimate local face, it’s going to be really hard to build a relationship and be an organization of choice.”

Donor base diversification

Charities will always find people to donate to their cause. But to stay afloat in an increasingly crowded marketplace, iNGOs are turning to new ways to raise funds through online marketing, celebrity endorsements and cross-sector partnerships.

More than ever, NGOs are pursuing foundations in the Middle East, rich philanthropists in Mexico or Korea, and other donors in emerging economies and elsewhere. Many are, for the first time, setting up fundraising operations in the developing countries they operate in. Some are creating new offices or changing their focus to attract billionaires who have shown little interest yet in global development.

At the same time, iNGOs are strengthening relations with large foundations like the Bill & Melinda Gates Foundation, which often are flush with cash and offer more flexible funding. And they’re making it easier for the general public to donate their time, money and expertise, by using online auctions, mobile donation drives and crowd funding, by allowing individuals to earmark donations for specific causes, offering short-term assignments to professionals taking a gap year, engaging churches and narrowcasting to sports associations and youth clubs.

The objective, often, is not so much fundraising but to build a brand and engage the next generation of leaders – those global-minded teenagers and twentysomethings who are connecting on Facebook and Twitter with a passion for social change.

Donors from Brussels to Canberra and Washington have started to offer matching fund schemes whereby they add money to NGOs’ privately raised funds. Corporate players have taken note, too: DC Entertainment, the publisher of Mad magazine and the Superman franchise, for instance, has committed to matching up to $1 million in donations gathered for the Horn of Africa relief by Save the Children, Mercy Corps and International Rescue Committee.

Old foes no more

Relations between the corporate and nonprofit sectors have never been easy. But in recent years, many within the NGO community have gained a “pragmatic comfort” with the business world.

Take Save the Children’s partnership with GlaxoSmithKline. Years ago, he used to picket the company’s annual meeting, Forsyth, the U.K. NGO chief, remembers.

“But now,” he says, “they are in the forefront of finding new solutions to illnesses such as diarrhea and pneumonia, investing in a malaria vaccine. But also, they’re partnered with us in investing in new health workers to administer vaccines.”

The paradigm change may be partly due to the realization that no one organization can achieve ambitious poverty-reduction targets on their own. Traditional donors like USAID, DfID, AusAID and the German Federal Ministry for Economic Cooperation and Development, not surprisingly, have been courting public-private partnerships. Some of the largest partnerships between international NGOs and businesses have been in the energy, finance, health and information technology sectors.

It’s a win-win-win-win-win scenario: NGOs may be able to leverage new resources and influence over corporate value chains. Businesses can gain access to new markets and loyalty among socially conscious consumers. Traditional donors will find relief on their pocketbooks and partners in walking that crucial “last mile” to deliver foreign aid. Consumers may get gratification out of contributing to a good cause. And people in the developing world may benefit from initiatives set up as part of the cross-sector agreement.

That’s the theory, anyway. In practice, NGO executives stress the importance of not dropping your guard, of staying true to your brand, and of continuing to call businesses to task when necessary. Otherwise, they say, nonprofits run the risk of having their voices and causes compromised.

“I think it’s clear you have to go into these relationships with eyes wide open, knowing who controls the purse strings and the power,” 

says Samuel Worthington, president and CEO of InterAction, the largest alliance of U.S.-based humanitarian and development NGOs working overseas.

That said, NGOs aren’t just partnering with the private sector. In many ways, they are adopting corporate principles and strategies, hiring staff with business backgrounds and contemplating long-term social impact investment.

That hotel you might stay at in Nairobi? It may well be owned by the Red Cross. That trendy phone cover? It has ONE’s logo on it.

And you can get all of these on the Web. Book a room at Kenya Red Court through Hotels.com, or order kids’ toys from Oxfam’s online shop, which generates roughly 2 million pounds ($3.2 million), less than 5 percent of what the organization’s retail shops generate per year.

Making a change

As the aid community’s focus shifts toward engaging local communities in the developing world, industry veterans agree that international NGOs will have to reinvent themselves.

They may play less of a role in transferring knowledge from the global north to the global south. And they may be better served to take on a multinational character.

“Their local credibility will depend on the degree to which they become active local entities, with local advocacy fundraising and programs,” 

says Worthington, 

“and they are seen as a part of fabric of local civil society, even if they have the advantage of being a global brand.”

Ashoka founder Bill Drayton, a social entrepreneurship icon, goes even further.

To be successful in a rapidly changing environment like the aid sector, he says, citizen groups must transform into changemakers and act like social entrepreneurs. And if these groups, as teams of changemakers, work together, they can create change instead of merely responding to donor dicta.

“As the citizen sector learns to globalize, which it is now doing extremely rapidly,” Drayton argues, “its own internal competitive dynamic for the good will soon, in field after field, creatively and forcefully be pushing towards the needed global solutions.”

Many of these changes will continue to be driven not just by the NGOs themselves, but by their funders – and in particular, the slow-moving and often risk-averse bureaucracies of government. That said, as world leaders from New York to Brussels and beyond engage civil society ever more, NGO leaders have a chance not just to rejuvenate their community, but to change development cooperation itself.