Much has been written about how innovation drives growth and shareholder value in publicly traded companies. Apple and Google, which again took the top two spots on BCG’s annual list of the world’s most innovative companies, have also been the stock market leaders over the past ten years. But innovation is just as critical for nonprofits—especially as they face growing pressures to serve more people in need and to deliver measurable results.
Ongoing economic uncertainty has increased the hardship confronting many of the world’s most vulnerable populations, and their needs have grown as a result. Because of rising numbers of refugees and displaced people, prolonged conflicts, natural disasters, epidemics, and other crises, the demand for humanitarian aid has increased. While humanitarian funding has grown—in fact, the nearly $25 billion global budget for humanitarian aid in 2014 was the largest ever recorded—demand has grown even faster: that 2014 global budget met only 62% of humanitarian needs.
At the same time, governments are under pressure to reduce costs and do more with less. With less public funding available—and the need for social services growing—nonprofit organizations struggle to pick up the slack. Many nonprofits also face growing pressure from governments, philanthropic organizations, and individual donors to show quantifiable outcomes—a difficult task, given how long it can take to solve many of the problems that face the social sector.
Innovation is key to meeting these challenges. But not every nonprofit has the processes, capabilities, and leadership commitment needed to improve its operations and to compete for increasingly scarce philanthropic dollars. To identify the current best practices in the field, BCG conducted more than 25 in-depth interviews with innovation experts from a wide range of organizations in the social sector.
Our research revealed distinct differences between organizations that are innovating successfully and those that are struggling to move forward. We’ve distilled our findings into the following seven guidelines.