Enhancing productivity in the social sector with lessons from the private sector

By Tera Allas, Director of Research and Economics, McKinsey & Company

There is no doubt that improving productivity across the economy – including the social sector – is vital for our prosperity and wellbeing. Yet, it is equally clear that, at a systemic level, there are few ‘low hanging fruit’: achieving better effectiveness (for example, identifying and amplifying the interventions that work best) and efficiency (for example, automating and digitising mundane tasks, such as data collection or routine communications) require time and money. So, to make the most of the efforts to boost productivity in the social sector, it can be valuable to reflect on lessons learned from decades of research, experimentation, and experience in the private sector.

The good news is that there is no reason to believe that charities and other social sector bodies couldn’t benefit from the same enablers that help companies and public sector organisations innovate and deliver ‘more for less’. Better and more consistent management practices, improved access to necessary skills and talent, wide-spread use of data and technology to enable staff to be more effective, external knowledge exchange and collaborations, and investment in necessary equipment and infrastructure are all known to enhance productivity, regardless of sector. Arguably, the meta-capability that facilitates all of the above is leadership: people with a clear vision and an ability to prioritise and corral staff and stakeholders around common goals.

Indeed, social sector organisations may have some inherent strengths to build on. Being purpose-driven should provide a clear ‘north star’ for aligning and amplifying activity towards stated aims. Being close to the beneficiaries should enable user-centric design that can minimise waste and maximise effectiveness, by being sensitive to the complex local context that so often determines ‘what works’. Being inherently entrepreneurial, innovative, and agile should support on-going performance improvements. And by tapping into the pride and meaning staff and volunteers derive from their work, charities have the potential to motivate and engage well beyond financial rewards.

However, it would be wrong to under-estimate the enormous challenges that charity leaders face when trying to boost the impact of their organisations. Today’s report, ‘Unleashing the power of civil society’, by The Law Family Commission on Civil Society, is packed full of important facts, analysis, insights, and experiences that highlight the barriers that need to be addressed to unlock the potential of charities and the civil society as a whole. These are all valuable starting points; but, despite the best efforts of academics, think tanks, policy makers, and charities like Be the Business (of which I am a Trustee), I would argue that, at a systemic level, even the best thinkers have yet to fully crack the productivity code.

How can I say that, having just listed two or three paragraphs worth of ingredients for high productivity, in any organisation? Well, it may be that ideas are over-rated; and, instead, it is their implementation that yields benefits in the real world. And implementation is messy, time consuming, and often frustrating. Edison, asked for his definition of genius is said to have answered, “2% is genius and 98% is hard work.” The same applies to productivity improvement. However motivated a leader is to develop an organisation, they also need the time, energy, and headspace, and often external mentoring, to take action. And they may need on-going support to keep at it, to see the fruits of their labour.

Perhaps the biggest lesson we have learned at Be the Business – a charity focused on helping owners and leaders raise the performance of their business – is to pay at least as much attention to solving the ‘demand’ problem as the ‘supply’ problem, when it comes to supporting organisations. Arguably, there is no shortage of guides, tools, advice, or support for productivity improvement, often free of charge. The bigger bottleneck is demand for such services from business (and, I would guess, charity) leaders, because of the multiplicity of other day-to-day pressures they face. For sure, there are also refinements required on the supply side, not least making any tools and support much easier to access and use – not in the abstract, but by deploying user-centric design principles in practice.

Another cautionary tale, if I can call it that, relates to data and measurement. Our original hypothesis at Be the Business was that providing leaders transparent and actionable benchmarks about how they compared to their competitors would be key to encouraging them to improve productivity. With hindsight, it’s fair to say that that may be a necessary but not sufficient ingredient, and with at least two caveats. First, measuring productivity in a way that is both robust and resonates with leaders is extremely difficult – and likely more so in a social sector context. In our experience, stories and anecdotes may be more powerful in sparking interest and driving change.

Second, organisations tend to need more help with the ‘how’ than the ‘what’. For example, saying that they should invest in better understanding customer profitability could well be true, but in isolation, could also be unhelpful. What they need help with is exactly how to go about generating, and then acting on, that understanding. That is typically a learning process that takes time, not something that reading a manual will deliver; and that learning process is greatly enhanced by real-life examples and interactions with peers. None of this is to say measurement should be underplayed; just that we should not expect it to be a silver bullet (and that concerns about ‘demand’ apply here, too).

Overall, it seems to me that to best capture the productivity opportunity in the social sector, society needs to act on three different levels: continue to highlight specific best practices and examples of productivity-enhancing ideas (such as evaluation and automation); create the space, time, resources, skills, incentives, and inspiration (e.g., in the form of recognition) for leaders to work ‘on’ (and not just ‘in’) their organisations; and ensure that broader initiatives to create an environment for productivity growth (e.g., on infrastructure, investment, and skills) also benefit social sector organisations.

This piece was written in response to the publication of the report ‘Unleashing the power of civil society’