NFPs Turning to Social Enterprise to Overcome Funding Challenges

Australian not for profits are looking to overcome funding and resourcing challenges by establishing a social enterprise, a new insights report has found. 

CommBank’s Not-for-Profit Insights Report took data from 2,473 business owners, including 413 NFPs, to benchmark the innovation performance of these organisations.

When examining the entrepreneurial behaviours and management capabilities that drive innovation – through CommBank’s Innovation Index – the NFP sector ranked higher than any other Australian industry.

The report found that one in three NFP organisations planned to establish a social enterprise over the next 12 months, in order to combat the changing funding landscape affecting the sector.

Already 22 per cent of NFPs are operating social enterprises, and the report said NFPs operating these commercial ventures rated higher on the innovation index.

“Looking across the sector, we also found a clear difference between organisations that have established a social enterprise and their peers,” the report said.

“Twenty-two per cent of the not-for-profit organisations we surveyed said they had established a social enterprise, and these organisations scored significantly higher on the Innovation Index (at 51.5) than those planning to establish a social enterprise within the next 12 months (39.7) and those that have no plans to do so (32.0).”

Commonwealth Bank’s head of schools and not-for-profit banking, Julienne Price, said social enterprises helped NFPs to embed a culture of innovation.

“The number of not-for-profit organisations operating social enterprises is set to more than double in the next 12 months, joining more than 20,000 social enterprises already in existence nationwide,” Price said.

“This highlights how organisations are continuing to respond to funding and resourcing challenges, adapting to ongoing regulatory change, and driving towards better community outcomes.

“In many cases not for profits are doing a better job at embedding a culture of innovation than their counterparts in the business community, and we expect this to support more organisations move up the innovation curve.”

The report found that while NFPs were already more likely than other sectors to be focused on reducing their environmental impact (21 per cent compared to the national average of 8 per cent), this increased to 51 per cent for organisations planning to establish a social enterprise.

The top area for investment for NFPs was staff training and expertise, but the report noted that only one in four NFPs were currently investing in technology.

However NFPs investing in technologies had a greater focus on the latest emerging technologies compared to the average Australian business, with almost 29 per cent investing in chat apps and 11 per cent investing in augmented reality and the internet of things.

“While only a relatively small number of organisations are investing in technology today, these earlier adopters have an above average focus on transformative new technologies,” Price said.

“We expect this to grow, particularly as the applications for new technologies become clearer and as organisations look to leverage partnerships to help develop their technology expertise.”

A lack of resources was the main barrier to innovation for NFPs, according to the report.

“The organisations that innovated or improved said that a lack of financial resources or budget, personnel, time and skills (66 per cent), human resources or personnel (25 per cent) and time (24 per cent) were holding them back from becoming more innovative,” it said.

“Organisations were also struggling with a lack of innovative culture or leadership. At 60 per cent, this result is 13 per cent above the national average and stands out as a key hurdle to be overcome in order to move from making incremental improvements to becoming true innovators.

“The most common challenges affecting organisations vary within the different sub-sectors. For social and advocacy organisations there was a pronounced focus on budget restrictions (42 per cent) and a lack of time (36 per cent), while community services are hampered by organisational issues (37 per cent).”

The survey results showed that NFPs invested approximately $290,000 in innovation activities over the past year, similar to the national average of $300,000.

But the report said there was scope for NFPs to invest more in innovation in the future, as NFPs were currently receiving a lower than average return on their investment.

“It is worth noting that 60 per cent of organisations surveyed are investing less than $100,000 per year,” it said.

“When considering the value that not for profits have generated from their implemented innovations, the average increase, in the form of revenue growth or cost savings, was $379,000 compared to the average across all industries of $592,000.

“This equates to a return on investment of 1.31 – or a return of $1.31 for every $1 spent on innovation – which is lower than the national average of 1.97.”

One NFP investing in innovation is the Cerebral Palsy Alliance (CPA).

The organisation has focused on research and development through the establishment of the Cerebral Palsy Alliance Research Foundation, to fund Australian and international research into the prevention, treatment and cure for cerebral palsy.

CPA’s head of relationship fundraising, Joshua O’Rourke, said a well-established culture of innovation was a focus across all parts of the organisation.

“Every new staff member is taught about the importance of innovation and putting the needs of clients first. We want to give our people permission to think differently and encourage them to play an active role in the continual morphing of the organisation,” O’Rourke said.

“Increasingly, people also want to work for an organisation that has meaning and purpose, but ultimately, to be sustainable you need to combine purpose with profit.”

Overall, the NFP sector was found to have contributed $3.9 billion to the Australian economy through implemented innovation investment over the past year.