Thursday, August 25, 2011

For Amber Waves of Grain

A very competent client asked me how to respond to a trustee who wanted to know how many fundraisers needed to be added to the development staff to secure an additional $20 million per annum. He assumed that the mere adding of a fundraiser guaranteed a significant return so it was only a matter of calculating how many it would take to produce the desired amount.

These are the kinds of questions that advancement leaders need to answer with great care. If one responds too literally by giving a projected ROI per development officer without additional context, one buys into, and helps perpetuate a reductive and presumptive worldview of philanthropy – and there’s too much of that out there already.

Here’s how I would answer that trustee’s (we’ll call him Joe) question: “Well, Joe, that’s like asking how much grain can be harvested by hand in any given day. We could calculate how much one strong, experienced laborer, armed with the sharpest scythe, could reap from sun up to sun down. Let’s say that came out to four acres. Then we could say that five similarly experienced laborers, similarly equipped, could reap 20 acres a day. But all that assumes there’s 20 harvestable acres. It wouldn’t make sense to hire harvesters if we hadn’t planted or cultivated enough grain to produce that kind of harvestable acreage, nor would it make sense to go to all the trouble to plant and cultivate the grain, only to send the harvesters into the field before it was mature. So we really have to look at what has been planted and has been under cultivation before we can answer that question. And we need to decide how much time and money we’re willing to invest in developing fields that will provide greater yields in the future.”

I could build on this metaphor, including relating the sharpness of the scythe to the keenness of vision, the richness of the soil to the ethos of one’s alma mater (which translates from Latin to “nourishing mother”), or the warmth of the sun to an institution’s commitment to long-term relationship building. But you get my point.

The simple truth is this: Reductive thinking about fund raising is the greatest reason why institutions fall well short of their philanthropic potential. We assume the grain will always be there or somehow grow on its own; all we have to do is figure out how to bring in the harvest. Conversely, the key to realizing their potential is rethinking and reimagining fundraising expectations in the light of what it takes to create a sustainable culture of philanthropy. As we sow, so shall we reap.

The effectiveness of metrically-driven fundraising is in direct proportion to the assiduousness of the cultural enrichment that preceded it by decades, and the sowing of goodwill and cultivation of relationship that preceded it by years.

Friday, August 12, 2011

The Ultimate Question

At the conclusion my conferences, some in attendance ask me for a “reading list.” They have been intrigued by the ideas and research I share, and want to learn more. When I respond, some are surprised by how few of my suggested readings do not come directly out of the professional literature about fund raising and philanthropy but from history, anthropology, political science, sociology, neuroscience, psychology and business. Indeed, much of philanthropic research and practice is, and should be, informed and shaped by knowledge created outside of it. A good example from my recent readings is, “The Ultimate Question: Driving Good Profits and True Growth,” by Fred Reichheld.

Reichheld’s research, conducted to assist market-driven companies and corporations, shows the key to sustained revenue growth is assiduous attention to building customer loyalty. He demonstrates, however, how customer loyalty is routinely undercut by many companies’ overly narrow focus on short-term profits. Placing one’s entire attention on financial measures, he says, “creates a one-eyed monster: an organization so focused on profit that it alienates the very people on whom profit depends, its customers.” Can the same thing be said of philanthropy-seeking organization’s focus on short-term fundraising results?

In fact, I see tremendous parallels to the philanthropic world in Reichheld’s findings, observations and conclusions. Below are selected quotes from his book (in italics) with my responses following (in bold).

Customers must believe that the company knows and understands them, values them, listens to them, and shares their principles. On the first dimension, a company is engaging the customer’s head. On the second, it is engaging the heart. Only when both sides of the equation are fulfilled will a customer enthusiastically recommend a company to a friend. Alumni attitudinal research conducted by Engagement Strategies Group on the graduates of the top 100 institutions in the U.S. shows that the majority feeling emotionally disconnected from their alma maters. Schools and universities need to focus on more engagement of the heart.

But of course building high-quality relationships does cost something – often a considerable amount. It requires investment… There is no way to deceive or exploit customers and build better relationships with them at the same time. How many of you feel as if your organization recognizes the validity of this observation and has made the necessary investment in genuine relationship-building? How many of you feel that your organization is exploiting customer loyalty by asking for what it wants rather than committing itself to higher levels of service in return for higher levels of giving?

Bain research teams consistently find that the links between satisfaction-survey scores and customer behaviors that drive profitability or growth are tenuous at best. Detailed analysis of individual customers, for example, typically finds that between 60 and 80 percent of customer defectors score themselves as “satisfied” or “very satisfied” on surveys preceding their defection. Conversely, companies that achieve satisfaction scores of 80 or even 90 percent often experience no economic advantage from the apparent customer loyalty. Satisfaction is simply too low a hurdle if the goal is superior relationships. How many philanthropy-seeking organizations defined donor satisfaction by the absence of complaints (and the occasional compliment) but never measure how many donor relationships fall into the category of “superior relationships”?

Companies get confused about the goal of a satisfaction survey. Are they assessing a customer’s satisfaction with a specific transaction? Or are they assessing the quality of their customer relationships? The former is relatively simple and is best done immediately following the transaction. But evaluating a customer’s relationship with a company goes beyond the sum of all an individual’s transactions. It includes every detail of the customer’s experience…. How many colleges and universities, for instance, have assessed the quality of their student and alumni experience over time?

We surveyed 362 companies and found that nearly all of their senior executives liked to pat themselves on the back for their organization’s treatment of customers. Ninety-six percent said they were “focused” on customers. Eighty percent believed they delivered “superior experience” to their customers. Alas, when we asked customers in another survey to rate the providers of goods and services that they bought from, they gave only 8 percent of companies a superior rating. We promptly dubbed the 80 percent the “believers” and the 8 percent the “achievers.” But whatever the nomenclature, this ten-to-one ratio suggests a startling gap between those who think they are doing right by their customer and those who truly are. What’s the ratio between your believers and achievers?

A young company starting more or less from scratch can build an entire business model around particular end-to-end value propositions aimed at delighting customers and turning them into promoters. Is it ever too late? Can’t any organization reinvent itself and start afresh by committing itself to “end-to-end value propositions”?

Of employees who worked 10 years or more at North American companies, Only 39 percent trust their leaders to communicate openly and honestly. Only 33 percent believe that customer loyalty at their company is appropriately valued and rewarded. Only 28 percent say that their company values people and relationships above short-term profits. … But here’s the real kicker: only 19 percent, fewer than one in five, can be considered promoters – people who can be counted on to provide enthusiastic referrals to the company that employs them. How would philanthropy-seeking organizations fare by the same measures of employee trust and enthusiasm? Reichheld points out that employee referrals are the best source of new applicants and warns that managers must recognize that it is impossible to earn customer loyalty without first earning the loyalty of frontline employees.

Too many companies do kid themselves about their commitment to the customer experience, let alone the Golden Rule. They tolerate great salespeople or great engineers who don’t embody the core values the company nominally espouses. That practice alone tells employees that the values are not their top priority. Values must be lived consistently not merely espoused on occasion.

As it turns out, one of the most powerful drivers of customer delight is simply listening and responding to complaints and suggestions. A company’s commitment to listen and respond proves that it values its customers and takes good care of them – basic requirements for any good relationship. This explains the power of exercises like Georgetown’s Student Discovery Initiative in which over 10,000 alumni have been interviewed in person by current students and the expressions of alumni delight that have followed.

Too many managers have come to believe that increasing shareholder value – their prime directive – requires exploiting customer relationships. So they raise prices whenever they can. They cut back on services or product quality to save costs and boost margins. Instead of focusing on innovation to improve value for customers, they channel their creativity into finding new ways of extracting value from customers. A recent analysis done by Moody’s shows tuition increases from 1990 to the present have outpaced all other price indices (healthcare, energy, housing, etc.).

The foundation for good business is the ability to organize relationships into voluntary associations that are mutually beneficial and accountable for contributing productivity to the surrounding community. This why philanthropy-seeking organizations must recast their cases of support so they don’t ask donors merely to give to them but through them to create a better world, and show how they have created alliances with community-based organizations or service providers to deliver on that promise.

Lacking a credible measure for relationship quality, managers forget its importance. They fall into the trap of thinking that their only goal is profits, because that’s how their performance is assessed. Is this equivalent to fundraising managers who focus only on metrical achievement?

When a company focuses in (customer loyalty measures), by contrast, its employees are happier. They’re proud to be part of a community based on Golden Rule principles. Their job content is richer, and they enjoy better relationships with colleagues; they have more opportunities for advancement because their companies are growing. I am thrilled beyond expression to hear this coming from a prominent business consultant. It’s a beautiful professional creed, one we should all live by. That creed is further elucidated in the following quotes that I will not comment on since they speak so beautifully for themselves.

When an organization earns the loyalty of its constituents, it increases the resources available to them, and it can have a greater impact on society.

When you put all of these simple ideas together, you come to the inescapable conclusion that the best way for an organization to grow profitably is to build strong relationships among customers and employees – relationships worthy of loyalty because they are governed by the basic set of ethical standards defined by the Golden Rule. It is truly radical to think that the more ethical a company becomes, the faster it can grow and prosper. Yet the data is hard to ignore. Companies that have earned the highest loyalty are winning the battle for market share in most industries.

Perhaps the most revolutionary idea in this book is the proposition that it is at least as important to measure the quality of relationships as it is to measure profitability.

The growth of any organization is simply the accumulated growth of the individual relationships that constitute it. Partners will invest to create better, more mutually valuable relationships when they are a part of a community in which members hold each other accountable for building relationships that meet Golden Rule standards. Relationships are the crucibles in which values creation takes place.