In Economic Possibilities for Our Grandchildren, John Maynard Keynes predicted that from 1930 to 2030 technological advances would allow society — if properly organized — to solve the “economic problem” of scarcity. He believed this would usher in a new era in which the biggest challenge for many people would be how to live meaningful lives.
While many parts of the economy have indeed been transformed as he forecast, the nonprofit world has not yet experienced the sort of profound impact from technology that Keynes predicted. Outsourcing, offshoring, the replacement of people by technology, and widespread technological unemployment have been rare. Although there are some new technology-enabled nonprofits — such as Crisis Text Line, Quill, DonorsChoose, GiveDirectly, Rethink Food — most operate largely the way they did 30 years ago, albeit with a website and Salesforce.
In the age of Covid, this is poised to change, particularly because it is accelerating the need to use technology for many things nonprofits long did in person. That will make the next decade a period of tumult for many nonprofits. Before considering the future, it is worth exploring why nonprofits have been among the last to feel the influence of technology as the same factors may also make the coming period particularly challenging.
The nature of nonprofit services and their limited layers of management have so far made them resistant to technology-driven productivity gains. Many nonprofits — whether their work involves human services, the arts, education, or other causes — deliver face-to-face, people-intensive services that do not easily translate into technology-driven approaches. Most nonprofits are small, with few middle managers vulnerable to technology-driven redundancy and the associated productivity growth. In fact, as technology has increased productivity in other areas, nonprofits have become less efficient in relative terms. This phenomenon — called cost disease— has been one reason that funding levels have lagged behind the increase in real costs, making it harder to design effective programs or pay nonprofit workers fairly.
Nonprofits do not have strong incentives to fully embrace technology even where it might improve productivity. Nonprofit leaders are not the “strenuous, purposeful money-makers” that Keynes believed drives technology adoption.
Nor do nonprofits have owners who can agitate for change.
What’s more, nonprofit supporters — philanthropists, individuals, and government — rarely push for the types of fundamental program or organizational restructuring that might increase long-run cost-effectiveness, and they can be reluctant to fund the associated upfront risky investments in technology and staff. (These staff members are often expensive and difficult to recruit and retain.) Even government agencies, which put inordinate pressure on nonprofits to reduce overhead, are not concerned about long-run productivity; they just want to reduce their share of the short-run costs. A nonprofit board’s duty is to the organization’s mission, of which financial performance is only one part. Competition between nonprofits is indirect and less prone to the adopt-or-die/winner-take-all dynamics that can arise when a competitor successfully disrupts a for-profit industry.
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Point of No Return
These factors have not been enough to slow the accelerating adoption of technology in response to Covid. Remote job training, streamed cultural events, telehealth and human services, and Zoom-based management coaching are examples of traditionally place-based, face-to-face programs that are now being delivered in new, technology-enabled ways. This genie will not go back in the bottle, especially as technology reaches the point where machines can “think” and communications make “face-to-face” interactions possible from remote locations.
As a result, nonprofits will likely see technological unemployment, new forms of technology-enabled and digital-native programs, increased productivity, and uncertainty in four areas:
Fragmentation: The nonprofit world is highly fragmented. The barriers to entry are low. Most nonprofits are small and local. Technology may change this. Online higher education, for example, is more concentrated than the in-person variety, and the same may happen elsewhere. After all, large organizations can better afford the necessary capital investments, recruit people with needed technical skills, and then deliver increased services at attractive incremental costs. Technology may also allow more widespread adoption of outcomes-based funding, which tends to favor large organizations. On the other hand, technology may enable new forms of low-cost collaboration — outsourcing, fiscal sponsorship, joint ventures, networks, and so on — allowing organizations to better access technology, capital, sophisticated skills, and other resources while remaining small and nimble
Funding: Grant makers and other donors care about a nonprofit’s results and how it achieves them. A nonprofit that decides to pay students for higher test scores rather than tutoring them or outsources much of its work to low-wage countries or replaces its counselors with chat-bots or proposes to provide “community services” from another city (or even state) cannot assume that donors will respond favorably, even if it delivers “better” (albeit more ruthlessly won) results. A technology allowing an organization to deliver similar or better programs at similar or lower costs may also influence donor motivation, perhaps tugging just a bit less on philanthropic heartstrings. Technology may also encourage nonprofits to move toward high-volume/low-intensity programs that, while not necessarily better or more cost effective for clients, can be tempting for grant makers keen to count.
Competition: Technology will likely expand the scope of competition between nonprofits and for-profits. Adopting a new technology or redesigning a program requires some risky, upfront investments. Most nonprofits lack the financial resources to make these investments without outside support, yet grant makers have not traditionally been well structured to underwrite them. Without adequate access to investment capital, nonprofits may get out-competed by better capitalized for-profits even in those areas where it is inherently better for nonprofits to provide a service because of their mission-based values or where there is a meaningful conflict between the needs of the clients and the profit motive. Examples of this may include higher education, hospice, and home care. But technology may also be beneficial by allowing good-enough for-profits to displace nonprofits in some areas, thereby freeing precious philanthropic resources to migrate into new areas of important, unmet need. At the same time, the distinction between mission-driven nonprofits and profit-maximizing for-profits continues to blur, given the growing interest in impact investing, the creation of explicitly “double bottom line” companies (B corporations, low-profit liability companies, etc.), and the cadre of nonprofits—like First Step Staffing or Pursuit — that are operating in competitive (i.e., for-profit) markets.
Work Force: Over the last 50 years, nonprofits have increasingly relied on paid staff in part because more Americans, especially women, have been pursuing full-time careers that make volunteering harder to squeeze in. Although it seems hard to imagine at a moment when so many people are suffering because they are jobless, in the long run, more people will be able to afford more leisure time. Technology may allow nonprofits to engage these people in new ways — as volunteers, part-timers, or those who choose to offer pro bono services — creating a mission-driven version of the gig economy without the dark underbelly of its for-profit equivalent.
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It is impossible to predict how this will all shake out. However, every mission-driven organization must think deeply about the opportunities and challenges of technology for its program model and organizational structure. Each organization should also consider how technology might affect its mission, its values, and perhaps even its very reason for being. The economic possibilities for nonprofits seem bright, but the period of transition will be tumultuous. Strap yourself in for the ride.
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