Stormy seas ahead - How can NGOs survive?
The cuts to US foreign assistance are going to happen, the question is how much. An initial budget request had the State Department budget down 25%, with references to climate change nearly deleted in their entirety. Given the deficits the US will rack up with the shiny new tax law and increased expenditures on defense (more nukes!), the outlook for development assistance on the 1-3 year horizon is anywhere between grim and horrid. So what can small and medium size NGOs (anything under $200m) do to mitigate risk to their organizations and the populations they serve?
But before we get into how to mitigate risk, let’s take a look at how the budget reductions are likely to play out. Absent a massive infusion of new money, several things happen.
1. Large organizations, both for and non-profit, will sharpen their competitive knives. As the number of awards to compete for is reduced, the competition for the reduced funds increases dramatically. In short, more organizations will be chasing fewer opportunities and a much smaller resource envelope. In this scenario, those organizations (both for and non-profit) who write the best proposals, do the most capture, have the best resourced technical teams and large global footprint will win. A lot. The Chemonics, Abts, RTIs, FHI360s of the world, with immense resources at their disposal, legions of highly qualified staff, and well-honed business development systems will simply turn up the dial. They will invest more in competing, mobilizing global resources (and deep pockets) to improve their ability to compete and maintain market share. It’s a survival strategy. These smart folks are not going to just sit back and just watch the show.
2. NGO’s without robust BD systems, legions of technical staff, will shrink. Quickly. There is already incredible competition in both the contract and cooperative agreement spaces, but as the pie shrinks and large organizations step up their game, NGO win rates go down, the cost of competing will go up (crowding out unrestricted funds for other purposes), already overworked staff are stretched even thinner (to the breaking point), and the next several years of 990s for NGO’s operating at less than $200m annually will plummet – perhaps by 25% a year, if we want to hazard a depressing guess.
3. Overly specialized NGOs, with a narrow niche and a commitment to do only certain kinds of work will shrink even faster. In global health, we’ve witnessed a rapid increase in MNCH funding, while FP (as a percent of total global health spending) has fallen dramatically. Safe abortion (outrageously) isn’t event tracked by the major data bases, and SRHR (wrongfully) becomes just a sliver of the total health and development assistance budget. The reduction in total development assistance, simply put, requires that organizations diversify as much as possible, within their larger institutional mandate, so that they can compete in many markets as possible – not just one or two “preferred,” niche technical areas that are likely to shrink even further.
4. There will be a flood of US NGOs catching the next flight to Amsterdam, London and Frankfurt searching for European funds. The problem is that when they arrive at their European destination, they will find that the airport is very, very crowded with people just like them trying to get meetings with DFID, The Dutch Foreign Ministry and KfW. In short, there will be an incredible increase in demand for those European funds, almost certainly without a corresponding increase in the supply of these funds. And by the way, if you’re carrying an American passport, you’re going to the back of the line. The Dutch will, predictably, give preference to Dutch NGOs; the Brits to Brits, and the Germans to Germans. So while the sightseeing in Europe will be great, the “rapid European diversification” plan will probably, if not certainly be a bust for most US based organizations.
So what can NGOs do to prepare for the storm minimize the damage?
1. Improve your ability to compete. Quickly. Can your BD team tell you what your NGO's dollar win rate is? (Or what a dollar win rate is?). Do you have analytics on the cost of bids, trends over time, return on investments for competitive efforts? Is your NGO conducting rigorous capture, getting ready 12 months in advance of an anticipated bid to develop strategy, preliminary technical narratives and budgets? The large organizations are already doing this, and they will be doing even more as global budgets shrink. NGO’s that don’t up their competitive game will, without a doubt, experience the most rapid and dramatic decreases of total revenues.
2. Pay attention to Co-Impact. This is potentially the most game changing event in history of international development assistance. As I've noted in previous posts, Co-Impact, the next phase after Gates & Buffetts "Giving Pledge" is providing the structure and systems to put the resources of nearly 200 billionaires with collective assets rapidly approaching one trillion dollars ($800b at last count) to work for international development. If they meet half their target of billionaires giving "most" of their resources to philanthropy, they will be the biggest donor (government or otherwise) on the planet. This is a transformation of the development assistance and philanthropic landscape that we have in the works, as Gates and Buffett well know. So if you don’t have folks on staff to help you get on the Co-Impact train, get help. Soon.
3. Don’t count on the hail Mary European diversification. This may help on the margins for a handful of NGOs, but by and large the economics of supply and demand will dictate the result. Lots more US NGOs competing in European markets where European NGOs (and contractors) get preference. Time spent on a likely unproductive European diversification strategy could be better spent on improving your BD systems and processes to compete more effectively and figuring out how to get on the Co-Impact train. By the way, don’t count on corporate giving to save the day either – their total contribution to development assistance is a pittance. To be more precise, the combined contributions from all private sector firmsto public health, according to IHME, comes to 1.8% of the total, or $690 million out of $37.6 billion).
4. Broaden your mission, don’t narrow it. If NGOs have credible experience in three or four technical areas, try to compete in all these markets! The risk is that individuals at some NGOs may have a narrow interpretation of their organizations remit, and may argue against a broader interpretation of their mission. This could potentially sink NGOs that define themselves too narrowly. This is the time to think big, to compete in many markets, and do more of what you’re good at – not less.
While there are most certainly stormy times ahead, NGO’s can batten down the hatches and prepare for the worst. The ones that do will survive to see calmer seas, in time.