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February 27, 2008

A Capitalist Jolt for Charity by Steve Lohr

New York Times: February 24, 2008
A Capitalist Jolt for Charity
By STEVE LOHR

IN the summer of 2005, Miles Gilburne and Nina Zolt had long talks over dinner in their Washington home about what to do next. For more than six years, Mr. Gilburne, a former AOL executive, and his wife, Ms. Zolt, a former lawyer, had supported a philanthropy that used books and online tools to enhance skills of inner-city students.

The program, which Ms. Zolt directed, had been moderately successful. Students liked writing online about books and sharing their ideas with Internet pen pals, including adult mentors. Many teachers embraced the project, called In2Books, and participating students outscored their peers in standardized tests.

Still, the costly venture grew only gradually, classroom by classroom. The couple had put $10 million into the charity, a “meaningful portion? of the family wealth, Mr. Gilburne says. “It was enough money that I did lie awake at night thinking about the size of the checks,? he recalls.

As philanthropy, the couple’s efforts, however worthwhile, weren’t sustainable. But their vision of using the Internet for communication and collaboration to improve education has taken on a new life — as a business.

Today, the once-struggling venture has morphed into a primarily for-profit enterprise. And the striking transformation of In2Books is emblematic of a larger trend: charities are changing their spots and making use of some of capitalism’s virtues.

The process is being pushed forward by a new breed of social entrepreneurs who are administering increasing doses of bottom-line thinking to traditional philanthropy in order to make charity more effective.

To make a fresh start, Mr. Gilburne attracted like-minded angel investors, and at the end of 2006 the group bought a for-profit company, ePals Inc., to expand on the original mission and support the foundation. The ePals company has grown and now offers classroom e-mail, blogs, online literacy tools and Web-based collaborative projects on subjects like global warming and habitats.

EPals says 125,000 classrooms around the world are using at least some of its free tools, reaching 13 million students, and its ambition is to become a global “learning social network.?

National Geographic is to announce this week that it is investing in ePals, based in Herndon, Va., and will supply educational content for the ePals learning projects. Worldwide distribution should get a lift from Intel, which will soon ship its Classmate laptops, designed for students in developing nations, with the ePals icon on the screens. And ePals is also offered for use on the low-cost computers from One Laptop Per Child, a nonprofit group trying to bring the content and experience of the Internet to children in developing countries worldwide.

Various versions of efforts like this are appearing across the philanthropic landscape as business-minded donors, epitomized by Bill and Melinda Gates and their foundation, have treated their charitable contributions more like venture capital investments. They seek programs that can be catalysts for broad changes in fields like health, education and the environment, they measure performance and results, and they encourage nonprofits to become more self-sustaining.

Yet to have the greatest possible impact, a further step down the capitalist road is sometimes needed, analysts and others in the field say. Muhammad Yunus, the microfinance pioneer and Nobel laureate, calls this next step the “social business.? The goal, according to Mr. Yunus, is to create ventures that more than pay for themselves — in other words, turn a profit.

Social business entrepreneurs, he writes, can help “make the market work for social goals as efficiently as it does for personal goals.?

PHILANTHROPIES are discovering that for-profit status and financing can be a useful tool. For example, many microfinance lenders, modeled after Mr. Yunus’s project, the Grameen Bank in Bangladesh, aim to make the crossover to profit-making institutions.

Mozilla, the nonprofit foundation that developed the open-source Web browser Firefox, decided that it needed a for-profit unit to accelerate its business activities and gain market share against Microsoft’s Internet Explorer. The business unit is freer to spend on marketing, charge for software service and technical support, and pay to compete for engineering talent in Silicon Valley.

Likewise, Google.org, the search giant’s corporate foundation, chose for-profit status to be able to easily make investments in for-profit companies including alternative energy start-ups like eSolar and Makani Power.

“Capitalism is a very mutable, flexible beast, and what we’re seeing is social entrepreneurs addressing some of these social challenges in profoundly different ways than traditional nonprofit organizations,? said John Elkington, co-author with Pamela Hartigan of “The Power of Unreasonable People: How Social Entrepreneurs Create Markets that Change the World,? a new book that was handed out last month to attendees at the World Economic Forum in Davos, Switzerland.

Even among its hybrid peers, ePals has evolved into an unusual combination of a business and a social venture. When Mr. Gilburne and Ms. Zolt established the for-profit arm in 2006, they attracted like-minded investors, acquired ePals Inc. and began hiring talented staff. They gave the original education foundation a 15 percent stake in the ePals company, and its endowment will grow if the business prospers. The nonprofit division is focusing on educational research and bringing technology into classrooms.

But the company is where the action is. “This needs to be a large business to have a really significant social impact,? Mr. Gilburne said. “We couldn’t do what we’re doing as a nonprofit.?

Very few nonprofits get big. Only 144 of the more than 200,000 nonprofits established since 1970 had grown to $50 million or more in revenue by 2003, according to a study published last year by the Bridgespan Group, a nonprofit consulting firm that advises philanthropies.

With the rising influence of social entrepreneurs in philanthropy, many nonprofits have sought to generate revenue to become more self-sustaining. But it is still rare for a nonprofit to cross the chasm to become mainly a profit-seeking business, as in the ePals experience.

“It’s tricky, but it makes sense when the business is highly aligned with the mission of the social entrepreneurs,? said Jeffrey L. Bradach, a managing partner of Bridgespan.

As a for-profit business, ePals can more easily attract financing for growth. But outside investors raise the risk that the original social ideals will be lost in a single-minded pursuit of profit. Mr. Gilburne has tried to avoid that pitfall by gathering a stable of angel investors among his longtime business friends, who bring not only money but also a shared belief in the promise of the Internet to improve education.

The group includes Stephen M. Case, the former chief executive of AOL; Mitchell Kapor, the founder of the early spreadsheet maker Lotus Development and an open-source software supporter; and Yossi Vardi, an Israeli Internet entrepreneur.

“None of our investors are interested just in making another financial score,? Mr. Gilburne said.

AFTER pooling their money, the angel investors bought the ePals company in December 2006 for an undisclosed price. Mr. Gilburne had watched ePals for years, starting when he was at AOL in the 1990s, and he saw it as the foundation on which to build an educational social network.

EPals started as a Web-based electronic pen-pal service in 1996, offering point-and-click tools that teachers could use to control how students use e-mail. A teacher in California, for example, set the controls so her class could communicate online only with a class in China that was engaged in a joint cultural exchange project.

Since the angel investors came aboard in 2006, the ePals work force has more than doubled, to 43, and the company continues to hire. It has improved the e-mail and blogging software and added links to outside resources, like National Geographic’s digital library, to its Web-based software for online projects.

“We were a small company with little capital,? said Tim DiScipio, a founder of the original ePals, who is the chief marketing officer of the revamped company under its new ownership. “But now we have the resources to really pursue the vision of social learning over the Internet.?

Until last fall, ePals charged $3 to $5 a year for each student e-mail account, but the service is now free. The effect of free distribution was immediate and dramatic. The number of registered users has nearly doubled, to 13 million, since September.

The growth and ambition of ePals have impressed National Geographic enough to make an investment and forge a partnership.

“We’re looking at them as a global network to distribute National Geographic content,? explained Edward M. Prince, the chief operating officer of the venture arm of the nonprofit scientific and educational organization.

The ePals team is betting that it can build a worldwide social network in education — a serious, controlled version of Facebook, for students in kindergarten through 12th grade. “When markets go digital, they go collaborative and sharing,? said Edmund Fish, the chief executive of ePals and a former executive of AOL, where he oversaw online education offerings. “That can happen in education, too. A learning social network is not an oxymoron.?

Even the basic social networking of ePals e-mail exchanges, teachers say, helps improve writing skills and stirs curiosity about other cultures. Mirjana Milovic, a teacher in Kragujevac, Serbia, says ePals has helped the 120 students in her school with their English-language skills. Their correspondents in Alabama and Kansas have also learned that jeans and Nike shoes are popular in Kragujevac but that the McDonald’s in town closed for lack of business.

“We usually prefer our domestic food,? wrote Marija, an 18-year-old.

Candace Pauchnick, who teaches English and sociology at Patrick Henry High School in San Diego, has been using ePals for what she calls “virtual field trips.? In their online exchanges with students in Italy, China and the Czech Republic, her students have learned about family life and political systems in foreign lands and improved their writing skills.

“If they were just writing for me, they wouldn’t be as careful,? Ms. Pauchnick said. “But they’re writing for a student in another country. It’s not drudgery for them. They buy in and they enjoy it.?

Ms. Zolt, the chief program architect of ePals, endorsed the for-profit route but insisted that the digital network also provide a free searchable database for educational research.

“The promise here is to be able to study, with vast amounts of real-time data, how children learn,? she said.

Scholars are enthusiastic. “Its potential is very exciting,? said Linda B. Gambrell, a professor of education at Clemson University, who is one of the academic advisers of ePals. “This should help us quicken the pace of translating innovative research into best practices in the classroom.?

Like many start-up companies, the revamped ePals is still working on its business model. Mr. Gilburne, the chairman, says it will pursue corporate sponsors for certain project areas. These could be part of a company’s community and social responsibility activities, providing approved adult experts to help students online. For example, General Electric might sponsor ePals’ global warming section by providing environmental experts as online mentors, Mr. Gilburne said, or perhaps Intel or I.B.M. would help in engineering projects.

There are commerce opportunities, Mr. Gilburne added, for education publishers who might want to market books or curriculum materials for home-school students over ePals.

Eventually, Mr. Gilburne said, advertising will be part of the mix. “But we’ll go gingerly to figure out what is appropriate and doesn’t impose on the classroom,? he said.

The failure rate for entrepreneurs — whether social or purely capitalist — is high. Still, ePals’ backers are betting that it is worth the risk. “These kinds of opportunities to do well and do good at the same time don’t grow on trees,? said Mr. Kapor, the ePals investor and a philanthropist. “But I do think that ePals could be one of them.?

http://www.nytimes.com/2008/02/24/business/24social.html

The Death of Groupthink

http://www.businessweek.com/managing/content/feb2008/ca2008025_687188.htm?link_position=link2

Continue reading "The Death of Groupthink" »

February 25, 2008

Managing the Dream: The Learning Organization

by Charles Handy

In an uncertain world, where all we know for sure is that nothing is sure, we are going to need organizations that are continually renewing themselves, reinventing themselves, reinvigorating themselves. These are the learning organizations, the ones with the learning habit.

Just as the world has changed, so too has the process of learning. When the future was an extension of the present, it was reasonable to assume that what worked today would also work next year. That assumption must now be tossed out. During times of discontinuous change, it can almost be guaranteed that what used to work well in the past will not work at all next time around. The old approaches are simply too incremental. More than that, they are too slow.

Today we are hearing so much about change that the word is becoming a cliche. Rather than chant change, it is more accurate to say that we all -- individuals and organizations -- must acquire the learning habit, the new learning habit. It is a habit that changes many of the old assumptions about management. The learning organization is a different sort of place. But it is an exciting one.

Characteristics of the Learning Organization The learning organization is built upon an assumption of competence that is supported by four other qualities or characteristics: curiosity, forgiveness, trust and togetherness. The assumption of competence means that each individual can be expected to perform to the limit of his or her competence, with the minimum of supervision.

For too long, organizations have operated on an assumption of incompetence. The characteristics of this assumption are controls and directives, rules and procedures, layers of management and pyramids of power -- all very costly. By contrast, the assumption of competence promotes flat organizations, with fewer checkers checking checkers. Flat organizations are far more responsive, efficient and cost-effective. They put a high premium on early training, on acculturation in their ways and values and on some form of vetting or qualification before an individual is allowed to operate. In these organizations the learning habit starts early.

Competence alone, despite all the prior learning it implies, is not enough to foster the learning habit. It must be accompanied by curiosity. Watch a small child learning. The questions are endless, the curiosity insatiable. But curiosity does not end with the questions. Questions beg answers, and the truly curious are in search of the right answers. This often requires experimentation. This process is encouraged in the learning organization, provided there is an assumption of competence and a license to experiment within the boundaries of a person's authority.

Because experiments can fail, forgiveness is essential. Instead of failures, unsuccessful experiments must be viewed as part of the learning process, as lessons learned. One can also learn from successful experiments. That form of learning needs not to be forgiven but to be celebrated.

None of these things - competence, curiosity, forgiveness or celebration -can foster a leading organization if there is no trust. While people may be highly competent, you will not allow them to be competent unless you trust them. Of course, it is difficult to trust someone you don't know or have never seen in action. A person you know only by name from a memo is not a person to take a risk with. For the learning organization, the implications of this simple human fact are enormous. How many people can one person know well enough to trust them? On the answer to that question hangs the whole design and structure of the corporation.

One solution is togetherness. Few, if any, of the problems businesses face nowadays can be handled by one person acting alone. That is fortunate in a way, because curiosity, experimentation and forgiveness need to be shared. Lonely learners are often slow and poor learners, whereas people who collaborate learn from each other and create synergy.

Today we are seeing an increasing number of organizations made up of shifting ?clusters,? or teams, that share a common purpose. The need for togetherness, both to get things done and to encourage the kind of exploration that is essential to any growing organization, creates the conditions for trust. Trust, in turn, improves togetherness.

Despite the presence of trust and togetherness, the learning organization is not a comfortable place for its leaders. It is an upside-down sort of place, with much of the power residing at the organization's edge. In this culture, imposed authority no longer works. Instead, authority must be earned from those over whom it is exercised. This organization is held together by shared beliefs and values, people who are committed to each other and to common coals -- a rather tenuous method of control.

Such an upside-down way of running an organization requires a powerful theory to justify it: in this case, a theory of learning. Real learning is not what many of us grew up thinking itwas. It is not simply memorizing facts, learning drills or soaking up traditional wisdom.


The Wheel of Learning

This process can best be described as a wheel -- a wheel of learning. The wheel has four quadrants that, ideally, rotate in sequence as the wheel moves. The first quadrant consists of the questions, which may be triggered by problems or needs that require solutions. The questions prompt a search for possible answers or ideas, which must pass rigorous tests to see if they work. The results are then subjected to reflection, until we are certain we have identified the best solution. Only when the entire process is complete can we truly say that we have learned something. There are no shortcuts.

This process lies at the heart of individual growth and of corporate success. Too simple, some would say. They should try putting it into practice.

Organizations that have acquired the learning habit are questioning the status quo, are forever seeking new methods or new products, forever testing and then reflecting, consciously or unconsciously pushing round that wheel.


Keeping the Wheel Moving

Maintaining constant movement of the wheel is not as easy as it sounds. There are two key concepts which can help to keep it turning: subsidiarity and incidental leading.

Subsidiarity. The word itself is rather ugly, but the concept is important. Subsidiarity means encouraging individuals and groups to have as much power as they are competent to handle. It is an old idea in political theory, an idea central to democracy and an idea which, today, is at the heart of the learning organization. Power is given to those closest to the action.

Subsidiarity is managed, organizationally, by defining the boundaries of the job. There are two boundaries. The inner boundary defines the essential core of the job, be it an individual's job, a team's or a function's. This part of the job is defined, the roles and responsibilities made clear. If these things are not done, then one is seen to have failed. The outer boundary defines the limits of discretion. In between lies the scope for initiative and for personal responsibility.

W L. Gore, creator of the well-known ?Gore Tex? fabric, whose company does its best to foster the learning habit, makes a nice distinction between the two boundaries. There are experiments above the water-line, which do little harm if they go wrong, Gore pointed out, and there are experiments below the water-line, which might sink the ship. The former are encouraged; the latter are outlawed.

In good organizations, the mistakes are rare because the people are good; and they are good because they know that they will be entrusted with big responsibilities, including the chance to make mistakes. Subsidiarity is self-fulfilling.

In traditional organizations, the space for initiative is limited. Many jobs are all core and no space. The water-line is set very high. Control is tight. There is no initiative without prior permission. In the flexible, responsive organizations that are needed today, the space has to be larger because the center cannot define in advance the details of every job. Control then has to be after the event -- with forgiveness if necessary. This means that each individual or team must understand very clearly which types of initiatives are acceptable and which are not. Everyone has to agree on the definition of success. Control depends more on a common understanding than on budgets and procedures. Shared values reinforce constant and effective communications, all of which are essential if subsidiarity is going to work. The organization that talks together works together.

Incidental learning. Subsidiarity by itself will not move the wheel of learning. It needs to be bolstered by incidental learning. Incidental learning means treating every incident as a case study from which we can learn.

This learning does not occur automatically; opportunities must be created for it to develop. For example, regular meetings of one's group or cluster can be arranged to review recent critical events. This is, in fact, the time-honored way in which doctors, social workers and other professionals help each other to learn from their experiences. It requires honesty with oneself and with others, a sense of togetherness and trust. Incidental leading is the organization's way to build in time for reflection, the final segment of the wheel. A mentor from outside the organization or group can enhance the process by encouraging a free and frank exchange without acrimony.

Incidental learning is most appropriate when one is dealing with divergent problems. It was E. F. Schumacher, author of Small Is Beautiful who first distinguished between convergent and divergent problems. Convergent problems have right answers: ?This is the shortest route to Boston.? Divergent problems, such as ?Why do you want to go to Boston?? have answers that are only right for a particular person, time and place.

Once we have moved beyond the basics, all the problems of organizations are divergent, to be solved only by the process of the wheel. This is what makes organizations so endlessly fascinating, and also so difficult.


There Is No Alternative

People once believed that there was a science and a theory of organizations which, like the laws of motion, would allow us to predict and determine the future. We now know that this is impossible. We have learned that chance happenings will trigger chain reactions, that the past will be a poor guide to the future and that we shall forever be dealing with unanticipated events.

Given that scenario, organizations have no choice but to reinvent themselves almost every year. To succeed, they will need individuals who delight in the unknown. The wise organization will devote considerable time to identifying and recruiting such people and to ensuring job satisfaction. Being a ?preferred? organization will become increasingly important. Preferred organizations will be learning organizations. They will provide opportunities to exercise responsibility, to learn from experience, to take risks and to gain satisfaction from results achieved and lessons learned.

Such organizations will continue to defy conventional wisdom. They will be organizations of consent, not of control. They will be able to maintain a feeling of togetherness despite their size and far-flung locations. They will make many mistakes, but will have learned from them before others realize they occurred. They will invest hugely in their people and trust them hugely and save the salaries of ranks of inspectors. Above all, they will see learning not as a confession of ignorance but as the only way to live. It has been said that people who stop leading stop living. This is also true of organizations.