Digital disruption in the NFP sector
Directors are only beginning to grasp the extent of digital disruption in the market. Five years ago, it would have been fantastical to say a hotel company wouldn’t maintain its own properties. Today, Airbnb is on track to be the largest accommodation provider in the world and is already more valuable than almost all of the largest hotel chains.
Some types of digital disruption are now well established and markets have reformed around the new pillars they have built. In the NFP space, digital platforms in crowdfunding and philanthropy are fast becoming essential infrastructure for the sector.
However, digital disruption in the NFP context hasn’t been extensively scoped. This is about to change, with recent developments in client-directed funding, outcomes-based performance measurement and freely available data on the charity sector. The tools for revolution are waiting to be discovered.
Perhaps the most fertile ground for disruption is forming in the disability sector. Eighty per cent of providers registered with the National Disability Insurance Agency (NDIA) have not previously received funding for disability services and the majority are structured as for-profit businesses. New and different players are entering a market previously dominated by NFPs. Client-directed funding meets an emerging marketplace rich with data and saturated with private providers. A techno-eruption threatens.
The largest category of NDIA-registered providers is sole traders. Imagine if a website like Airtasker, which lets users outsource errands and skilled tasks to peers in the community, emerged among these agents. Users could connect with and review the performance of providers, schedule services and manage their package through one app.
New and different players are entering a market previously dominated by NFPs.
An app connecting these sole traders would have the potential to create a shared economy that could exceed most institutional providers in terms of labour outputs without costly overheads. The technology for such a service is already here and its impact could be massive. If the boards of disability service providers aren’t thinking about how it will be used, they should be.
The goal of such disruption is improved efficiency. Effective disruption eliminates pain points by providing a better experience with technology. This can provide immediate, though often temporary, solutions to life’s problems and can create a frictionless interface between technology and ‘real life’. But the question is how short-term relief of pain points can be reconciled with the long-term goal of improving public health. This will emerge as a new governance challenge.
It’s already happening in some sectors. The launch of AskIzzy, a mobile-enhanced website connecting people experiencing homelessness with support services, highlights how digital disruption can improve a sector’s connectedness with its clients. Users can enter their location, select a service (from housing and food to education and training) and be connected directly to a provider. All participating agencies benefit from this form of disruption and the results will flow on to their clients.
But we know the results are not always mutually beneficial; some forms of digital disruption are cannibalistic in nature. Uber, the popular app-based ride-sharing platform, has seen its market share rise roughly proportionate to a fall in the taxi industry’s market share. Uber is disrupting private transport around the world with a safe, efficient and cheap alternative.
These more carnivorous platforms are ambitious, and their trusted brand enables them to expand beyond their establishment market. This May, Uber Australia will launch UberAssist, which connects trained drivers to riders with collapsible mobility aides such as folding wheelchairs. NDIA providers should take note.
Boards need to consider the strategic implications of digital disruption on their business model and how their environment is being reshaped by technology. Directors should be discussing how these changes can be harnessed to help the business achieve its mission.
How digital disruption affects accountability should be central to boards’ considerations. Donors want flexibility to channel their donations towards particular outcomes and digital platforms enable them to shave, run, hack, or fast to do so. How does a board satisfy itself that it is accountable if its activities are being directed, in some part, by third party digital actors?
The big question for boards is how they enable their organisations to understand the impact of digital disruption in their markets and work out what they need to do to harness the opportunities it presents. The average age of a charity board member is around 50; if the members of a board don’t understand what digital disruption is, how do they begin to discuss its role within their organisation?
Adding further complexity, responding to this disruption can be a costly exercise and some NFPs may struggle to raise the capital to seize the opportunity. NFPs experiencing funding constraints may be attractive targets to more predatory disruptors who hunt so often in the company of venture capitalists.
The definition of disruption will continue to expand as new forms of technology surface, disrupting and re-disrupting. NFPs can look to business for an indication of what is waiting around the corner, but they cannot afford to wait and private providers have had a head start.
Five steps to building awareness of digital disruption for NFPs
- Run a strategic thinking exercise.Consider how existing forms of digital disruption could affect your sector. For example, ask how could Uber’s geolocation technology affect your business? What if there was a TripAdvisor for your sector?
Trying to answer these questions will generate ideas and focus thinking on preparing for digital disruption and capitalising on its opportunities. If there are no disruptions relevant to your sector, consider what may be over the horizon.
- Consider technology capability in the context of your board’s skills mix. Some boards have looked to professionals in the IT industry to fill this gap, but digital disruption has a different focus.
Instead, think about these skills from a diversity perspective. Generation Y directors are digital natives. They do not think in the binary of offline and online; their psychology sits simultaneously within both and identifying risks and opportunities in the digital world is part of their natural perspective. Age is an aspect of board diversity not often in focus, but for NFPs struggling with digital disruption it’s potentially a game changer.
- Register digital disruption as a risk for your NFP. Some types of disruption are more aggressive and competitive, whereas others are to the mutual benefit of all. Digital disruption represents a challenge but also an opportunity.
Applying existing risk management practices at board level provides a methodical approach to responding to and cataloguing digital disruption and may create a framework to engage stakeholders with low tech literacy.
- Expand your environmental scanning to consider a digital dimension. Many boards use prompters to consider their operational environment through different lenses. What is the political theatre like? Who are our competitors?
Adding a digital lens to help focus your board on technology is essential to keep up with contemporary practice. Be careful, however: the digital sphere intersects all others and shouldn’t be considered in isolation.
- Cooperate with others within your sector and beyond. This will enable you to harness the opportunities digital disruption presents. The 2015 NFP Governance and Performance Study revealed 70 per cent of NFPs are collaborating with sector peers and 26 per cent are already sharing resources to do so. The technology platforms might be inaccessible to a single NFP, but possible through a consortium.
Technology enables collaboration and partnership in new forms, and could represent a viable alternative to mergers for NFPs who are finding going it alone in current contexts untenable.