April 20, 2024

#3 - Lacking a Meaningful Incentive to Change

The book "Freakonomics" by Steven Levitt and Stephen Dubner examines various datasets from different professions, demonstrating the importance of personal incentives and how they motivate behaviours.

One example in the book highlights that real estate agents obtained higher prices for selling their own homes than for their client’s properties. The reason? The extra work to get a higher price for a client yields the agent only a small fraction of the extra money (a few % commission), whereas if the agent sells their own home then all of the extra money goes right into their own pocket.  This kind of behaviour is pretty common, as many people will prioritize their interests, even when helping others.

I believe that the principles of “Freakonomics” are as relevant in the charity sector as they are everywhere else, and unfortunately, not always optimal for the sector.

The corporate world has a straightforward way of motivating progress, risk-taking and innovation; namely, profit. When profits are low, companies tend to eliminate inefficiencies and adapt to the realities of the market. Profit is an easy concept to define, measure, report, and comprehend,. The results speak for themselves.

The public sector also has a simple mechanism to reward good work: getting votes.  Being progressive can be easily rewarded in the next election cycle.  Voting is also easily measured, reported, and understood.

Unfortunately, the charity sector lacks a simple way to incent innovative practices, which is where "Freakonomics" comes in.

What is the incentive for charity leaders to take risks, innovate and strive for better outcomes? There is little reward for doing so as opposed to protecting one’s job.  Where is the mechanism to “risk it for the biscuit” as they say?

In default, the charity sector seems to prioritize empathy, good processes, popularism, political correctness, and positive narratives about their work. Leaders who avoid risk are rewarded by remaining in their positions, often staying in a comfort zone that hinders growth and change. Being defensive of current ways is safest.  It is best to avoid upsetting funders at all costs.  - However, to innovate, we must recognize the “Freakonomics” of our sector.  We need to prioritize purpose over process. Ultimately, the ends must justify the means, and sector organization must be willing to innovate.  This tends to mean taking some calculated risks.

The process seems to justify the ends. But with so many lingering problems and millions of Canadians struggling each year, this is not good enough. The charity sector needs to embrace entrepreneurial thinking and act with urgency to overcome traditional conventions and the status quo. There is a great need for critical thinking and a willingness to act differently.  We must see the proverbial glass as half empty.  

If one prefers to be defensive or to focus on the reasons to keep the status quo, then at least step aside and make room for the true agents of change.

The next blog post will explore the most effective ways to achieve innovation within our ecosystem.

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