Philanthropic practices must change radically to have a meaningful impact on today's "wicked problems," such as climate change, education reform, poverty, food security and much more. That's the message from “What’s Next for Philanthropy,” a new report published in July 2010 by Monitor Institute, a member of the Monitor Group, a global consulting firm founded in 1983 by Harvard Business School business strategy guru, Michael Porter.

The report starts with the premise that the status quo isn’t an option. Philanthropy today takes place in a context that’s radically different from the environment in which many of its current practices and behavior were developed. An intimidating range of forces--globalization, shifting sectoral roles, economic crisis and ubiquitous connective technologies, to name just a few--are changing both (1) what philanthropy is called upon to do and (2) how donors, community foundations (CFs) and private foundations (PFs) will accomplish their work in the future.

Yet, according to the report, many of philanthropy’s core practices and principles remain essentially unchanged from the way they were done 100 years ago, when Andrew Carnegie and John D. Rockefeller first created the foundation form. The world around philanthropy is changing much faster than philanthropy itself.

This isn’t to say that philanthropy hasn’t responded to the shifting landscape. According to the report, as the relevance and role of philanthropy has become a more urgent question over the past decade, newer philanthropic actors and older institutions alike have been striving to be more strategic, efficient and effective in a variety of ways. But it’s clear that the last decade’s changes will not be sufficient. The new philanthropic context requires that donors, CFs and PFs adjust their ways to participate more fully in a networked world to have greater and faster impact.

While the cutting edge of philanthropic innovation over the last decade was mostly about improving organizational effectiveness, efficiency and responsiveness, the report stresses that the next practices of the coming 10 years will have to build on those efforts to include an additional focus on “coordination” and “adaption.” The most innovative funders in the future will do more than operate as effective, independent institutions. They will instead “act bigger” and “adapt better.” The report highlights 10 emerging next practices--five ways of acting bigger and five approaches to adapting better--that the authors believe are likely to become the widely accepted best practices of tomorrow. To prove that the 10 emerging next practices aren’t merely theoretical, for each of the next practices, the report highlights a few examples of what donors, CFs and PFs are already doing to provide a glimpse of what it will look like to work differently in the decade ahead.

Acting Bigger

The charitable sector has expanded quickly over the past decade, despite two financial downturns. The number of foundations in the United States rose from 56,000 in 2000 to more than 75,000 in 2008, and the total number of nonprofits ballooned from just over 800,000 to almost 1.2 million. There are now more individual donors, more PFs, more CFs, more donor-advised funds, more giving circles, more socially responsible businesses and a new cadre of “impact investors” working for social change than ever before. Yet, despite the increase, it’s not clear that philanthropy has significantly greater impact and it may indeed be becoming increasingly fragmented. A fundamental problem is a lack of collaboration in the philanthropic world. But recent and precipitous declines in foundation endowments serve as a grim reminder, according to the report, that no individual donor or organization, no matter how large their assets or how efficient their processes, has the resources required to single-handedly produce meaningful change. Donors and foundations may not be required to work with others, but if they hope to achieve significant impact on their communities – let alone on the so-called “wicked problems”--they’ll have to. And increasingly, the others they work with will be actors not just in the nonprofit sector, but in business and government too.

In the coming decade, the report states that the most successful philanthropic funders will combine long-standing instincts toward independent initiative and action with an emerging “network” mindset and tool kit that help them see their work as part of a larger, diverse and more powerful overall effort. Resources and strategies will be coordinated to achieve common goals--within philanthropy, across sectors, across diverse cultures and geographies, and by uniting the efforts of individuals with institutions. The report sets forth the following five interrelated approaches, some new and others already well tested, which philanthropic funders can use to act bigger and increase their impact:

1. Understand the context. Philanthropists are just one part of a larger ecosystem of actors, and in almost all cases they will need to engage many different stakeholders if they hope to address today’s pressing social and environmental challenges.

2. Pick the right tools for the job. Philanthropic funders have a wide range of assets--money, knowledge, networks, expertise and influence--that can be deliberately applied to create social change. Using these resources well might mean using financial capital differently to make loans or equity investments that produce social as well as financial returns, acting as a neutral conduit to promote collective dialogue and action, compiling and sharing accumulated knowledge with others or getting engaged in the success of partners by explicitly working to build the capacity of key stakeholders. Regardless of the specific approach, successful funders will recognize that grant dollars are only one tool among many that they can bring to bear on their work.

3. Align independent action. The challenge for philanthropic funders will be to find--or be found by--the right partners to help them accomplish their goals. In some cases, this will require funders to follow, rather than lead, and it may mean working with a range of new stakeholders, reaching across sectors to business and government agencies or involving grantee partners, academics and others that might hold part of the solution. These actors don’t necessarily need to make decisions together, but they need their efforts to add up.

4. Activate networks. Although the individual grant is the typical unit of analysis for most foundations, the success of any grant is rarely sufficient to move the needle on a complex problem. Philanthropic funders are well-positioned to support connectivity and to coordinate and knit together the pieces of a network of activity that can have impacts far beyond the success of any one grant, grantee or donor. And advances in network theory and practice now allow funders to be much more deliberate about supporting and participating in networks and in thinking about how the collective impact of a coordinated portfolio of grants can produce more significant change.

5. Leverage other resources. In addition to funding new ways of working together toward collective goals, some philanthropic funders are also exploring how they can use their independent resources as levers to catalyze much larger streams of funding and activity from other sources. Effective funders are learning to activate resources beyond their control by investing in and stimulating markets to produce social benefit; by influencing government funding flows through public policy advocacy; by shifting opinions and attitudes through public education and media efforts; and by engaging other players, funders and resources of all kinds.

Adapting Better

According to the report, once organized philanthropy truly embraces acting bigger, the work will only be half done. Mistakes made at a grand scale are still mistakes, and potentially very destructive ones. The extraordinary and successful philanthropy of the future will make judgments based on the best evidence available and then learn and adjust rapidly and publicly. In addition to acting bigger, the field will need to adapt better.

Fortunately, according to the report, new technologies allow us to share information and gather input in real time, more easily and cheaply than ever before. The question for the coming decade will be whether funders can learn to use these new tools to figure out what works, share what they know and do, get feedback quickly and then be ready to act on what they learn in ways that have a meaningful impact on public problems. According to the report, the following five additional next practices can help philanthropic funders adapt better:

1. Know what works (and what doesn’t). According to the report, despite myriad evaluation approaches and tools available, it’s still difficult for philanthropic funders to get a reliable answer to the question, “Did we make a difference?” Effective measurement in the future will evolve in ways that parallel the new paradigm for philanthropy more broadly: It will be fully contextualized, aggressive, collective, real-time, transparent, meaningful to multiple audiences and technologically enabled. The goal is to develop systems to learn from success, and failures, in ways that can help everyone--funders and grantees alike--develop the judgment to guide and improve efforts in the future.

2. Keep pace with change. Philanthropic funders typically operate at their own pace, a speed that can often be grossly mismatched with the urgency of need and the rate of change around them. As a result, they frequently miss critical opportunities simply because they are too slow to see changes or to act in a timely way once they’re visible. The ability and willingness to change and shift behavior based on dynamic realities and lessons learned in real time-- either first hand or from others--will be critical to philanthropy in the next decade.

3. Open up to new inputs. Today there are many ways to get better answers to almost any question by soliciting external input. Opening up has become an essential component for working as part of a complex system. Virtually every aspect of organized philanthropy’s business--adjusting organizational strategy, choosing how to approach an issue, surfacing new innovations, identifying good grantees--can benefit from collecting outside expertise and diverse perspectives.

4. Share by default. With distribution costs coming closer and closer to zero for online media, traditional barriers to sharing information are shrinking. Speeches and conversations can be shared through podcasts and digital video. Data now stored in databases can be turned into public libraries with a simple web interface. And in a more crowded playing field, there's tremendous value in reflecting on your work and conveying your lessons to others. By increasing the amount of information that’s available, philanthropic funders can create an environment in which stakeholders can find what they need to make smarter decisions, grounded in the experience and knowledge of others. For mission-driven organizations like foundations, it makes sense to start from a place of sharing everything and then make a few exceptions rather than a place of sharing little where transparency is the exception.

5. Take smart risks. Instead of seeing the potential for reward and opportunity, philanthropic funders often seem to see only the downside of risk--risk as something that needs to be avoided and minimized. But the most effective funders of the next decade will recognize that failure is a natural part of creating breakthroughs, since the problems that philanthropy often aims to address rarely have clear and technical solutions. It isn’t always possible to know the most effective course of action at the outset. Effective philanthropic funders will recognize that innovation is necessary and will be willing to take risks and experiment with new approaches, learn quickly and adjust as they go.

Following the 10 next practices will not be easy, but in this new, networked world with its wicked problems, it will be necessary. Individual philanthropic funders, like individual businesses, must change rapidly or run the risk of becoming irrelevant.