Strategy development in humanitarian NGO positioning and the rise of FCOs (eBook)

1. Introduction

At first glance, the theoretical set-up of humanitarian aid financing hardly appears highly sophisticated: Humanitarian aid projects typically require funding; hence, organizations wishing to undertake such aid projects seek to establish a strong relationship with donors and other funding sources. So far, so simple.

Indeed, the basic rules that govern the humanitarian sector in Germany have remained largely unchallenged for several decades: New market entrants would typically target existing donors, resulting in a highly competitive market where crowding out was at least as much an issue as developing innovations to attract a new donor clientele. Of course, such a pointed description fails to fully reflect the subtle advancements that characterize the continuous professionalization of the fundraising profession: Many non-governmental organizations (NGOs) have evolved from the overly idealized view of an all-volunteer organization – that regards fundraising as a tedious task which keeps the altruistically motivated aid workers from doing ‘the real job’ – into highly focused market participants that employ professional fundraising departments to secure their long-term health. Parallel to this development, marketing and market positioning strategies have become a major concern in many organizations since they are seen as ways to assist and support the fundraising activities. Yet, the underlying dynamics that govern the humanitarian fundraising market have rarely experienced significant disruption.

The traditional set-up of these endeavors is exemplified in figure 1: To fund their humanitarian aid projects, NGOs attempt to form lasting relationships with donors, which is typically established in a somewhat uncoordinated fashion. New market entrants often capture market share primarily by crowding out other NGOs (figure 2).

This set-up, however, is beginning to experience major change – at first starting subtly but with increasingly dramatic effects: A new group of market entrants is no longer driven by the desire to find funding for yet another aid project. These organizations focus on the fundraising aspect with unknown enthusiasm but are rather hesitant when it comes to implementing any aid projects.

For those idealistically motivated NGOs that still view fundraising as a necessary chore, such an approach must appear startlingly foreign, and NGO executives find it increasingly difficult to describe these new market participants: Are they competing NGOs that simply place a particular emphasis on fundraising? A new kind of organization? Possibly a major threat that might lead to a ‘solar eclipse’ by disconnecting NGOs and donors? Or are they ‘colleagues’, seeing that some of these new market entrants actually distribute the raised funds to existing NGOs? Indeed, are these organizations a godsend that drastically eases NGO fundraising? Figure 3 illustrates this effect: The new market entrants operate on a higher level, driving a wedge between NGOs and donors. By attracting donor funds and forwarding those to NGOs, they serve in a ‘middleman’ position.

Interestingly, Wilke made an early mention of these organizations as early as 2005. Failing to recognize their particularities, however, Wilke (2005) subsumed them under the umbrella term ‘NGOs’. This is particularly striking since these novel market entrants – some of which are not quite that novel at all – possess characteristics that stand in diametric contrast to traditional NGOs: Instead of starting emergency relief projects without really knowing how to fund them and spending the belatedly acquired funds on these self-operated aid projects, these new organizations distribute the raised funds to existing NGOs and task them with operating the humanitarian projects. In this sense, the new organizations are mere fundraising campaigns lacking the humanitarian aspect of traditional NGOs. Thus, they can be termed ‘fundraising campaign organizations’ (FCO) for all purposes of the discussion.

For NGOs, the existence of these organizations creates a dilemma: On the one hand, FCOs compete with NGOs in the already-tight fundraising market for donor attention and funds. More than that, FCOs drive a wedge into the relationship between NGO and donors, separating the organizations from their donor clientele. At first glance, this point appears to share significant parallels with principal-agent issues encountered in for-profit intermediary relationships. At the same time, FCOs cooperate with NGOs when it comes to actual aid projects, greatly facilitating the NGOs’ own fundraising efforts. This relates almost to an outsourcing perspective. NGO executives respond to this dilemma with a highly heterogeneous approach that ranges from uncritical cooperation to calls of boycott and banishment.

This study aims to take a closer look at these third-party fundraising organizations and the implications that their existence may cause. In an effort to approach this highly relevant issue from different angles, this study attempts to highlight not only the key defining characteristics of this trend but also to point out the implications for traditional NGOs. A particular focus will be laid on providing NGO executives wishing to (re-) position their organization under these changing market conditions with concrete recommendations. While Chew (2006) gives testimony of the argument that the strategic positioning of NGOs followed a distinctly different logic than what is commonly endeavored in profitoriented businesses, this study will attempt to draw from findings of previous studies in both for-profit and not-for-profit contexts and synthesize parallels to the research problem at hand.

1.1. Statement of the Research Problem

While fundraising for humanitarian purposes has never been an easy endeavor, NGOs could at least rely safely on the expectation that competition was limited to fellow NGOs. Since the nature of the ‘product’ (the donation) prohibits competition based entirely on price, it has long been a general expectation among fundraising managers that competition among NGOs would ultimately encourage better project quality and more refined marketing approaches.

The rise in importance of fundraising campaign organizations, however, has produced a noteworthy adversary to traditional NGOs that has the potential to severely disrupt the existing market: Using the fundraising tactics of NGOs, FCOs are more streamlined and tend to move faster. With powerful support from recognized opinion leaders and relevant media outlets, FCOs reach large audiences that easily rival the publicity of major NGOs. Even small organizations with a handful of employees and greatly limited budget have proven able to acquire donations in excess of 10 million euro per year, refuting conventional fundraising wisdom which suggested that ‘small organizations get small change and big organizations get big bucks’.

This competition poses a strategic threat to the traditional positioning of NGOs, which all too often relied on sheer size. Although it should be discussed whether ‘growth’ and ‘size’ are genuine market positioning strategies per se, it is an often remarked-on observation that NGOs typically utilize rather unsophisticated strategies that essentially focus on becoming a household-name. Therefore, this study aims to give an overview of the strategic implications for NGOs that result from the rise of FCOs.

1.2. Purpose of the Study

Rooted in the background information outlined above, this study aims to investigate and analyze the current state of positioning strategy development in humanitarian NGO fundraising. Under the impression of research suggested by Stone et al. (1999) – which shows that few NGOs engage in formal strategic planning at all –, this study aims to not only provide a mere analysis of the status quo but to deduce concrete recommendations for managerial action. This appears particularly relevant when considering that the strategy development process can be viewed as a tool for channeling scarce resources, an issue that is of exceptional importance in the NGO sector.

While the focus of this study clearly rests on the NGO sector, the multifaceted nature of the study object mandates that particular emphasis is placed on the relationship aspect with third-party fundraising campaign organizations. To this end, the study will verify the existence of FCOs and, if applicable, carve out a definition. It is hoped that this definition will both spark and facilitate future research since exploring a previously unobserved phenomenon places particular weight on the researcher.

In a separate stream, it will be attempted to develop an understanding of the current positioning strategy development process utilized by humanitarian NGOs in Germany. The discussion examines the applicability of Porter’s (1980) generic positioning model and explores alternative explanation attempts. Combining these two strings of research, the study will conclude by highlighting the effects that FCOs might possibly exert on this strategic process.

1.3. Significance of the Study

In mid-2013, the floodwaters that devastated several European countries marked the first time in history when German fundraising campaign organizations raised more funds for the...