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Last updated: 18 Jul 2024

Overseeing an INGO business model in uncertain times

Introduction

International NGOs operate in ever-changing economic and funding environments, so it is vital that their business model is up to date and fit for purpose.

When thinking about the topic of business models, several questions come to mind, some of the more immediate being:

How do you get to grips with the business model and its inherent risks?
How do you get the balance right between business-as-usual versus strategic change?
How do you ensure you get the right information from the executive and make difficult decisions about changing strategic direction?

Following the launch of “Governance: a guide for International NGOs”, Buzzacott and Bond have launched a programme of events designed to take trustees through the key challenges boards of international development organisations face. This event was the second in the series.

This event focused on business models, with guest speakers Jasmina Haynes, CEO at Integrity Action, and Zoe Abrahamson, Sector Transformation Manager at Bond. Jasmina shared her experience of the merger between Integrity Action and Crown Agents, while Zoe focused on funding and new ways to generate income.

From a governance perspective, trustees have a duty, as a key component of their responsibility, to fulfil the International NGO’s charitable objectives and ensure that the business model is relevant and financially viable. Trustees need to understand the business model and have a firm grasp of the potential risks and access to the right information to determine if a change in direction is needed.

It starts at the beginning

Understanding the organisation begins with the induction of new trustees. It’s very important for new trustees to learn how the organisation has evolved over the years, as this is intrinsically tied to how the business model has changed. Ask questions and research the history, then ask to meet staff to help fill the gaps. It’s a self-help process as it takes time to get under the organisation’s skin when only meeting quarterly.

The executive and Chair also need to take responsibility to make sure the interview process includes details of the organisation’s history and that the induction process is robust. Having a ‘buddy’ system where new trustees are individually supported by a staff member is a good way to help them to get to know the organisation and ask the questions they need to gain confidence in their new role. The crossover between the executive and board can be a difficult balance.

Business as usual versus strategic

‘Business as usual’ can be seen as something that sits with the finance committee of the board, but it’s important to make sure the whole of the trustee board understands the business model as it’s in the whole board’s interest and isn’t just a tick box exercise. There are risks with business as usual, just as there are with changing strategy, and everyone needs to be on board. The approach to business models will depend on the size of the organisation. Small organisations require a different depth of operational knowledge, and by their nature, trustees may get more involved, and the lines between the executive and board may be more blurred. Whereas there tends to be a greater degree of separation in larger organisations.

Finding the time to consider the future can be challenging when there’s so much going on, but it’s the board’s responsibility to look to the future. To help with meaningful horizon-scanning, boards may want to consider having a board retreat to dedicate time to in-depth discussion and to draw expertise from trustees. Experts could be brought in for the day to fill any missing skills gaps. The key to a good retreat or awayday is managing time to allow trustees to have good conversations and ensure the questions that need addressing are framed well from the outset.

When considering a new approach to the business model, whether something relatively small such as bidding for a new funding stream or something more fundamental like a merger, the most important thing is to create the space to have the right conversation – and to make sure that the conversation is approached in the right way. The crux of this is building trust. Trust must exist to enable complex, challenging conversations, and then, if something is challenged by the executive, this trust will be rewarded because the ground is laid for a frank conversation.

Learnings from a merger process

Earlier this year, the international development NGO Integrity Action merged with Crown Agents. While not unprecedented, this is certainly a unique occurrence and involved a key shift in the business model.

Guest speaker Jasmina Haynes provided some reflections on what worked for the smooth implementation of their merger, and we have summarised these for you below:

A detailed business case that clearly articulated what needed to be in place for a merger and the red lines for both organisations – what were we not willing to concede or give up?
1+1=3 - we weren’t looking for a like-minded or similar organisation to merge with. They wanted to do something different and so looked for an organisation that had their own distinct but complementary value add.
We retained own board as they we didn’t want a ‘mother’ board we had no say in – this allowed us to safeguard Integrity Action’s uniqueness.
The key question to ask is, is the current way of doing things the best way to achieve our vision and mission? Exploring that question at a deep level with the board could result in some compelling answers.
The close second alternative to merging was to close the charity. We didn’t want to wind up in an irresponsible way, and we had pivoted before for 14 months. We would have closed and transferred funds to an organisation of choice with enough resources and capacity and left it up to them to take on staff or not.
A good place to start if looking for an organisation to merge with is looking at your vision, mission, programmes, impact, and then who are the organisations that can get you there. Then look at their finances, the people who are running it, and their reputation.
We focused on our distinct added value. We didn’t fracture our offer to chase the funding. Instead, we focused on how we’re not doing what others are doing; if we are, then we’re doing it better.
It’s vital to have negotiation conversations where you can be frank and speak your mind. We used an excellent law firm that focused on negatives from time to time to test whether both parties were really thinking the same thing – especially around governance. You can’t avoid difficult points, so don’t kick anything into tall grass.
The merger proved to be a massive springboard to new opportunities. The combined uniqueness and expertise of the merged organisation meant that we can bid for opportunities we wouldn’t have touched before.
The merger process is a test of the character of the people involved, and is important in setting up the right organisational culture. We spoke up and did things even when it was hard. There were some brutally frank conversations but always respectful and with a trust that bound us.

You can read more about the merger in the 1+1=3 blog, written by Integrity Action and published on Bond’s website.

Learnings from changing the funding model

Learnings from changing the funding model and new ways to generate income

Bond has put together a collection of case studies to help international NGOs consider alternatives to the traditional grant funding model to generate their own income and avoid funder restrictions while shifting both income and power to local communities.

NGOs are traditionally funded through a mix of institutional grants and public fundraising, but the tide is changing. Cuts to the UK Aid budget, increased competition for funding, and restrictions placed on grantees by funders combined with the cost-of-living crisis, mean that International NGOs need to think differently about how they finance their work.

Bond has been working with Access – the foundation for social investment – to identify different ways that International NGOs can generate income and, importantly, whether they support a shift in power to local communities. We identified 3 categories of how organisations can generate income outside grant funding and developed case studies to reflect them:

Monetising expertise and networks: Such as consulting models where INGOs can sell their expertise.
Monetising organisational assets: This encompasses brand, so includes charity shops and T-shirt sales, which use the charity’s brand name to generate income, or it could mean generating income by renting out space if they own a building or other assets.
Trading models that deliver targeted outcomes: This includes social enterprises, enterprise-led development, development impact bonds and other income-generating activities that help organisations achieve their charitable objectives.

Guest speaker Zoe Abrahamson shared some of the findings, and we have summarised these learnings below for you:

Don’t jump head-first into generating income without considering how it fits with your charitable objectives.
You may not get it right immediately, don’t be afraid to take a risk and fail. It’s riskier not to take the risk at all.
Income generation provides unrestricted funds which can go to locally led causes and support an International NGOs transformation process.
You can develop trading models or enterprises with communities, shifting power to communities.
Handover mechanisms can help shift power and income.
Generating income requires different skills and mindsets to managing a traditional grant model. These skills can be learnt, but they require investment, being comfortable with taking on risk and understanding organisational costs and pricing, which is difficult for some donors and International NGOs.
It can be harder to make changes and manage risk in organisations with a long history because there’s more of a set mindset than in newer organisations.
You need the right leadership/board to challenge an organisation to make and support these decisions. You may need to find minds from outside the sector – for example, a trustee that has a different background and thinks outside of the usual frames of reference.
Consider using the unrestricted funds of the organisation to develop your locally led development approach and support this shift. Consider a participatory fund for in-country partners/communities to help shift the power.

You can read more about this work and find resources for your organisation on Bond’s website.

Additional advice and support for International NGOs

Additional advice and support for trustees of International NGOs

If you’re a trustee of an international NGO, why not join our governance working group and join in the conversation? Conducted under Chatham House Rules, the group meets quarterly to share advice and the latest sector guidance on how to navigate the ever-changing landscape of running an international development charity.

Simply complete the form below, and we’ll be in touch with more information.