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The System of GivingRelating Systems Thinking and Design within the charitable sector

Gena Rotstein, CEO & Advisor in Philanthropy grotstein@dexterityventures.com

www.dexterityventures.comwww.place2give.com

Title Slide: Good morning. Thank you for joining me in an exploration around the messiness of financing social change.

Before we get started, I would like to quickly introduce Wade Walker. He is an advisor to my company and a data guru. During the Q&A of this presentation if you have any specific questions about my company and the technology we have developed, Wade will happily try to answer your questions.

Its always nice to be presenting at the Banff Centre where we are surrounded by beauty and the natural wonder of the Bow Valley. It is fitting that we should be talking about system thinking and design in this geographic location; heart of the Bow Valley where we have a confluence natural wonders,the history of political strategies surrounding Treaty 7 first nations and the global footprint of international and domestic tourism. We are meeting on sacred land of the Blackfoot, Sarcee, and the Stoney-Nakoda nations, who all still hold a strong presence after tens of thousands of years. Where cultures, people and traditions have moved along the rapids of this mighty Bow river as explorers paddled their canoes, shared their stories, their goods and their technologies and where we see how new communities established themselves and organized their social systems.

Just like Don Norman indicated with his keynote, I too have adjusted my presentation based on discussions I have had over the past twenty-four hours.

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System #1 Family, Tribe, Community

Slide 2: I grew up in Calgary, in a middle-class Jewish family and part of a very strong ethnic community. The tribal-ness of my family and its role within my community as a pioneers in Alberta was my first known exposure of a system - a web of interconnectedness built on genetics and religion.

On top of this web, there is also the web of how I operate within the world. Whether it is how I commute to work, connect with clients, source my food, or power my home. Within each of these aspects are other webs, and so on and so forth. I have always seen the world through this lens - of how we are all connected. So it is only natural that I ended up pursuing a masters in non-profit management and making a career in the charitable sector, where I felt I could positively influence the web of interconnectedness. It took fifteen years for me to realize that the way we have set up our charitable and non-profit system is fundamentally flawed.2

What is systems thinking and design?Systems thinking is a way of thinking about, and a language for describing and understanding, the forces and interrelationships that shape the behavior of systems. This discipline helps us to see how to change systems more effectively, and to act more in tune with the natural processes of the natural and economic world. Peter Senge, The Fifth Discipline Field BookSystem configuration that meets an identified or required set of requirements. http://www.businessdictionary.com/definition/system-design.html#ixzz3ivbZz0Cn

Slide 3 - What I want to share with you today is a way of thinking around how we develop, engage and manage organizations that are traditionally defined as charities and voluntary. And to challenge the traditional view of the role and need for these types of organizations within society. To take a piece from a presentation made by Peter Senge a few years ago, Our interdependence has grown, and our awareness of our inter-dependence has declined. Some might say that ignorance is bliss, however if we continue down this path of the unawareness of connections, our ability to plan and build sustainable communities will continue to be challenged.

By show of hands, how many of you come from cities that have experienced a significant population boom in the past decade? What about the past five years?

Now reflect on what that experience has been like, what were some of the headaches you encountered as a result of the population boom? Did you see additional pressures put on basic infrastructure? When we look at the system of our community and the external pressures that are placed on it, if we choose to be aware, we are immediately presented with the underlying dysfunctions within the system. The first step is making the choice to gain awareness.3

The SystemsAbout DVIcan measure social change, use big data, and map the emotional experience of charitable giving

SystemsCharities & Non-Profit SystemFinancial systemNeeds of the Community

Slide 4 - For those of you from North America, there was a Remington Razor ad that ran in the late 90s that featured a guy saying how he liked the product so much he bought the company. Well, Im that guy so to speak My passion runs so deep on the topic I am going to share with you today that I built a company around it. Dexterity Ventures Inc. is a unique company that applies system thinking and design as it approaches the topic of strategic philanthropy. And as Don indicated yesterday, when working on system change, we are Muddling Through. Or as I have said in a few articles and past presentations, we are building an airplane while we are flying it.

To put this into design jargon, I am exploring what Riddle calls Wicked Problems.

We build charitable giving technologies and provide philanthropy consulting services that can measure social change, use big data, connect different types of stakeholders with sometimes conflicting objectives, and map the emotional experience of charitable givingWe then layer on top of these systems sub-systems and expand the network connections along a continuum of care so that we can identify the right inflection point for bringing in the right type of capital from the right type of donor to address the issue:CLICK MOUSECharity system - organizations that are regulated by the governmentFinancial system - how money flows from donors to charitiesNeeds of the community - The various social, environmental, health, education, cultural, recreational and religious needs expressed by the community through formal and informal channels.

How I approach these systems is by exploring how donors articulate the emotional and tactical experiences surrounding philanthropy. I drew upon personal experiences of online dating to which I have had varying degrees of success.

Similar to how you create a dating profile we developed a giving profile targeting individuals, families and business leaders. This profile asks a set of psychographic questions around how they engage with charities. Based on their answers the donor is then categorized as one of three donor types Maverick, Steady or Informed. At the same time, charities are profiled against six benchmarks that are reflected within the three donor types. This allows an individual or a company to be matched to organizations that best fit their giving profile. As Joshua Bloom pointed out yesterday in his presentation, there is a design inclination towards simplicity and in typical software design issues, the more data sets we drew upon for charity profiling we ended up flat-lining the donor profiling tool. So I am pleased to share a failure in our system that we are going back to the drawing board to figure out.

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The Eco-system of Giving

Social Issue/ ProblemCharitiesGovernmentFunders desires & timingSuppliers/ Vendors/ Employees/ ClientsNeeds of the communityUsers of the services offered by the charityPoliciesEmotional, social, financial benefits

Slide 5 (click mouse to get animation working) - Dexterity Ventures Inc. logo is a venn diagram representing the different forces at play within the philanthropic experience. I choose this image because when you are working in the field of strategic philanthropy, there are several components that are tied together, influencing each other, and ultimately seeking harmony.

Click to get the names of spheresSocial issue/problemCharity(ies) - mandate and leadershipGovernment and policy makersDesires and timing of the Funders/DonorsSuppliers/VendorsClientsThe spaces that overlap is where things are exciting and messy. It is in these spaces that change can happen simply by adding pressure from one direction or another. Services are accessed by clients and their lives improve creating a ripple effect long after their connection to the organization. Or perhaps new policies are proposed and adopted. Or the culture within an organization is shifted as a direct result of being exposed to a different aspect of community.

Click for image - I experienced first hand how a system can be knocked out of whack all because of good intentions around a charitable act. This happened a number of years ago when I was conducting research for a client on water projects in Africa.

This donor wanted to provide potable water to a village by investing a water pump and system so that water ran straight into into the village. The intention was to save women time, provide a healthy water source to the community, and provide a safe place for them to access water from the river. What we learned from the NGO charity partner as the project was being implemented, was that the water system was being sabotaged by the very women who were to be direct beneficiaries of the water.

So of course I asked the question, why?

It turned out the users of the service were being pressured by the social needs of one aspect of the community. By having the water pump in the centre of town, the women no longer had private space away from their husbands and the men of the village. The act of going out of the village to collect water was as much about the function of gathering water as it was an opportunity for women to bond, share knowledge and support each other. Layered on top of this was the need for the NGO to deliver on a promise made to government and private funders to deliver potable water. As you can see the cycle of complexity goes round and round unless we are prepared to remove or adjust an aspect within the system.

Why is it so important to map the system of the charitable sector and propose ways to redesign how it interacts with other systems?

When we explore the frontier of systemic design thinking most of us probably dont consider the role of the non-profit and charitable sector as an equal and important player within the ecosystem. Yet it is this sector that employs over 10% of Canadas workforce and is the second largest contributor to the GDP - combining agriculture, automotive, manufacturing and retail to get the size and influence of this market. I think there are a few reasons why we dont consider the charitable sector as a leading contributor to design re-thinking, most probably because the philanthropic industry has positioned itself to be the poor step-child to other industries resulting in it being overlooked and undervalued.

Heres where I get really passionate5

We are harnessing the frontier of charity data... To make charitable giving a part of every persons banking experience, retain assets under management across generations and positively influence $1Billion in charitable transactions by 2015.

Photo credit: Steve Jurvetson/Flickr

Slide 6 - We have tasked our charitable sector with managing our societys most complex and complicated challenges addressing poverty issues, educating our children, conducting leading edge research, environmental protections, providing us with access to arts and culture, sports and recreation opportunities and health care support. Yet, we continue to undervalue their work by under-resourcing them and asking them to report on what they spend on the problem, instead of investing in solutions that are built on understanding the cost of not solving the problem.

I started my company with a modest objective, to harness the power of charity sector data to positively influence $1Billion in charitable transactions. I chose $1Billion because that was the number that was published by the chronicle of philanthropy in 2003 as to the amount lost to fraud each year.

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Slide 7 - What I realized as we began pulling information from a variety of sources was that we could create new products, influence policy development and ultimately disrupt a system.

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Case Studies:Policy shifts around funding models (financing solutions instead of funding problems)Charity and Donor reporting standards (Charitable stock exchange)

Slide 8 - I have three case studies that I want to share with you today. The first is one that I was an external observer to and the second and third are directly connected to my business.Urban planning using charity data (YYC Cycle Track)Policy shifts around funding models (financing solutions instead of funding problems)Charity and Donor reporting standards (Charitable credit exchange)8

Slide 9 - As I began exploring the charitable sector and looking at as a formal system, I asked the following questions: At a micro level: What would society look like if charity X didnt exist? What would the cost to a community be? Can this be measured?

At a macro-level:What would it look like if everyone had access to all the information about the charities they were supporting? What information is relevant, and what is noise?Could we reduce the duplication in marketplace? Even more, could we actually create a marketplace? Can charity data support urban planning and smart cities? Can we use this information to predict the next social issue far enough in advance that policy makers and solution creators have enough time to manage the issue? Should we restructure the way that we incentivize donors beyond the charitable tax receipt and what about for-profit social impact investors, is there a way to incentivize their early-stage investments to encourage a social marketplace? Can we change a funding model from financing problems to rewarding executives and managers for coming up with solutions that push the needle on issues?9

Non-Profit Data for Urban PlanningCommuter Challenge and the YYC Cycle Track (image credit @bikeface.com)

Slide 10 - Case Study #1 - Urban planning using charity data I am involved with an organization called Data for Good. Each year they hold a data-thon for charities to help them figure out what to do with the myriads of information that they have collected on their programs and services.

One of these data-thons sticks out in my mind because it led to a presentation to the City of Calgary ultimately influencing the discussion around the YYC Cycle Track and bike commuting pathway improvements. The data collected by the Commuter Challenge organization showed the starting and ending points of cycling commuters as well as the volume of traffic generated by those commuters. These raw numbers were then crunched into a data flow visualization that made it really easy for politicians and urban planners to identify the congestion points and bike traffic flow patterns for better planning and design.

In this case, we see several systems at play all that started with using a non-profit organizations data set. In this very simple example a small organization was able to make huge in-roads into a car-based culture that has nudged a behaviour shift within a commuting community.10

Financing Solutions Instead of Funding ProblemsCollective Impact and System Design

Slide 11 - Case Study #2 - Financing Solutions instead of Funding ProblemsThe current funding model looks something like this -Charity goes to donor, either corporate, private or public and asks, Please sir can I have some more? and donor either says yes or no and funds are transferred accordingly. In some cases, there is some follow-up and evaluation done on the project. Yet, year after year we see the same pattern of fundraising going on and yet poverty rates have stayed flat, literacy rates have gone down, childhood obesity has increased and any number of other social, environmental, and economic ills have yet to be solved or even managed.

Which begs the question, is this really a money problem?What if we switched the way that charities receive funding.

I have chosen to use poverty as the example, because there is so much data out there about programs and funding and reporting metrics. In order to switch our model we would have to look back at our core system - that upon which our values have been shaped, and decide what level of poverty we are okay with.

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Slide 12 - Lets assume that we, as a society would be happy with 3% poverty levels in Alberta. Currently our poverty level is around 8% according to the Action to End Poverty. In order to reduce poverty by 5% several systems need to be brought into the fold:Health careEducationHousingUrban planningImmigrationSocial servicesJustice systemHuman services (govt)Business communityWith all these systems at play, its no wonder we why cant fund our way out of the poverty problem. We need to look at how we finance the poverty system and acknowledge the implications of putting pressure in one area that will be affect the balance within other areas.

Lets say instead of funding the problem, we start financing a solution. Using the same data and expertise found in each one of these spheres, is there a way to identify a solution and right-size it both for resources invested in and outputs generated.

We have precedent in this regard.

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Photo credit: Microsoft Office Online

Slide 13 - We bonus corporate executives for hitting their targets and sometimes not even getting close to target, so why not the same for charities? Instead of funding homeless shelters to keep beds open, lets look at rewarding those front line workers who are mandated to work themselves out of a job, yet we dont hear of too many organizations successfully accomplishing their mandate and closing.

Playing this case out further:

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3%$8 9Billion/Year80%20%

Slide 14 - If we, as a society agree that our poverty level should be at 3% and according to last years report from the Alberta government the province is currently spending between 8 and 9 Billion dollars on the poverty problem annually, then we should be able to finance organizational infrastructure to a base level of $7.2Billion, or 80% of the total spend (what is currently being spent outside of fundraising and marketing costs) on managing the poverty problem. The remaining 20% to be set aside for bonuses to be given out to those who actually achieve the intended outcomes on the back-end of the project for successfully influencing an inflection point, be that people placed in permanent housing over temporary shelters, and more importantly breaking the cycle of poverty between generations within a family.

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What does it cost to solve poverty?

How donors can be more effective with their donationshttp://136.159.7.176/place2give/operations/bipartite/vancouver/

Slide 15 - Using publicly available data we can map out the financial flow generated to charities across Canada. This information can then be overlaid against government and other third party reports to start identifying those projects that are actually pushing the needle on this issue. The image that you see on the screen is a money flow map using data pulled from Place2Give on the different sub-charities in a specific postal code addressing the poverty question. We have all the information we need to make these types of decisions, it just depends on how and when we choose to act on this information.

Where this could lead is a way to figure out how to bonus the collective - the entire ecosystem of agencies addressing poverty.

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Charity Credit ExchangeCharity and Donor Reporting Standards

Slide 16 - Case Study #3 - Charity and Donor reporting standards This leads me to my final case study, and the one that has yet to be developed - Creating a Charitable Credit Exchange. If there is anyone in the audience who wants to explore this concept with me, I am very open to that discussion.

Heres the concept - we have a bunch of data on charities. 1.5Million to be exact. Each one of those charities is broken down into sectors and sub-sectors. Within each of these records we have simple data ranging from registration numbers and names to more complex information around key performance indicators and volunteer hours. All of this information comes in different formats and from different points of view. We can track this data and how it moves across the eco-system.

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Creating a Paradigm Shiftlegislation change around how charities are created and audited, legislation change around how we recognize and credit donationsan operational shift in how charities process donations and building an exchange platform that allows for trading of social impact and connecting people and organization

Slide 17 - Of course for this to become a reality we would need several things to occur:legislation change around how charities are created and audited, legislation change around how we recognize and credit donationsan operational shift in how charities process donations and adopting a consistent method of reporting on social benefit building a platform that allows for trading of charity credits and connecting people and organizations

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Slide 18 - What would it look like if we didnt issue a tax receipt at the point of the donation? Rather, the tax receipt is issued at the end of the charitys fiscal year, after the organization has done its filing. A receipt is issued for plus or minus the social and economic impact generated by the organization as calculated by an industry adopted metric and regulated by the government through their annual reporting process.

In this model, the reporting standards would be set, not based on cost of dollars raised and salaries to CEOs, rather it would be measured against an agreed upon set of metrics set out by a third party to the system and managed by the industry.

As the charitable sector stands now, organizations are siloed and turf issues are rampant. In large part because we have conditioned organizations to see financing opportunities as finite. This limit view forces organizations to put up walls to protect their programming and services turf. Instead, if we as funders and society overall, started to demonstrate to these same organizations that financing is abundant when it can be leveraged across organizations then the need to carve off a little piece of the pie isnt necessary, because the pie itself grows as more people add to it.

We already have standardized reporting models in other industries. One comparable that I can think of is a Credit Rating Agency that financial institutions put on companies and/or individuals. Another example would be the ISO9000 that has become an adopted best practice for quality supply chain management reporting starting in the automotive industry and moving outward to other types of companies.

We could even take this one step further and look at a hedge fund model whereby an issue's life cycle is tracked and an organizations value is based on forecasts of where social issues are predicted to go thereby influencing and supporting decision makers and implementers in creating the change that will be needed at a local, regional, national and international level.

Each sub-industry would have its own standard that could be rolled up into the higher level so that we can compare apples to apples. And we can use already validated social measurement systems, like the Millenium development goals or Grameean Bank valuations, or Global Giving metrics.

Once a value has been placed on the social and economic impact, the filing has been complete and approved by the CRA or the IRS then a tax receipt is issued by the charity to the donor for the real value of their donation.18

Slide 19 - Here is where the exchange comes in

If I invest in a charity that exceeds market performance my tax receipt reflects this difference. I know how much tax credits I am going to need in a given year, and if I have a surplus I might want to trade my surplus with those donors who invested in charities that underperformed in the market and who might need additional tax credits.

Similar to how carbon credits are traded today between companies and countries.

Taking it one step further, we now have a community of donors who are connected with each other around an issue or issues they are passionate about. They will see which charities perform well and which dont and they can then leverage each others contributions by encouraging program and organizational shifts.

What this could mean is a decrease in duplication of programs and services, and perhaps charities outright. Better reporting and a leveling of the playing field so it isnt just the large, wealthy charities getting the lions share of the donor pie, and also it will increase the pie from being a finite, scarcity based proposition to an abundance model where collective impact could be garnered.

So where do we go from here? What I am proposing is a fundamental shift in how we do the business of philanthropy. We need to stop looking at charities as the poor step-child to the business community, and explore how we can take the front-line knowledge that is housed in these agencies to shift the solution space from solving problems to investing in solutions. This will require us to:

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Charity Data and the New FrontierNew policies that govern how charities are regulatedThe ability for social change to be clearly monetized and financedThe disruption of investment regulatory bodiesThe reshaping of traditional umbrella agencies andNew policies around how companies can be structured

Slide 20 - Create new policies that govern how charities are regulatedHave an industry standard for measuring social change that will lead to the ability to monetize and finance solutions and not just individual organizations or problems.Create new investment regulatory bodies around a social impact exchangeReshape the role of traditional umbrella agencies andEstablish a new

It will require a groundswell from grassroots up to politicians and corporations. It will require us, as a society, to hold the mirror up to us and speak the truth to the effectiveness or ineffectiveness of the organizations and projects that we are supporting. And it will require us to experiment and take risks as we build a new system for addressing these complex social problems.20

Sources & ResourcesPhilanthrocapitalismBlended ValuePlace2Give/DVI dataGiving 2.0The Blue SweaterStanford Social Innovation ReviewHarvard Business Review

Slide 21 - The good news is that others are thinking and writing about this. Here are just a few of the resources that you might be interested in checking out:Show slide

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Contact informationGena Rotstein, Chief Conversationalist403-860-7572grotstein@dexterityventures.com @Place2Give @DexterityIncwww.place2give.comwww.dexterityventurs.com

Slide 22 - Thank you for your time and I would be happy to answer any questions you might have or defer any of the data and tech based questions to my colleague Wade.

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