Unlocking the innovation potential

of Philanthropic Foundations

A thesis submitted in fulfilment of the requirements for the degree of

Doctor of Philosophy (DR-BUSPRC PhD by Practice-Based Research)

Foundations should seek to improve things – either their own work and certainly the work

of those addressing the issues they care about. Innovation is also about trying and

learning, a pursuit of innovation requires a learning and improvement mindset. That’s

what is important, not innovation for its own sake. (Expert participant, pilot study)

Catherine Brown LLB, BA, Grad Dip Bus Admin, FAICD

Faculty of Business and Law

&

Centre for Social Impact

Swinburne University

17 April 2019

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ACKNOWLEDGMENTS

I wish to thank Emeritus Professor Keith Houghton and Emeritus Professor John Fitzgerald for their

support and advice as my Supervisors during the five years of this study. John’s knowledge of

philanthropy, both as a leading academic and as a practitioner with the Ford Foundation, were

invaluable in supporting me, especially through the first years of this study and in fine tuning the

literature review. When John retired in 2017, Keith agreed to move from Associate to full Supervisor.

Keith has been an outstanding support and advisor, especially due to his deep knowledge of data

analysis and his thorough reviews of chapters as the data analysis was progressing. Both John and

Keith have assisted me transition from my legal and not for profit management background to

applying a research lens (with a strong attachment to practice). Keith has provided a fresh

perspective on considering philanthropic foundations as organisations. I owe a great deal to both

John and Keith and am extremely fortunate to have had them with me on this research journey.

I would like to thank the Faculty of Business and Law, especially Professor John Dalrymple who ran

the PhD by practice-based course, which I participated in for the first two years of the research

journey. Professor Keith Houghton was also a key lecturer in those first years. Professor Michael

Gilding, Dean of the Faculty, suggested that I consider the PhD by practice-based research and I

appreciate his support of my application to be part of the first cohort in this innovative approach to

PhD study.

I would like to thank the nine experts in philanthropy who very generously took part in the pilot

study, completing a survey and spending at least an hour discussing philanthropic foundations as

organisations in person or by Skype. Their knowledge and insights have greatly added to this

research. I also gratefully acknowledge the leaders of 30 Australian philanthropic foundations who

found the time in their busy working lives to complete the extensive survey that is central to this

study. Their contribution to this research demonstrates their commitment to growing knowledge in

this area is greatly appreciated. I hope this study might encourage others to investigate practice

related research questions related to philanthropic foundations.

I would also like to thank Daniel Leighton and Robert Masters, both former Chairs of the Lord

Mayor’s Charitable Foundation where I am CEO, who understood the value of academic research

linked to philanthropic practice. This interest in research and learning has since permeated the

whole Foundation.

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Finally, I thank my husband Mark and my sons, Will and Fraser, for their tolerance as I used up so

much family time to work on this research. Sometimes one of my sons has sat alongside me as they

studied for school or University, giving me moral support.

DECLARATION

I certify that except where due acknowledgment has been made, the work is that of the author

alone. The work has not been submitted previously, in whole or in part, to qualify for any other

academic award. The content of the thesis is the result which has been carried out since the official

commencement data of the approved research program. Any editorial work, paid or unpaid, carried

out by a third party is acknowledged.

Signed:

Catherine Brown

Date: 28 April 2019

RESARCHER’S CONTACT DETAILS

Catherine Brown, Student Number 9031898

Email: cjbrown10@bigpond.com; 9081898@swin.student.edu.au

Tel: (61) 0411 655 008

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CONTENTS

1. Title

2. Abstract ..................................................................................................... 6

3. Motivation ................................................................................................. 9

3.1 The innovation potential of philanthropic foundations ............................................................. 9

3.2 Unlocking this potential ............................................................................................................. 11

3.3 Contribution ............................................................................................................................... 12

4. Literature Review ..................................................................................... 15

4.1 Introduction ................................................................................................................................ 15

4.2 Defining philanthropic foundations and social innovation ...................................................... 18

4.3 Innovation in the context of philanthropic foundations .......................................................... 21

4.4 Measuring innovation within philanthropic foundations ........................................................ 25

4.5 Organisational factors to be tested ........................................................................................... 30

5. Research Methods ................................................................................... 38

5.1 Research Approach .................................................................................................................... 38

5.2 Pilot Study .................................................................................................................................. 39

5.3 Major study ................................................................................................................................ 40

6. Pilot Study ............................................................................................... 46

6.1: Overview ................................................................................................................................... 46

6.2: Pilot Study Outcomes: philanthropic foundations embracing innovation ............................. 47

6. 3: Determining the factors to include in the major study .......................................................... 48

6. 4 Indicators of Innovation ............................................................................................................ 55

7. Major Study Data Analysis ....................................................................... 57

7.1 Introduction ................................................................................................................................ 57

7.2 Data Analysis Steps .................................................................................................................... 57

7.3 Descriptive Data Analysis ........................................................................................................... 58

7.4 Developing the Innovation Index .............................................................................................. 62

7.5 Scoring the Innovation Index ..................................................................................................... 74

8. Results ..................................................................................................... 84

8.1 Methodology .............................................................................................................................. 84

8.2 Results ........................................................................................................................................ 84

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8.3 Discussion: Significant Factors in both Index 1B & Index 3 ...................................................... 86

8.4 Additional Factors (one Index only) .......................................................................................... 91

8.5 Implications for Practice ............................................................................................................ 94

9. Limitations & Areas for Future Research .................................................. 99

9.1 Limitations .................................................................................................................................. 99

9.2 Areas for Future Research ........................................................................................................ 102

REFERENCES ............................................................................................... 103

APPENDICES ............................................................................................... 108

APPENDIX 1..................................................................................................................................... 108

APPENDIX 2..................................................................................................................................... 109

APPENDIX 3: Major study survey questionnaire ........................................................................... 114

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TABLES

4.1 Literature review relating to organisational factors ............................................................... 32

5.1 Innovation Index 1B compared with Innovation Index 3 ....................................................... 43

5.2 Summary of scoring approach for indicators with Innovation Indices ................................... 44

5.3 Factors influencing a philanthropic foundation to embrace innovation ................................ 45

6.1 Attribute Variables: Governance characteristics .................................................................... 49

6.2 Attribute Variables: Foundation profile ................................................................................. 50

6.3 Behavioural Attributes: Governance characteristics .............................................................. 52

6.4 Behavioural Attributes: Governance characteristics (continued) .......................................... 54

6.5 Organisational attributes to include in study ........................................................................ 54

6.6 Majority indicators ................................................................................................................. 56

7.1 Response Summary: Board Profile Questions 5 - 14 .............................................................. 59

7.2 Comparison of scoring Innovation Index 1A ........................................................................... 68

7.3 Innovation Index 2A compared with Index 2B ....................................................................... 70

7.4 Innovation Index 1B compared with Innovation Index 3 ....................................................... 71

7.5 Innovation Indicators in Philanthropic Foundation Innovation Index cross referenced with

Choi (2016) Innovation dimensions ........................................................................................ 73

7.6 Comparison of Innovation Index 1B and Index 3.................................................................... 74

7.7 Innovation Index 1B and 3 ...................................................................................................... 74

7.8 Survey Response to Indicator 1 .............................................................................................. 75

7.9 Survey Responses to Indicator 2 ............................................................................................. 76

7.10 Survey Responses to Indicator 3 ............................................................................................. 77

7.11 Survey Responses to Indicator 4 ............................................................................................. 78

7.12 Survey Responses to Indicator 5 ............................................................................................. 79

7.13 Survey Responses to Indicator 6 (follow on question) ........................................................... 80

7.14 Survey Responses to Indicator 7 ............................................................................................. 80

7.15 Survey Responses to Indicator7 (follow on question) ............................................................ 81

7.16 Summary of scoring approach for indicators within Innovation Indices ................................ 81

7.17 Innovation Scores for 30 philanthropic foundations .............................................................. 82

8.1 Organisational attributes influencing a philanthropic foundation to embrace innovation ... 85

9.1 Innovation Indicator Dimensions .......................................................................................... 101

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1. Title

Unlocking the innovation potential of philanthropic foundations

2. Abstract

The value of philanthropic foundations’ contribution to a democratic society has been under

discussion for at least 20 years. From these discussions it emerges that one important aspect of

foundations’ value lies in their ability to catalyse and support social innovation (including Anheier &

Leat, 2002; Kramer, 2009; Leat, 2016; Reich 2016). As organisations, however, philanthropic

foundations can at times be reluctant to embrace innovation. Foundations, especially endowed

foundations, are immune from many of the external pressures that cause businesses or even

government to innovate. There are no shareholders or voters demanding change. The impetus for a

foundation to embrace innovation must come from within the foundation, from the approach of

management and the Board.

This is a study of organisational attributes of philanthropic foundations and the factors at play when

a philanthropic foundation embraces innovation. The study considers foundations at the

organisational level. Philanthropic foundations make grants and sometimes make impact

investments for public benefit. While foundations may approach their operations in various ways,

embracing innovation is a key strategy if a foundation wishes to demonstrate value through

encouraging and investing in improvements in social, environmental, cultural, health, educational

and other sectors for the benefit of the community.

The research question for this study is: What factors influence a philanthropic foundation to embrace

innovation? Embracing innovation as a philanthropic grantmaker or investor entails innovations that

have social impact. Social innovation in this study is defined as “a novel proposal or solution to a

social problem that is more effective, efficient, sustainable, or just than present solutions and for

which the value created accrues primarily to society as a whole rather than private individuals.”

(Centre for Social Innovation, Graduate School of Business, Stanford University). The word in italics

was added to the definition following the pilot study to reflect the role of foundations as social

investors where proposals are received seeking grants or impact investments.

In this study, innovation includes innovation inputs, processes, outputs and outcomes as applied in a

study of innovation examining service delivery not-for-profits in Korea (Choi & Choi, 2014).

Innovation can be incremental testing of new processes, products and services, which can result in a

small, modest or transformational change. Innovation can occur both internally through innovative

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practice, processes and investment in innovation capability (for example, staff development,

research and development) and externally through the support of innovative philanthropic

grantmaking, initiatives and impact investing. This study contributes to knowledge through its use of

a multifactorial set of indicators of innovation (Anderson et al, 2014) and through providing an

evidence-based response to some of the challenges that innovation presents for social change

grantmakers (Leat & Anheier, 2002:10).

Research for this project drew initially on practice-based knowledge and upon a high-level

framework used to construct the Global Innovation Index (INSEAD & Cornell University, 2014) with

the aim of developing a list of possible indicators of innovation applicable to philanthropy. Both the

indicators and organisational factors that might influence a philanthropic foundation to embrace

innovation were tested and validated through a pilot study involving a survey supplemented by in-

depth interviews (in person or by Skype) with nine experts in philanthropic foundations. The experts

included leading local and international academics, two retired CEOs of foundations (in Australia and

U.S.), the current CEOs of leading UK foundations, and a U.S. national philanthropy network.

For the major study, the initial sample of respondents was selected through published data of the

Australian Charities and Not-for-profits Commission according to specified criteria selecting large

and medium organisations, charitable in intent, which selected grantmaking as their primary activity.

In order to obtain sufficient information to inform the indicators and the organisational factors, data

from 30 Australian independent philanthropic foundations were obtained via survey and analysed

for relevance. The indicators of innovation were used to construct an Innovation Index. Two models

were carried through in correlation analysis.

Data relating to the organisational attributes (factors) was correlated against two versions of the

Index. Five factors were significant in both versions of the Index and another five were found to be

significant in only one Index. Understanding these factors is particularly important for endowed

foundations due to the lack of external pressures for innovation which would normally apply in other

sectors, including for-profit businesses (Leat & Anheier, p173).

With respect to promoting innovation, key findings of the study are that (i) the Founder has a

commitment to innovation and the foundation holds to that commitment, (ii) the CEO champions

innovation, (iii) managing risk is a cornerstone of embracing innovation (iv) the Board includes

people from professional backgrounds with a good understanding of risk management and (v) the

Foundation team networks with others in philanthropy and in areas of priority to the Foundation,

with a focus on learning. Other factors found to be significant in one index only were organisational

culture; a board-approved risk appetite in relation to grantmaking; a board-approved risk appetite in

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relation to investment; the Board Chair is a champion of innovation, and that the Foundation has

one or more decision making processes that include designing and pilot testing of possible solutions.

While Founder’s intentions have a profound impact, the CEO has a critical role to play in leading

innovation and establishing practices that support the innovation process. The Board, especially the

Board Chair, is important in establishing the innovation commitment, the risk framework and

supporting (with the CEO) a culture that supports innovation.

The study provides evidence-based steps for organisational development by philanthropic

foundations that wish to embrace innovation. It also identifies areas for further research, specifically

the relationship between the CEO and the Board, and the leadership styles of CEOs within

philanthropic foundations.

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3. Motivation

3.1 The innovation potential of philanthropic foundations

There are strong social and economic reasons why philanthropic foundations should consider

embracing or further embracing innovation. The major challenges we face as a community are

unlikely to be solved by business and government alone. The value of philanthropic foundations

within modern democracies continues to be questioned by some (Reich, 2016). Embracing

innovation in the way a philanthropic foundation operates, its approach to granting and in its social

impact investments has potential to increase relevance and impact. For example, investing in the

development of a real estate agent focused on providing affordable housing within the private rental

market and thereby generating income from real estate management fees for homelessness support

services is a new approach to a big problem (HomeGround Real Estate, Melbourne). A large global

example of philanthropic foundations tackling huge challenges through funding innovative solutions

is the Gates Foundation providing US$54 million for research and outreach to assist in the fight

against the Ebola virus in West Africa.

The purpose of philanthropic foundations is to support the community through addressing social

and environmental issues. Two common forms of philanthropic foundation (not necessarily

independently governed) are private and public ancillary funds. Private ancillary funds gave over

$450 million in 2015-6 and public ancillary funds $394.14 million. (Philanthropy Australia, 2018). Not

all of these foundations have independent governance as they may have a commercial trustee

company as their trustee. This study focuses on foundations with independent governance who have

control over their operations and governance.

Philanthropic foundations are being asked to take an increasingly active role in addressing social and

environmental challenges. Some foundations are beginning to embrace innovation (and take some

informed risks) as they try to tackle tough social and environmental challenges. Philanthropic

foundations, like all aspects of the economy, are managing a fast-changing external environment

with the emergence of the digital economy (new data opportunities, new social media tools and so

on) and changing policy environment due to climate change, ageing populations and youth

unemployment (amongst other issues).

The challenge to embrace innovation is real:

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“Innovation is occurring at great pace in all walks of life, and as this report shows, the

philanthropy sector is no exception. The landscape is constantly changing, with new tools,

vehicles and approaches being developed, tested, refined and implemented around the

world….There’s a risk that traditional philanthropy may miss the boat if it doesn’t embrace

innovation more, as new players set the pace and see traditional models as increasingly

irrelevant.” (10 Innovations in Global Philanthropy, New Philanthropy Capital, 2014, p2)

Other researchers have identified the unrealised potential of philanthropic foundations. In 2002,

Anheier & Leat in From Charity to Creativity studied UK philanthropic foundations:

“Our main argument is that the endowed, philanthropic foundation is a good and potentially

vitally important institution in modern societies. Foundations fit in well with the way

advanced democratic societies are developing, in particular with the nexus between private

and public benefit in an era of ‘small’ government and greater social diversity. We also argue

that foundations’ current visions, roles and, above all, organisational forms make it difficult

for them to fulfil their promise. …We recognise that some foundations will feel unable to

adopt a creative role – either because their deed is too narrowly drawn, or because they

prefer to carry on as before filling gaps in existing provision. We accept the value of

foundations’ traditional charitable roles but argue that these roles do not play to foundations’

unique strengths: their freedom to be creative in ways not open to other types of

organisations.” (Anheier & Leat, 2002, p10 & 11; Reich, 2016, Leat, 2016)

Without the pressure of shareholders or government election cycles or customers, endowed

philanthropic foundations do not generally experience the external pressures to embrace innovation

that arise in other sectors (Anheier & Leat, 2002, p173; David & Enright, 2015, p3). This means that

internal organisational attributes are likely to be at play if a foundation decides to adopt an

innovative approach to its granting, investment and the way it operates.

The failure to realise a philanthropic foundations innovation potential has a wider implication than

simply not achieving their potential. There is a conversation in the academic and practice literature

that philanthropic foundations’ role in liberal democracies is justified by their role in supporting

social innovation that is outside the risk appetite of government or business (Kramer & Porter, 1999;

Reich, 2016). This is described as the discovery argument by Reich. In a sense, questioning the

legitimate role of foundations, especially their perpetuity, level of accountability and the tax and

benefits they receive, is examining the social licence of philanthropic foundations. Increasing the

innovation commitment and capability of philanthropic foundations is part of addressing this

question.

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One expert participant in the pilot study stage of this study expressed the potential role of

philanthropic foundations in embracing innovation with clarity:

Pilot study participant 3: There is little justification for money which would otherwise flow

into consolidated revenue being retained in private hands, and at the discretionary use of

private individuals, unless it is used to make a meaningful contribution to solving our most

entrenched social challenges or provide a meaningful service or benefit that cannot

otherwise be offered to neglected or marginalized populations. I think you could add that it

is useful risk capital for the non-profit sector.

3.2 Unlocking this potential

While there are interesting articles in sector practitioner publications, there is limited academic

research in relation to innovation within philanthropic foundations as organisations. This study seeks

to address this research gap.

So why do some philanthropic foundations embrace innovation as they seek to achieve their

objectives? Philanthropic foundations have choices about the ways they operate. They have choices

about whether or not they embrace innovation. Internal organisational factors are at play if a

foundation decides to adopt an innovative approach to its granting, investment and the way it

operates. I have had a long interest in increasing the capability of the not-for-profit sector of which

philanthropic foundations is a part:

“By their nature, not-for-profit organisations are not static. The demand for services or

programs waxes and wanes depending on many external factors …the ability to respond to

these changes while continuing to build reliable and clever organisations is the challenge for

CEOs and Boards.” (Brown, 2010, p133)

This study adds to the body of knowledge through the construction of an Innovation Index for

application within philanthropic foundations and through the identification of organisational factors

that are likely to influence a philanthropic foundation to embrace innovation via a correlation

analysis. The results have practice application. As the CEO of a philanthropic foundation, the need to

add value to society and make the most difference possible remains a constant obligation. The

results provide a pathway forward.

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In this study, innovation includes innovation inputs, processes, outputs and outcomes as applied in a

study of innovation focused on the not-for-profit sector in Korea (Choi & Choi, 2014). In this aspect,

the study builds on the earlier study.

A major study by Anderson et al (2014) undertook a “state of the science review” of Innovation and

Creativity in Organisations. Anderson et al note that much research into innovation has focused on

ideas generation or the implementation of ideas, but not so much on both aspects of innovation.

This broader approach is covered in both the factors and the indicators that have been chosen to

investigate in this study. The construction of the Innovation Indices has used a multi factor approach.

This study was possible because it was possible to define the sample and access contact details and

basic information from the Australian Charities and Not-for-profit Commission. The study focuses on

philanthropic foundations that have the ability to influence their governance and operational

activities i.e. they are independent organisations. The foundations are medium or large as defined by

the Australian Charities and Not-for-profit Commission.

The opportunity for foundations to grasp ‘the potential to fund more innovative programs, or areas

of emergent need where the viability and effectiveness of an initiative needs to be established

before the possibility of public funding can even be considered’ and the capacity to be less risk

averse than government is noted in the latest Philanthropy and Philanthropists Giving Australia 2016

report (Baker et al, 2016, p38).

3.3 Contribution

3.3.1 Identified factors that could assist a philanthropic foundation wishing to embrace

innovation.

This study addressed two key questions in the literature:

1. The untapped innovation potential of philanthropic foundations. (Anheier & Leat, 2002;

Leat, 2013; Reich 2016); and

2. The justification for philanthropic foundations in liberal democracies (Kramer & Porter,

1999; Reich, 2016).

The study finds that there are five organisational attributes that are significant against both

Innovation Indices and another five that are significant on only one of the indices. These ten

organisational attributes can inform an Australian philanthropic foundation seeking to further

embrace innovation.

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3.3.2 Founder & History

The Founder’s intention and the history of supporting innovation are important.

3.3.3 CEO Leadership

The commitment of the CEO is critical (enabling innovation to be readily accepted in the

foundation’s program/project management).

This is related to the following attributes, which are within the scope of the CEO to implement or

support:

1. Active member of one or more formal or organised networks within the philanthropic sector

that have learning about a particular funding area of your foundation (e.g. education,

environment) as a primary aim.

2. Culture: our foundation actively seeks innovative ideas.

3. The Foundation has one or more decision-making processes that include designing or pilot

testing to test possible solutions (internally or via a grant for that purpose).

3.3.4 Board’s innovation commitment

The role of the Board in setting the Risk Appetite in grantmaking and in investment and the role of

the Chair in championing innovation sit with current research in governance and innovation (Schiehll

& Llewellyn, 2018). The number of Board members with professional backgrounds (hence with

training in risk management) is most important.

3.3.5 Innovation Index

This study also adds to the body of knowledge through the construction of an Innovation Index for

application within larger independent Australian philanthropic foundations.

3.3.6 New insights into philanthropic foundations as organisations

This study obtained new data about Australian independent, medium or large, philanthropic

foundations that is of potential general interest to the sector, such as the lack of cultural diversity on

Boards.

3.3.7 Measuring innovation

In this study, innovation includes innovation inputs, processes, outputs and outcomes (Choi & Choi,

2014). In this aspect, the study builds on the earlier study.

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A major study by Anderson et al (2014) undertook a “state of the science review” of Innovation and

Creativity in Organisations. Anderson et al note that much research into innovation has focused on

ideas generation or the implementation of ideas, but not so much on both aspects of innovation.

The construction of the Innovation Indices has used a multi factor approach.

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4. Literature Review

4.1 Introduction

Philanthropic foundations stand in a unique place in Australian society. They are not part of

government nor are they involved in business. As charities they are part of the not-for-profit or third

sector and yet they differ from the great majority of not-for-profits engaged in service delivery. They

are essentially grantmaking investors in the charitable sector but may also use other tools for social

change alongside granting. These tools could include commissioning or undertaking research,

investing in line with their mission to achieve a social and financial return (known as impact

investment), policy work, convening researchers and practitioners, or collaborating to catalyse work

on a social or environmental issue for the public good.

The impetus for this study came from observations by Diana Leat and Helmut Anheier in a major

2002 study, From Charity to Creativity, which questioned whether philanthropic foundations were

making full use of their roles and capacities to contribute as much as possible to the public good

(Leat & Anheier, 2002). As that book noted:

Foundations have sufficient resources and ‘space’ to allow them to think, to be truly

innovative, to take risks, to fail, and to take the longer term view. Furthermore, in an

important sense, foundations exist in a world of their own, they do not fully belong to any

one sector but have, or could have, a foot in all… (Anheier HK & Leat D, 2002, p165)

Some foundations, the report conceded, may feel unable to adopt a more creative profile or may

prefer to fill gaps in existing provision. But, it argued,

We accept the value of foundations’ traditional charitable roles but argue that these roles do

not play to foundations’ unique strengths: their freedom to be creative in ways not open to

other types of organisations (Anheier HK & Leat D, 2002, p10 & 11)

While philanthropic foundations can choose to play other valid roles, for example supporting

operating costs or capacity building on the part of existing charities, those that embrace innovation

in their internal operations, their grant making, or their social investments can help to demonstrate

the added public benefit that philanthropic foundations can deliver.

These earlier observations by Helmut Anheier and Diana Leat were confirmed in a later study by Leat

which suggested that little had changed in the following decade:

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Several volumes have appeared in recent years examining the growth and roles of

philanthropic foundations (see, for example, Anheier & Leat 2006, Prewitt et all, 2005;

Anheier & Daly 2007; Fleischman 2007, Hammack and Heydemann 2009; Sunz, 2011;

Hammack and Anheier 2013). If these volumes have any common message, it is that

foundations play important, if limited, roles in society, often complementary to government;

that they are somewhat peculiar institutions in democratic societies; that they are not

widely understood and rarely publicly debated; and that their full potential remains unmet

(Anheier & Leat, 2013, p450).

In fact, questions surrounding the value of philanthropic foundations have been a point of discussion

within the academic and practice literature for at least twenty years. While the problem has been

identified, the solutions to this problem have not been sufficiently addressed from a practice-based

perspective. A call to action to philanthropic foundations was made in 1999 when Porter and Kramer

asked whether foundations were creating enough value to justify their independence, their

perpetual nature, and the tax benefits they enjoyed (Porter & Kramer, 1999). They argued that one

of the four ways foundations create value is in ‘advancing the state of knowledge and practice,’

which invariably involves innovation. Embracing innovation, more particularly embracing and

practising social innovation, is discussed later in this chapter.

Drawing on the work of Anheier, Leat and Daly, Meurneir and Zhauflair apply their findings to the

governance models employed by Belgian Foundations and make observations about the governance

models of foundations more generally (Anheier and Leat, 2002; Anheier and Daly, 2004; Meurneir &

Zhauflair, 2014). These governance elements are explored in this study among potential factors

influencing foundations in embracing innovation.

Elsewhere, the innovation potential of philanthropic foundations has been associated with catalytic

philanthropy, an approach to philanthropy that seeks to catalyse social change. One of the key

elements of catalytic philanthropy is the capacity of foundations to engage in collaboration,

including collaboration among foundations and collaboration across sectors with a diverse range of

stakeholders in co-creating possible solutions (Kramer, 2009). Participation in networks is included

in the organisational factors investigated in the study, with positive results to some survey

questions.

The special conditions applying to philanthropy might be expected to encourage innovation. For

example, foundations can “think and do the unthinkable – or the unpopular – and take the risks

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necessary for genuine innovation. Foundations are capable of acting as society’s ‘passing gear’

(Ylivasker 1999, Anheier & Leat 2006, Kramer 2009). Similarly, their independence would ideally

enable them to “offer support to the unusual or the unexpected because they are not beholden

to the consensus-forcing expectations placed on the public sector” (Prewitt 2006; Leat, 2016).

And yet philanthropic foundations which hold endowments and are perpetual do not have the

pressures of resource limitations or stakeholder expectations. Anheier & Leat highlight the lack of

external pressures to which philanthropic foundations are exposed which can prompt other

organisations (for example those in the for-profit sector) to embrace innovation (Anheier & Leat,

2002). They apply their insights into what they term ‘institutional inertia’ in discussing the social

license that allows philanthropic foundations to operate on preferential terms. By institutional

inertia, they refer to “the permanence of foundations and their legal protection, and in some

cases [to] the Boards drawn from social and professional elites” (Anheier & Leat, 2013, p 459).

The lack of external imperatives to drive the evolution of philanthropic foundations is recognised.

(David & Enright, 2015, p3).

In the absence of consistent external pressures, it follows that any innovation commitment is

likely to arise from within a philanthropic foundation. For this reason, factors investigated in this

study generally relate to internal operations (for example, decision making processes and culture)

and internal governance (for example, Board composition, risk appetite and Chair’s innovation

commitment) more than to external factors.

Other research has considered the lack of democratic processes and use of power by philanthropic

foundations (Leat, 2013; Lawrence & Dove, 2011), the lack of accountability and transparency

(Cham, 2011) and the role of philanthropic foundations in research and innovation, along with their

role as ‘an integral part of the resilience of societies’ (Gouwenberg et al, 2016). One plausible

legitimate role for philanthropic foundations within a democratic society is related to the ‘discovery

argument’, which maintains that “foundations can operate on a different and longer time horizon

than businesses in the marketplace and elected officials in public institutions, taking risks in social-

policy experimentation and innovation that we should not routinely expect in the commercial and

state sectors” (Reich, 2016). If risk-taking discovery in support of social innovation is a key role of

foundations in a democratic society it would appear to follow that embracing innovation matters not

just for adding value but also for enhancing legitimacy.

Assuming that innovation is highly valued in and by philanthropic foundations, and yet not fully

realised in practice, how is innovation to be encouraged and harnessed? This study considers the

philanthropic foundation at the organisation level from a practice-based perspective. What can

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management and boards of philanthropic foundations do to embrace and practice innovation,

thereby adding more value to society and cementing their licence to operate?

This study does not seek to address all of the important questions that can be raised about the place

of foundations within liberal democracies. It has the more limited aim of why foundations in

Australia have yet to realise their full potential for innovation – and for social innovation in particular

– and to identify the organisational factors that could help unlock this potential (Leat & Anheier,

2002, 2013, 2016; Kramer, 2009; Kasper & Marcoux, 2014; Reich 2016). Put simply, this study

considers philanthropic foundations as organisations and asks what are the organisational factors

that influence a foundation to embrace innovation?

The following sections define philanthropic foundations and social innovation further for the

purpose of this study. The current context of philanthropic foundations as it relates to embracing

innovation is examined. The table at the end of the chapter summarises literature relating to

organisational factors that are considered in the study of 30 independent Australian philanthropic

foundations. Further literature is referred to in Chapter 8 (Results) and Chapter 9 (Limitations), with

special reference to recent studies (post 2014) that connect with the findings of this study.

4.2 Defining philanthropic foundations and social innovation

4.2.1 Philanthropic foundations

For the purposes of this research, philanthropic foundations are charitable entities set up under a

trust or not-for-profit incorporated form (usually a company), whose mission is to address social and

environmental issues primarily through grantmaking. The sample of philanthropic foundations in the

study are those that have nominated ‘grantmaking activities’ as their primary activity in the 2013/14

Annual Information Statement submitted to the Australian Charities and Not-for-profit Commission.

They are charities that are medium or large, which is defined by the ACNC as annual revenue over

$250,000 per annum (in this study usually from endowments) and exclude trusts held by trustee

companies. The foundations in the study are independent, which means they have control over their

operations and governance.

Foundations can be defined as follows: “The foundation is created through a donation and a legal

deed, and is then governed by a board of trustees or directors. The foundation may or may not

employ paid staff. Foundations differ from other non-profit organisations in that they do not

generally raise funds from the public and in many, but not all, countries typically do not operate

19

their own programs, but rather work through other organisations whom they fund or support in

other ways.” (Leat, 2016)

The purpose of philanthropic foundations is to support the community to address social,

environmental and other issues. A large-scale example of this was the Gates Foundation

announcement in 2014 that it would provide US$54 million to assist in the fight against the Ebola

virus in West Africa. Foundations support varied social and environmental causes, depending on

their constitution or trust deed and/or the needs of the community, which may change over time.

Foundations seek to make an impact on issues as varied as homelessness, unemployment, climate

change, health, education, food security, social inclusion, the arts and many other fields of

importance to the broader community.

In Australia, there are around 5,000 philanthropic trusts and foundations, including some private

foundations managed by commercial trustee companies. In the US, where more complete data is

collected, and the sector is much larger than in Australia, Foundation giving increased 5.7 % from

2011 to 2013 to $50.28 billion (National Philanthropic Trust, 2014). In Australia, more than $0.5

billion was granted to the community sector by philanthropic foundations in 2013/14 (Philanthropy

Australia based on ATO data).

4.2.2 Defining innovation

Embracing Innovation as a philanthropic grant maker or investor entails focussing on innovations

that have a positive social or environmental outcome. This is described as social innovation. It is

important to note, as highlighted by most expert responders to the pilot study, that innovation for

its own sake is not the goal. Philanthropic foundations in this study are charitable at law and have a

social mission and purpose. Innovation needs to be understood within this context.

Social innovation has been defined as “a novel solution to a social problem that is more effective,

efficient, sustainable, or just than present solutions and for which the value created accrues

primarily to society as a whole rather than private individuals” (Centre for Social Innovation,

Graduate School of Business, Stanford University). Following the pilot study for this project I would

add the word ‘proposal’ before the word ‘solution’ in this highly-cited definition – “a novel proposal

or solution” - in order to include granting and social investment activities relevant to philanthropic

foundations, which invariably take the form of proposals leading to possible solutions. This study is

sensitive to intentions as well as to outcomes.

20

Other definitions stress the collaborative or cross-sectoral aspects leading to social innovation as a

series of “new ideas and insights implemented to create impactful social value. They take place

within the social sectors, businesses and government especially blossoming where these sectors

intersect”. (The Lien Centre for Social Innovation, Singapore Management University). A further

definition of social innovation draws attention to social improvement through innovation: “An

innovation is termed a social innovation if the implied new idea has the potential to improve either

the quality or the quantity of life … innovations conducive to better education, better environmental

quality and longer life expectancy [being] a few. In this sense, social innovation is potentially system-

changing.” (Maclean & Harvey, 2012, Harvey et al 2011)

4.2.3 Embracing innovation

The term ‘embrace innovation’ is central to this research project. In this study, embraces means to

“accept (a belief, theory, or change) willingly and enthusiastically. For example: besides traditional

methods, artists are embracing new technology” (Oxford Dictionary, 2018). Within this definition,

‘take up’ is provided as a synonym for ‘embrace’. In this study, embracing innovation generally

means actively taking up innovation as part of a philanthropic foundation’s way of delivering on its

philanthropic mission. This applies both externally, in the work that a philanthropic foundation does

such as the projects they fund and impact investments they make, and internally in the way leaders

manage and govern the foundation as an organisation (for example, the approach to risk,

investment, staff development and governance). While it is easy to claim in marketing materials that

an organisation has an innovative culture, this study searches for the organisational attributes that

could substantiate such claims, and the indicators of innovation that demonstrate action in

embracing innovation.

In terms of social innovation, this study has built on the insights by Choi & Choi (2014) and Anderson

et al (2014), supported by the methodology applied in developing the Global Innovation Index

(INSEAD & Cornell University, 2014) which suggest that embracing innovation means embracing not

only a product or service but also a process: innovation can include inputs, process, outputs and

outcomes. from this perspective, embracing innovation entails “adopting new ideas and actions

generated or developed inside or outside the organization into services, programs, and processes”.

(Choi S, 2014, p397).

A major review by Anderson et al (2014) into Innovation and Creativity in Organisations considered

innovation on four “levels”: individual, team, organisational and multi-level. The authors note that

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research into innovation has generally focused on ideas generation or the implementation of ideas,

and less often on both these aspects of innovation. This approach informs the factors and the

indicators that have been chosen for investigation in this study. This review was also helpful for the

present study in approaching innovation from an organisational perspective and, in addition, its

identification of areas for future contribution. Several points of relevance to this study are

mentioned including the need to study innovation using multiple variables and interactions between

variables (Anderson et al, 2014, 1317). The construction of the Innovation Index for this study has

employed a multi factor approach.

4.3 Innovation in the context of philanthropic foundations

4.3.1 The context this section considers innovation within philanthropic foundations and the

recent discussion within the academic and practice literature. Some writers see this as more than

demonstrating value and legitimacy. They see it as a potential failure of relevance.

“Innovation is occurring at great pace in all walks of life, and as this report shows, the

philanthropy sector is no exception. The landscape is constantly changing, with new tools,

vehicles and approaches being developed, tested, refined and implemented around the

world…. There’s a risk that traditional philanthropy may miss the boat if it doesn’t

embrace innovation more, as new players set the pace and see traditional models as

increasingly irrelevant.” (New Philanthropy Capital, 2014, p2)

Innovation in the context of philanthropy means making grants or investments to support new ideas

and programs and/or embracing internal processes and new technologies that support innovative

approaches to the work of foundations, all with the aim of increasing the impact of a philanthropic

foundation’s ability to address pressing social and environmental problems. Identifying or adapting a

tool to measure innovation is a key part of this study. This section explains potential areas of

innovation within philanthropy in 2014 to provide a context for the study.

Through embracing innovation, some foundations aim to stay relevant in fast changing times. The

ability to for a not for profit organisation to adapt is essential. (Choi S, 2014, p393) As already noted,

philanthropic foundations are a distinctive subset of the not-for- profit sector. This research focuses

on organised philanthropy, including endowed private foundations or community foundations that

have built an endowment (capital fund) from many sources over time.

At a macro level, trends can be observed that provide opportunities for innovation by philanthropic

foundations. Some of this reflect major changes within the global economy and technological

change. Many of these emerging trends require philanthropic foundations to further embrace

22

elements of the innovation process. In the 2010 book The World that changes the World edited by

Willie Cheng and published by the Lien Centre for Innovation, one contributor, Thomas Menkhoff,

notes the following four trends affecting philanthropy:

“The first is borderless philanthropy, with rising charitable giving beyond the US and

increasing cross-border philanthropic flows. The second is e philanthropy and the spread of

giving, enabled by technology, in innovative ways. The third is philanthrocapitalism, with the

engagement of business entrepreneurs and their many ideas, ambitions, and resources for

increasing social impact. The fourth is collaborative philanthropy, as givers and even

governments seek to collectively create greater social impact.” (Cheng W & Mohamed S,

2010, p 137)

The embracing of innovation by philanthropic foundations has become a point of discussion within

the practice literature (For example, 10 Innovations in Global Philanthropy, New Philanthropy

Capital, October 2014; Social Innovation Taskforce, Measuring Impact, UK’s Presidency of G8,

September 2014; McKinsey London, Learning for social impact – what foundations can do, McKinsey

& Company, 2010; Giving Australia Report: Philanthropy and Philanthropists, Opportunities for

Innovation, 2017, xxiv; The Social Innovation Strategies of Canadian Foundations, Innovation Policy

Lab Paper, 2017) and amongst practitioners. Professional development opportunities for foundation

leaders are starting to address innovation capability. For example, two sessions at the 2018

Canadian Environmental Grantmakers Network conference were Changing Complex Systems:

Creating Conditions for Social Innovation within Foundations and Deploying Multi-sector Partnership

that leverage technology and Innovation to Solve Pressing Environmental Challenges (CEGN,

Conference Program, May 2018). Philanthropy is being asked to take an increasingly proactive role in

addressing social and environmental challenges. Leading philanthropic practice writers have

observed the renewed interest in funding innovation and adopting innovative grantmaking practices

(Kasper G & Marcoux J, 2014).

4.3.2 Further examples of contemporary innovation within philanthropy

Supporting innovative approaches to granting and to social investment can increase impact of a

philanthropic foundation through enabling social entrepreneurs to test new ideas and programs. For

example, investing in the development of a real estate agent which focuses on increasing the supply

of affordable housing (generating fees to pour into the homeless service) is a new approach to the

long-term problem of homelessness (for example, see Homeground Real Estate and Property

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Initiative Real Estate, both in Melbourne). Investing part of the capital of foundations in investments

that address social issues while providing a financial return could massively increase the financial

resources being applied to these challenges. This is known as impact investment. Impact investing is

a relatively recent and growing movement in philanthropy. However, there is international interest,

and in some cases commitment to growing impact investment by foundations to invest in social

improvement (Social Investment Taskforce, 2014).

Contemporary foundations now have the ability to consider their social or environmental impact

through the grantmaking lens but also through an investment lens. Within this continuum of

granting and impact investment is venture philanthropy, where foundation invest grants and

sometimes investments in a social enterprise with potential for major social or environmental

impact. This is a growing approach to philanthropy, which uses many of the principles of venture

capital (high engagement beyond the grant or impact investment such as operational and

governance support, applying business start-up principles, and a planned exit) (Gordon, 2014).

Another form of philanthropy where philanthropic foundations (often established by entrepreneurs)

invest in social innovation opportunities is known as venture philanthropy. This philanthropy

includes very engaged business advice alongside a grant (and sometimes an impact investment) into

a social enterprise or other charity with high social impact potential. Venture philanthropy, like

venture capital approaches in the commercial sector, commence with a planned exit from the

enterprise anticipated, usually when the enterprise is sustainable. In the context of venture

philanthropy, a grant is sometimes referred to as a philanthropic investment even if only a social

return (and not a financial return) is anticipated. During the screening/ information gathering and

co-creation stages, the social innovation opportunity and its potential to scale if successful is

considered (Gordon, 2014, p91). During the decision-making stage of the venture philanthropy

process, the innovativeness of the concept and its ability to address a social or environmental

problem is assessed (Gordon, 2014, p95). The focus on both social innovation and learning through

co-creation make this approach an innovative form of philanthropy in itself. The importance of

networks in sourcing ‘investment’ opportunities is another key feature of venture philanthropy.

There are now peak bodies working in this growing area of innovative philanthropy including the

European Venture Philanthropy Network and the Asian Venture Philanthropy Network.

In addition to the allocation of grant funding to a riskier end of the granting continuum, there are

also processes which can be deployed to facilitate the identification, analysis and funding of projects

and programs that demonstrate innovation. There is an increasing use of research, convening think

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tanks, connecting with experts, and listening to thought leaders amongst some foundations, all

designed to challenge thinking within Foundations:

“Funding innovation starts with a fundamental shift in mindset… Instead of just supporting

proven, incremental solutions, they focus on transformation – investing in approaches that

may have a higher risk of failure, but the potential to be lasting and truly game changing if

they succeed.” (Kasper G & Marcoux J, 2014)

In addition to these trends, philanthropic foundations are organisations operating within a world

that it is in transition. More innovative foundations are beginning to operate in what has been

described as the “transition arena”, which focuses on long term thinking, empowering change

agents, supporting transition and problem searching. (Lorrbach D, 2015)

Philanthropic foundations, like most other organisations, are embracing digital technology to

support their philanthropic work. Digital practices are changing how organisations, including

foundations, and individuals associate within the social economy (Bernholz, 2013, p10) While digital

tools enable innovation internally or through funded projects or social enterprises, the use of

technology was noted during the pilot study as being a tool and not an indicator of innovation in

itself. Even five years ago, this might have been considered differently. The fast adoption of digital

technology has changed business as usual across all sectors.

Both impact investment and the application of digital technology opportunities (for example, the use

of big data) are noted in the most recent major study of philanthropic giving in Australia, the Giving

Australia Report the following opportunities for innovation by philanthropy:

“Encouraging and supporting local initiatives aimed at developing the necessary scale for

impact investing in Australia; Increasing targeted social investment by Australian philanthropy

(personal and institutional) through the strategic use of matched funding; Investigating

models to better support local community driven and funded initiatives, inclusive of matched

funding; and supporting initiatives aimed at ‘Big Data’ use, information sharing and

transparency related to all aspects of giving.” (QUT et al, 2017, xxiv)

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4.4 Measuring innovation within philanthropic foundations

4.4.1 Innovation Indices

One of the more challenging aspects of this study has been the development of an Innovation Index

or ranking tool, which can be applied within the context of the philanthropic sector. As an existing

tool that related to philanthropic foundations did not exist, an index has been developed based on

the Global Innovation Index (INSEAD & Cornell University, 2014), adapted for the organisation level.

The adapted tool has been tested in the pilot study and a set of seven relevant indicators of

innovation identified.

As discussed earlier, innovation is more than supporting new ideas to find a new solution to an

intractable social or environmental problem. From an organisational perspective, embracing

innovation means focusing on both generating new ideas and on execution. From a granting

perspective, this means ensuring that the granting process both encourages innovative thinking but

also provides funding that supports the process of execution i.e. planning, allocating a team to the

project, ongoing learning and managing the potential tension between ongoing operations and

innovation. Philanthropic foundations need to be cognisant of the need to provide opportunities

where non-routine and uncertain projects can be developed and supported, while still managing day

to day operations. This is a common tension within organisations seeking to embrace innovation.

(Govindarajan et al, 2010)

An Innovation Index that is applied within business is the well-established Forbes Most Innovative

Companies List. While researching the underlying methodology of the Forbes scale, which seems to

be partly protected by commercial in confidence, I became aware of a recent book written by the

authors of the Innovation Ranking Scale called The Innovator’s Method (Furr N & Dyer J, July 2014).

This book captures the entire process of innovation and seeks to take the best aspects of design

thinking, lean start up and business modelling, to develop a holistic innovator’s method. This model

is informed by the authors’ work assessing innovation in companies. The authors claim that applying

this methodology, which uses short cycles of focused experimentation rather than traditional

business planning as a starting point for innovation, companies have experienced growth in their

Innovators Premium of between 17 and 95%

The Innovator’s Method (Furr N & Dyer J, July 2014) sets out a new approach to managing

innovation within demand and technology uncertainty. This approach applies innovation process

that enable sometimes small steps involving observing, understanding the problem, testing

solutions, and learning before developing business models. If a philanthropic foundation is to

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embrace innovation, providing opportunities to enable and enhance the innovation process is

important. Testing solutions and learning are central to the innovation process. This reference

confirmed the need to include some innovation process indicators in the Innovation Ranking Tool.

As part of researching existing Innovation Indices, the Global Innovation Index was more closely

examined. While this Index relates to countries, rather than organisations, there are some important

dimensions to the Index that have relevance to foundations. In addition, the Index methodology is

publicly available and is robust, having been applied since 2005 with improvements and additions

over ten years. The Index is a joint project of Cornell University and INSEAD. The Global Innovation

Index 2014 Conceptual Framework Index (Appendix 1) is designed around seven pillars. Five relate

to Innovation Output (Institutions, Human Capital and Research, Infrastructure, Market

Sophistication, Business Sophistication) and two relate to Innovation Input (Knowledge and

Technology Outputs, Creative Outputs).

This research includes the development of a set of organisational factors that could influence a

philanthropic foundation to embrace innovation and a set of indicators of innovation that are

relevant to philanthropic foundations. These factors and indicators are tested during the pilot study

through a questionnaire and in-depth interviews with nine experts in philanthropy, including leading

local and international academics, two retired CEOs of foundations (Australian and US), and current

CEOs of a UK foundation and a US philanthropy network.

The pilot study is discussed in more detail later in this study, but it is important to note that

embracing innovation is not about innovation for its own sake but because it can lead to more

effective responses to community problems: “A foundation should only embrace innovation if it can

demonstrate that this will improve outcomes.” (Pilot study response, Participant 4) “The foundation

should seek to improve things – both their own work and certainly the work of those addressing the

issues they care about. Innovation is also about trying and learning, a pursuit of innovation requires

a learning and improvement mindset. That’s what is important, not innovation for its own sake.”

(Pilot study response, Participant 7).

4.4.2 Indicators of innovation

Innovation can take several forms and despite the common tendency to associate it with

technological innovations, it has recently been more generally defined to include process innovation,

service innovation, strategic innovation and management innovation. In its broadest sense,

innovation involves the establishment of new and better ways for accomplishing worthwhile

objectives (Dees 2001). According to Van de Ven (1986, p591), ‘an innovation is a new idea, which

27

may be a recombination of old ideas, a schema that challenges the present order, a formula or a

unique approach which is perceived as new by the individuals involved.’ While innovation may

sound easy/simple at first glance, it is difficult and protracted in practice because departure from

standard procedure is often costly and risky, is associated with ambiguity and uncertainty, and

requires commitment to bring about changes to routine relationship dynamics. (Jimali et al, 2011,

378)

Another dimension to funding innovation is being alert to the need to review the types of innovative

projects which may be submitted to a foundation with a request funding. In addition to granting to

innovative projects or programs in isolation, foundations should consider funding their role in

supporting innovation knowledge and capability sharing networks, alliances and collaborative

infrastructure. The following relates to the funding of medical research by philanthropy but has

insights that are more widely applicable:

“I think the role of philanthropy is to be entrepreneurial and to create the networks that will

carry the content for the social purpose of improving the quality of life. I do not think the goal

of philanthropy is to build organizations, to simply raise money to keep health organizations

strong for the next 200 years, or to offer support to favourite charities. We cannot keep

building boxes without lines of communication. I believe the future of philanthropy is the

communication lines. Philanthropy must build the network. How prepared is the

philanthropic world to do that?” (Simons, 2008)

The importance of using measures of innovation that reflect innovation as a process as well as

products has been mentioned but is particularly true of the not for profit sector, of which

philanthropic foundations are a part:

“Despite the general agreement on the necessity of innovation, there is no standard

definition and measurement of innovation in either the for-profit or the non-profit sectors, as

the characteristics of innovation tend to cover an extremely broad range (Roger, 1999).

Innovation can be culture or activities, processes or products, and adoption or diffusion

within a firm or industry, and is conceptualized in a variety of ways. While some studies have

focused only on the output of innovation, others have investigated the process of

innovation.” (Choi, 2014, p362)

The purpose of philanthropic foundations is to contribute to the public good. Foundations’ work is

about either addressing social or environmental problems now or preventing social or

environmental problems from exacerbating or arising in the short-term future. The research by

28

Grimm et al (2013), looked at the process of social innovation and noted that the innovation

process, including cooperation and sharing, is of value in itself to an organisation (Grimm, 2013,

p451). The collaborative nature of social innovation is reflected in the indicators of innovation

chosen in this study through the indicator related to joint ventures, alliances or collaborations

A multidimensional approach to measuring innovation was also applied in a study which measured

Research & Development (R&D) intensity (the total amount spent over the preceding three years); R

& D expenditures as a percentage of gross revenues over the past three years, and the number of

patents obtained. (Junga et al, 2003). The amount spent on R & D by the surveyed foundations in

one year as a percentage of the operating budget is one indicator of innovation applied in the

innovation index developed in this study.

The potential for philanthropic foundations to invest further in research and innovation, both

internally through their own projects or contracted work and through grants, was found in a study of

European philanthropic foundations (Gouwenberg et al, 2016). Support of researchers and support

of the dissemination of research findings were also areas relating to research where there were

further opportunities for philanthropic foundation support.

As mentioned in the previous section, one aspect of innovation in contemporary philanthropy is the

use of financial resources beyond granting funds (usually net income on corpus investments) to

strengthen the impact of a foundation on its chosen focus areas. This is known as impact

investment. These can be to support the solutions to a wide range of social or environmental issues.

Within this research study, the decision to allocate even a very small percentage of a foundtion’s

capital into social impact investments within the Investment Strategy is likely to be regarded as

demonstrating innovation. This is expected to change in the future and the context could be be very

different in even ten years time if impact investment becomes buesiness as usual. It is a long way

from that in Australia. The intersection of philanthropy and business investment is likely to grow as

new forms of hybrid organisations and partnerships develop (Social Impact Investment Taskforce,

2014, p 1).

29

Social Investment within the context of a philanthorpic foundation can be regarded as expanding the

continuum of investment beyond grants into an application of capital (corpus) towards an

investment that results in a financial and social or environmental return. This continuum is described

in the diagram above. There are a range of legal and risk parameters that each Foundation must

consider in all its decision making. These have an effect on the approach that a foundation will take

to aligning its investment portfolio with its mission, known as mission related or impact investing.

This includes whether a less than optimum financial return can be accepted if a social return is to be

achieved. Of course there are also products that provide both a market level financial return

together with a social return.

An excellent review of the state of Impact Investing in Australia at the end of 2013 describes a

limited number of ‘early adopters’ who have embraced impact investment (Charlton et al, 2013).

Impact investment is considered to be an indicator of innovation within the current context. This is

also tested in the pilot study.

The innovation process of testing and piloting and scaling is sometimes focused on a start-up not-

for-profit organisation. One example of this approach is the Thiel Foundation’s Breakout Labs, where

philanthropic grants provide a bridge between testing or early research funding and the potential for

a social enterprise to attract commercial finance: “Often the steps required are not huge or ground-

breaking in and of themselves—they can be as relatively straightforward as a prototype or a set of

validation experiments and can be completed within a year or two with the right support. A modest

infusion of capital at the earliest stages of a company’s life cycle can support achievement of the

scientific and technical milestones that are necessary for attracting the much larger investments

required to bring products to market.” (Parthosarathy H & Fishburne L, 2015)

Social enterprise is having a renaissance as a way of not for profits achieving their social or

environmental purpose and/or creating a new income source which assists overall financial

sustainability. Social Traders and others are developing pathways that will enable the growth of

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social enterprise sector in Australia. Social enterprise may use a for profit structure with a social

return or a not for profit structure that applies a business approach, which is either a separate not

for profit company or a division of an existing not for profit company. Philanthropic foundations can

now support this innovative field by funding in various ways, including providing funding to research

and test ideas and develop business models, providing start-up funding, supporting evaluation and

impact measurement, and later providing scaling up funding. (Social Traders, 2014, p7-9) As already

mentioned, some philanthropic foundations also provide business mentoring alongside this support

(for example, the venture philanthropy approach). To engage in supporting social enterprise

requires a shift in thinking from traditional grantmaking to a mindset of social investing (by grant or

impact investment (and an understanding of building social businesses that provide revenue but also

deliver services to people who need them e.g. at risk young people participating in on the job work

experience, training and employment.

4.5 Organisational factors to be tested

The organisational attributes explored in this study were initially developed from the practice

knowledge of researcher as a CEO and former advisor to philanthropic foundations and then tested

in the pilot study via a survey and in depth one on one interviews with nine experts in philanthropy.

The literature was also examined to identify previous relevant studies.

In selecting the organisational factors to investigate, a range of organisational attributes were

considered that could potentially influence how a philanthropic foundation would embrace

innovation (both internally through its processes and culture and externally through its grants and

social investments). These include attribute variables related to governance (such as Board

composition and Board tenure); organisational profile (such as age, size of corpus, income source);

behavioural variables related to governance (such as how Board members are recruited, strategic

planning processes, and risk appetite), and organisational profile (such as history of supporting

innovation, membership of networks by staff, a learning culture) (drawn from Global Innovation

Index 2014, INSEAD & Cornell University, 2014).

Before commencing this study, the writer thought it was possible that diversity within the Board

composition might play a key role in whether a philanthropic foundation embraced innovation.

(However, this did not come through in the data analysis - see chapter 8). The writer also recognised

that the innovation commitment of the CEO would probably be important but understood that this

would not be enough on its own to ensure a foundation embraced innovation. This study has

explored a wide range of organisational attributes including via in depth interviews with experts

during the pilot study.

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One factor which arose during the Pilot Study was the influence of organisational culture. To gain a

perspective on this, a question from a study into innovation in the not for profit sector in South

Korea (Choi & Choi, 2014) was included in the study.

While philanthropic foundations fund not-for-profits that are working to maximise social rather than

financial returns, the internal tension between ongoing operations and the support of innovation,

especially with limited financial resources is real. Without philanthropic investment, there would be

far fewer opportunities for not-for- profits to develop new solutions and test new ideas. This of

course raises the question of risk management for the philanthropic funder. Funding innovation is by

its nature riskier. Active risk management (for example, due diligence processes that take account of

risk as part of impact investment or grantmaking) may be an important indicator of innovation to

examine in this study. There was considerable discussion about risk during the pilot study interviews.

A factor that emerged in the study results was that of organisational leadership. One question in the

survey asked the person responding to the survey (CEO, Executive Director or similar) to respond to

a question (from Choi & Choi) that connected with organisational culture. Another question asked

whether the Chair was a champion of innovation. While the person responding to the survey (CEO or

similar) was not asked about their or their Chair’s leadership style, there are several elements that

are relevant to this. One innovation indicator used in this study is the % of the annual operating

budget spent on Research & Development; and on Staff Development. These are regarded as

Innovation Inputs within the Global Innovation Index and within the index constructed for this study.

The annual operating budget is, subject to Board approval, the work of the CEO. Two other factors

which relate to organisational leadership because they are management decisions made by the CEO

which are significant in the survey results are:

1. Foundation (staff) are an active member of one or more formal or organised networks within the

philanthropic sector that have learning about a particular funding area of the foundation (e.g.

education, environment etc.) as a primary aim. This was significant on both indices.

2. The Foundation has one or more decision-making processes that include designing and pilot

testing to test possible solutions (internally or via a grant for that purpose). This was significant in

Index 3 (which has a higher weighting towards innovation inputs).

The role of transformational leadership in supporting organisation innovation has been found to be

positive (Jung et al, 2003). Leadership style of CEOs was not tested in this study, which focused on

the organisation level.

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The table below is a summary of the literature relating to organisational factors explored in the

study. The factors found to be of significance to an Australian philanthropic foundation embracing

innovation are explained in chapter 8. Following the study, the results were connected with other

literature, especially studies undertaken since 2014 after the time that this study commenced. These

are noted in chapter 8.

Table 4.1: Literature review relating to organisational factors

Study Author Research Insights Organisational

Attribute/Factor

What factors

affect the

persistence of an

innovation

advantage?

Madsen TL

& Lieblein

MJ, 2015

“As stated by Arrow (1962, p. 155), ‘one

empirical generalization is so clear that all

schools of thought must accept it ...Learning is

the product of experience. Learning can only take

place through the attempt to solve a problem

and therefore only takes place during activity’.

Contemporary approaches to organizational

learning extend this work. …Amabile (1997)

indicates that increases in the number of times

performing a task (experience) increases the

ability to search potential solution paths and

conceive of potential task recombination. This

expanded ability to search suggests one way that

experience spurs innovation.” (Madsen TL &

Lieblein MJ, 2015, p1101)

History of

supporting

innovation

A different kind

of risk taking:

improving

evaluation

practice at the

Jim Joseph

Foundation

Reich C

Sept 2015

A recent reflection of the evaluation of a

challenging project funded by the Jim Joseph

Foundation clearly describes this aspect of a

foundation’s work: “Not only is it impossible to

specify all possible outcomes of an innovation or

intervention, the process of attempting to define

outcomes may limit the foundation’s

consideration of promising courses of action.

Working in an emergent way requires some faith

in the process, trust in the people promoting the

innovation or intervention, and a clear

understanding of its potential benefits. It also

requires a champion who is willing to take risks

Understanding risk.

Setting a Risk

Appetite.

33

and encourage others to follow and uncharted

path.” (Reich C, 2015)

Creating

Philanthropic

Capital Markets –

the deliberate

evolution

Bernholz L,

2004

There are many similarities between venture

capital investment and philanthropy, which at its

more risky end is sometimes described as

venture capital for the not for profit sector.

“Foundations rarely think of themselves in this

way, but they can clearly be seen as another

product in the financial services marketplace.”

(Bernholz L, 2004 p66)

Investment risk

From Innovation

to Results

Smith M,

2014

“The concept of philanthropy as risk capital for

piloting innovative programs in the social sector

is becoming well-understood.” (Smith M, 2014,

p14).

Granting and

investment risk

From Charity to

Creativity

Smith M,

2014

“These points have a number of implications for

foundations. Foundations need to work on both

‘stages’ in the creative process, focusing on ideas

generation and following through on

implementation. …Trustees and staff need to

spend more time, not less, talking to each other

and to a wide range of others outside the

organisation, across sectors, disciplines, and

professions. Crucially, they need to develop

cultures and processed for constant learning

within and from beyond the foundation.” (Smith

M, 2014, p181)

Innovation process,

especially ideas

generation and

learning. An

important

challenge for

philanthropic

foundations.

Market

Orientation &

Learning

Orientation as

Catalysts for

Innovation in

Nonprofit

Organisations

Choi S,

2014

“First of all, organizations need to be committed,

amenable, and open to learning to promote MO

[market orientation] and innovation. Second,

organizational innovation is facilitated by

customer-oriented efforts and thereby nonprofits

need to focus on customers by generating,

disseminating, and responding to the information

about customer changes and demands. Third,

nonprofits should be sensitive and responsive to

the changes and demands of stakeholders to be

innovative, and in order to survive. Finally,

organizations need to put more effort into

collaboration and cooperation rather than

Innovation process:

learning,

responsive

(outward facing)

and collaboration.

34

competition with rival organizations for

innovation.” (Choi S, 2014, p405)

A Decision

Making Process

Model to support

timely

organisational

innovation,

Handbook of

Decision Making

Delberq

AL,

2010

“Thus, often the innovation process and

implementation are poorly enacted beyond R&D.

Drawing from the authors’ combined 109 years

of discussions with managers involved in

innovation and change, we offer a decision

process model to guide innovation. In the model

we discuss the four steps of the process,

participants involved in each step, and some of

the barriers often spoken of by professional

managers.” (Delberq et al, 2010, p198)

The model developed by Delberq includes four

steps: visioning, feasibility studies, design and

pilot testing and implementation.

Decision making

processes that

support innovation

i.e. visioning,

feasibility studies,

pilot testing, even

before

implementation.

Market

Orientation and

Learning

Orientation as

Catalysts for

Innovation in

Non-profit

organisations

Choi S,

2014

“However, nonprofits need to be learning

oriented in order to innovate and survive, given

the changing environmental conditions and the

importance of developing the human resource

capacity.” (Choi S, 2014, p396)

Learning

orientation is

important. Staff

development is an

element of the

human resource

capacity.

Innovation and

Creativity in

Organisations: A

State of the

Science Review

Anderson

N,

Potocnik K

& Zhou J,

2014

“Linkages between organization culture and

climate have remained rather unexplored in

creativity and innovation research. Rousseau

(1988) called for greater attention to be given to

so-called facet-specific climates, referring to

climate for innovation as a dynamic construct

linked to organizational culture more

generally…Organizational level research clearly

suggests that underlying cultures supportive of

innovation act as facilitators of change in specific

sectors and organizational settings, but what is

less clear is how these underlying cultures are

manifest as facet-specific climates for

innovation.” (Anderson N, Potocnik K & Zhou J,

2014, p 1317)

Linkage between

organisational

culture and

climate.

(Climate is the

perceptions of the

impact of the work

environment on

wellbeing: (James

& James 1989)

35

Strategic

Partnerships,

social capital and

innovation:

accounting for

social alliance

innovation.

Jamari D,

Iyana M,

Abdallah

H, 2011

“Innovation is thus increasingly conceived as: (1)

an interactive process involving multiple actors

and relationships; (2) a process involving the

exchange of different forms of knowledge –

codified and tacit knowledge; and (3) a learning

process where learning and innovation arise from

the exchange of different forms of knowledge,

their exploitation and gradual appropriation and

conversion into new forms…” (Jamari D, Iyana M,

Abdallah H, 2011, p378)

Exchange of

knowledge and

learning.

What factors

affect the

persistence of an

innovation

advantage?

Madsen TL

& Leiblein

MJ, 2015

“In sum, a variety of literature indicates that

experience developed within a firm and accessed

through collaboration with others outside the

firm provides valuable information that facilitates

problem-solving and innovation.” (Madsen TL &

Leiblein MJ, 2015, p1102)

Collaboration

Board

composition and

environmental

innovation: does

gender diversity

matter?

Galia F,

Zenou E,

Ingham M,

2015

“The business case for a positive relationship

between board diversity and innovation relies on

the following propositions based on previous

literature. First, diversity on boards especially,

has been associated with positive cognitive

effects such as creativity, innovation, new ideas

and insights (Goodstein et al., 1994; Kang et al.,

2007; Miller and Triana, 2009). According to

many studies (Carter et al., 2003; Siciliano, 1996;

Erhardt et al., 2003) board diversity provides the

firm with several advantages for innovation

issues, such as greater creativity, effective

problem solving and enhanced capability.” (Galia

F, Zenou E, Ingham M, 2015, p120)

Gender diversity on

Boards.

Research on the

relationship

between Board

Diversity and

Firm

Technological

Innovation.

Li X, Zhou

J, 2012

“Thus, the “cognitive frames” of the members of

its board are important to an organization and to

a number of organizational outcomes. Per this

view, greater diversity in demographic traits can

lead to greater diversity of information sources

and perspectives, as well as to more creative or

innovative discussion (Wierseman & Bantel,

1992).” (Li X, Zhou J, 2012, p1612)

Board cognitive

and demographic

diversity

36

Boards of

Directors and

Firm

Performance:

Integrating

Agency &

Resource

Dependence

Perspectives

Hillman AJ

& Dalziel T,

2003

“Although the monitoring role of boards has

dominated research, we argue that the advising

and counselling role of directors of board

remains an imperative to corporate innovation.”

(Hillman AJ & Dalziel T, 2003, p4).

Board’s advising

and counselling

role

How to measure

diversity when

you must

Budescu,

2012

“Traditionally diversity is thought of as “the

position of a population along a continuum

ranging from homogeneity to heterogeneity with

respect to one or more qualitative variables”

(Lieberson, 1969, p851). However, a recent

review by Harrison and Keline (2007) identified at

least three types of diversities in organizations.

Separation diversity …Disparity diversity... Finally,

variety diversity fits Lierberson’s (1969)

traditional definition, as it captures differences in

group composition in a population on some

categorical variable (i.e. race, religion, eye colour

etc.).” (Budescu, 2012, p215-227)

Measuring

diversity. Variety

diversity relates to

race, religion. ABS

definitions became

relevant.

The Most

Innovative

Companies Don’t

Worry About

Consensus

Wessell

M,

October

2014

Organisational decision-making affects

innovation. While reaching consensus can be

seen as a way of reducing risk and investment

cost, in fact trying to reach consensus can be a

barrier to small experimental innovations.

proposes three parts to a better approach for

supporting innovation, especially smaller

projects:

1. “Acknowledge that not all investments are

the same.

2. Push decision authority as low as possible.

3. Don’t punish failure. Punish waste.”

(Wessell M, October 2014)

Organisational

decision making

and innovation

Board

composition and

Mahadeo

et al, 2012

“In this perspective, age diversity on boards helps

the company to benefit from the different

perspectives of different age groups, and

encourages board development and learning,

Age diversity on

Boards

37

financial

performance

which may foster creative and innovative ideas

(Kang et al., 2007) and help the board to consider

the various strategic and operational aspects in a

more effective way.” (Mahadeo et al., 2012,

p121)

The effects of

board

competence on

operational

innovation: test

of universal,

contingency and

configurational

models.

Wu H-L &

Lee C-Y,

2007

“This study uses managerial risk-taking as a lens

to examine the efficacy of board competence for

operational innovation in a sample of 201

Taiwanese firms...This study contends that

governance through a competent board is

capable of aligning the risk differentials between

board and managers and leads to better

performance in terms of operational innovation.

Furthermore, this universal relationship,

extended to the contingency and configurational

perspectives, shows the synergistic effects of

board competence on operational innovation

when board monitoring is subject to different

technological opportunities and strategic cost

posture. We believe this study sheds light on the

link between corporate governance and

innovation because it reinforces the critical role

of boards in wielding strategic control over

management decision making and suggests the

governance conditions that give rise to the

desired level of managerial risk taking.” (Wu H-L

& Lee C-Y, 2007)

Board’s expertise in

risk management

(setting Risk

Appetite,

understanding risk

appetite).

38

5. Research Methods

5.1 Research Approach

This research is as an analysis of organisational factors (attributes) that may influence a

philanthropic foundation to embrace innovation. Innovation within the study includes innovation

inputs, process, outputs and outcomes. Given the nature of the work of philanthropic foundations,

innovation in this context is essentially social innovation. This is defined as “a novel solution to a

social problem that is more effective, efficient, sustainable, or just than present solutions and for

which the value created accrues primarily to society as a whole rather than private individuals”

(Centre for Social Innovation, Graduate School of Business, Stanford University). (See section 4.2.1

for further discussion on the definition).

In order to seek to identify the factors that could assist a foundation embrace innovation, an

innovation index that is relevant to Australian philanthropic foundations is developed and then

organisational factor data obtained from a survey of 30 philanthropic foundations, which meet the

sampling criteria, is correlated against the index.

The Index questions were reviewed in order to identify indicators within the Index, which could have

relevance within the philanthropic sector as indicators of innovation. A set of indicators was initially

chosen by the researcher based on practice knowledge. These were then thoroughly tested during

the pilot study via in depth interviews with experts (see Appendix 2 for innovation indicator

responses). The full responses are reported in chapter 6.

The methodology builds on previous research through its use of indicators of innovation that

measure inputs and outputs across the range across the full innovation process; from investment in

innovation, to internal organisational processes that support innovation, through to innovation

outputs and outcomes (Choi & Choi, 2014, 362). Using this broader understanding of innovation, it

can be seen as a means to an end and an end in itself (Grimm et al, 2013).

The high level conceptual framework of the Global Innovation Index (INSEAD & Cornell University,

2014) provided a base for the approach to the innovation index (Appendix 1). While this Index

relates to countries, rather than organisations, there are some important dimensions to the Index

that have relevance to foundations. In addition, the Index methodology is publicly available and is

robust, having been applied since 2005 with improvements and additions over the last ten years.

The Index is a joint project of Cornell University and INSEAD. The Global Innovation Index 2014

Conceptual Framework Index is designed around seven pillars. Five relate to Innovation Output

(Institutions, Human Capital and Research, Infrastructure, Market Sophistication, Business

39

Sophistication) and two relate to Innovation Input (Knowledge and Technology Outputs, Creative

Outputs). (Appendix 1)

The 30 philanthropic foundations that completed the survey were allocated scores on the Innovation

Index (two version of the index were developed) based on their survey responses to indicator

related questions. These scores were then correlated with the organisational attributes selected for

the study based on the pilot study expert feedback. Organisational attributes that were significant

are reported in chapter 8 Results.

The steps in the research approach are explained further below and are covered in detail in chapters

6 Pilot Study, 7 Major Study and 8 Results. Limitations and areas for further research are presented

in chapter 9.

5.2 Pilot Study

The study develops an Innovation Index adapted from the structure and indicators selected from the

Global Innovation Index (INSEAD & Cornell University, 2014) of relevance to a philanthropic

foundation. The indicators of innovation and organisational factors were selected by the present

writer based on practice knowledge and then validated through testing in the Pilot Study via a

survey and then in depth one on one interviews in person or by Skype with nine experts in the field

of philanthropic foundations. The interviews lasted around one hour each. The expert participants

are leading academics with knowledge of philanthropy or retired CEOs of philanthropic foundations.

The participants included leading thinkers in philanthropy from the US, UK and Australia. Qualitative

interviews were undertaken to draw out learnings from the questionnaire responses. This was done

until it was evident that new factors or new indicators were not emerging.

The pilot study refined the indicators to seven indicators, which covered the innovation elements of

input, process, output and outcome. The indicators are used in the major study to construct an

Innovation Index (two version are included in the study). 29 factors were selected to be studied in

the major study. Chapter 6 explains the pilot study process and outcomes. Ethics approval was

obtained (2015/073). The pilot study generated a 100 percent response rate and a great deal of

interest.

In preparation for the major study, a further literature review was undertaken to ensure that the

organisational factors to be examined and proposed indicators of innovation make sense within the

context of related academic studies. A review of the data available via document analysis was also

undertaken. This confirmed that most organisational factors and indicators required a survey

response to provide adequate data. The survey for the major study is developed based on this work.

40

Data for two organisational factors (specified Board terms and number of women on the Board) and

no responses were provided by document analysis (annual reports or reviews of constitutions and

trust deeds).

In selecting the organisational factors, a range of variables are considered that could potentially

influence how a philanthropic foundation would embrace innovation (both internally through its

processes and culture and externally through its grants and social investments). These include

attribute variables related to governance (such as Board composition and Board tenure);

organisational profile (such as age, size of corpus, income source); behavioural variables related to

governance (such as how Board members are recruited, strategic planning processes, and risk

appetite), and organisational profile (such as history of supporting innovation, membership of

networks by staff, a learning culture).

5.3 Major study

Stage 1: Completion of data collection.

May – December 2017

Ethics approval was obtained (2016/195).

The Major Study survey instrument was distributed to a total of 89 philanthropic foundations which

met the following definition. ‘Philanthropic foundation’ was defined as follows for the purposes of:

• A charitable organisation that selects “grantmaking” as its primary activity in the 2014

Annual Information Statement to the Australian Charities and Not-for-profit Commission

(ACNC); and

• Medium or large in size as defined by ACNC: medium charity – annual revenue is $250 000

or more, but less than $1 million; large charity – annual revenue is $1 million or more; and

• Independent governance (i.e. not a fund or sub-fund of a trustee company).

The survey was administered via Opinio. Initially 76 surveys were sent out in May 2018. Twenty-

three responses were received. Three were unusable (largely incomplete). A further distribution

was made in August 2017 to another 13 philanthropic foundations, which met the above criteria.

This generated further responses between August and December 2017. In all 30 responses were

obtained in total. The 30 responses were deemed representative of the sample of the population of

interest. The population of interest is defined as medium and large Australian foundations (including

a range of locations - Melbourne, Sydney, Brisbane and Adelaide) and a variety of levels on

‘embracing innovation’.

41

Document analysis of published annual reports as used to obtain responses to gaps in two survey

responses. Supplementary data for two organisational factors was obtained via document analysis

alongside Stage 2. These factors were number of women on the Board and the presence of defined

Board terms.

Stage 2: Data Entry

January to March 2018

The responses from 30 philanthropic foundations to the major study survey were entered into a data

file. This included responses to a range of pre-tested questions relating to: Organisational factors

(questions 5 to 32); Indicators of Innovation (questions 33 to 49); Weighting of innovation activities

(question 50).

The data was reviewed and cleaned for data errors. Each set of responses is coded using figures

supplied by respondents or, if responses are a percentage, percentages are changed into fractions

e.g. 80 percent became 0.8. Responses that were Don’t Knows and No responses are expressly and

individually coded for these situations. A descriptive data analysis table of responses to each survey

question is generated. The package SPSS is used for the data analysis.

Stage 3: Data Analysis

April to September 2018

This stage of the research followed several carefully considered steps. Each step was documented

before progressing to the next step.

Stage 3.1 Descriptive Analysis of responses to Survey

Descriptive data analysis was undertaken of the 30 responses to the survey. As noted above, the

responses to the survey questions were analysed using SPSS.

The survey included questions relating to organisational factors to be tested, indicators of innovation

and one question which weighted the indicator activities (which assisted in the construction of the

innovation index). The factors and indicators had been validated during the pilot study via a survey

followed by in depth interviews with nine experts in philanthropy, including international experts.

As explained above, this data is considered to be a representative of 30 philanthropic foundations

and the way they operate as organisations with Boards, strategies and different operational

approaches.

42

Stage 3.2 Construction of the Innovation Index

This stage involved constructing an innovation index relevant to the philanthropic foundation sector.

Data from survey responses relating to the seven indicators within innovation were considered,

taking into account weightings given to various activities by 22 respondents (Question 50).

Five different versions of the Index were developed using different weightings for the innovation

indicators. This large range of options was undertaken because of the need to consider the input

from survey participants, to construction of the Global Innovation Index and my knowledge form

practice in the sector. The latter was deemed the least persuasive as there was a sector response to

the innovation activities, which had drawn from 22 respondents.

The weightings from the survey response to Question 50 were used in Index 1A (median) and 1B

(mean). These weightings were very close and the mean scores were taken as more representative.

Index 2 was a simple approach that allocated 50 points to the innovation input indicators (divided

evenly into 10 points each) and 50 points to the innovation output indicators (divided into 25 points)

each. This balance of input and output reflects the approach of the Global Innovation Index (INSEAD

& Cornell University, 2014). The simple scoring approach did not reflect the feedback from the

survey so was less robust than Index 1. However, the balancing of inputs and outputs in the Index

was potentially important in the approach to the Index as the literature review had confirmed the

importance of measuring the entire innovation process.

Index 3 is essentially Index 1B reweighted to ensure that Innovation Inputs and Innovation Outputs

are balanced (valued at 50 points each) to reflect the balance given to the inputs and outputs in the

Global Innovation Index (INSEAD & Cornell University, 2014).

For the reasons noted above, both Index 1B and Index 3 had merit. Therefore, it was decided to take

two indices through to the data analysis stage. This would also allow for comparison of the results.

The following table shows the mean results from the survey from the questions relating to the

indicators of innovation within the context of an Australian philanthropic foundation and then shows

how these have been extrapolated to a 100-point score for Index 1B.

43

Table 5.1: Innovation Index IB compared with Innovation Index 3 (survey weightings of activities

overlaid with Global Innovation Index weightings to innovation inputs and innovation outputs).

Indicator Survey results

Mean

Innovation Index

1B

Innovation Index

3

Innovation Inputs 65 points 50 points

1 Funding research and development 0.1264 12 9

2 Investing in staff development 0.0918 9 7

3 Collaborating with others on projects (external

collaborations)

0.2264 22 17

4 Investing in social impact investments (i.e. with

a financial and social return)

0.1091 11 8.5

5 Research collaborations with Universities,

research institutes or business. (Leading to an

innovation)

0.1114 11 8.5

Innovation Outputs 35 points 50 points

6 Funding innovative projects and programs (i.e.

new services)

0.2486 25 36

7 Funding start up organisations, including not for

profit social enterprises.

0.1048 10 14

1.0185 100 points 100 points

Stage 3.3 Scoring the Innovation Index

The responses from those leading philanthropic foundations are scored against the two innovation

index indicators (Index 1B and Index 3). The coded survey responses from the 30 philanthropic

foundations are then scored for each indicator of innovation (apply the scoring system developed)

resulting in a total score for each foundation. The foundations have been de-identified and assigned

numbers 1- 30 in the SPSS spreadsheets.

There are a wide range of scores, from 0 to 63.30 (index 1B) and 60.93 (Index 3). It is possible to

achieve a 0 score as there was one foundation which indicated that it did not embrace innovation

and did not undertake any of the innovation indicator activities. Some foundations score highly on

one or more indicators but others score well on others. For example, only nine foundations

undertook impact investment so this indicator achieved only a 0 score for 21 foundations.

44

Table 5.2: Summary of scoring approach for indicators within Innovation Indices

Indicator Scoring

1 Funding research and development Range 0-80%

2 Investing in staff development Range 0 -10%

3 Collaborating with others on projects Range 0-10%

4 Research collaborations with Universities, research

institutes or business

Yes/No

5 Funding innovative projects and programs (i.e. new

services)

Range 0 -75%

6 Investing in social impact investments (i.e. with a financial

and social return)

Number 0 -3

7 Funding start up organisations, including not for profit

social enterprises

Number 0 - 3

Stage 3.4 Analysis between Innovation Index (two versions) and organisational factors

(survey responses).

A test of association (Using Spearman Correlation) is undertaken between the scores from each

Foundation on the Innovation Index (version IB and 3) and the organisational factors (from major

study survey data). This produces the results below.

This stage is seeking answers to the research question by undertaking a correlation analysis of the

scores on the innovation index (both Index 1B and 3) and the factors that had been posed as possibly

influencing a philanthropic foundation to embrace innovation. Five organisational attributes

(factors) are significant on both version of the index (i.e. ≤0.05). Three further factors are significant

under Index 3 and one under Index 1B. The five shared factors are most compelling as they are

significant on both Indices (see section 7.3).

45

Table 5.3: Factors influencing a philanthropic foundation to embrace innovation

Factor Index 1B (p value)

Index 3 (p value)

A history of supporting innovation 0.004 0.002

The foundation’s founder was specifically interested in supporting innovation

0.006 0.054

The CEO supports innovation; innovation is readily accepted in our program/project management.

0.03 0.03

The number of Board members with professional backgrounds.

0.02 0.003

Active member of one or more formal or organised networks within the philanthropic sector that have learning about a particular funding area of your foundation (e.g. education, environment etc.) as a primary aim.

0.045 0.053

Organisational culture: Our foundation actively seeks innovative ideas.

0.054 Not significant

Board approved Risk Appetite in relation to grantmaking. Not significant 0.013

Board approved Risk Appetite in relation to investment. 0.05 Not significant

The Foundation has one or more decision–making processes that include designing and pilot testing to test possible solutions (internally or via a grant for that purpose).

Not significant 0.05

The Foundation’s Chairperson is a champion of innovation. Not significant 0.04

Stage 4: Results & Implications of Research

September – October 2018

The final stage of the research considered the correlation analysis results of the study from both a

scholarly and practice perspective. A further literature review was undertaken to place some of the

findings in the context of relevant research. These are noted in chapter 8 and 9.

The data analysis also provides descriptive data that may be of interest to the philanthropic

foundation sector. One example is the low level of diversity amongst Boards of the responding

philanthropic foundations. Nearly half (46.7%) of Boards did not include a member born overseas.

Two thirds (66.7%) of Boards did not include a Board member who spoke a language other than

English at home. Three foundations (10%) had a Board member who identified as Aboriginal or

Torres Strait Islander.

46

6. Pilot Study

“A foundation should only embrace innovation if it can demonstrate that this will improve

outcomes.” (Pilot study response, Participant 4). “The foundation should seek to improve things –

either their own work and certainly the work of those addressing the issues they care about.

Innovation is also about trying and learning, a pursuit of innovation requires a learning and

improvement mindset. That’s what is important, not innovation for its own sake.” (Pilot study

response, Participant 7)

6.1: Overview

Answering the research question: what factors influence a philanthropic foundation to embrace

innovation? requires the construction of a tool that can measure innovation within a philanthropic

foundation and a set of organisational factors to test against the innovation scores of the

participating philanthropic foundations.

The pilot study was designed to further test the indicators of innovation (in order to construct a

philanthropic foundations innovation index) and the organisational factors that might influence a

foundation to embrace innovation with a group of experts in the field. The factors and indicators

included in the pilot study were drawn from the initial literature review and practice knowledge of

the researcher. The pilot study included a questionnaire and follow up interview (face to face or by

Skype) with nine experts in philanthropy. The outcomes of the pilot study determined the factors

and indicators which were investigated in the major study via a survey and data analysis (see

Chapters 7 and 8).

In order to avoid contaminating the major study, the methodology of the pilot study required that

the respondents be retired CEOs or Board Members of philanthropic foundations or academics with

a deep knowledge of philanthropic foundation governance and operations. Current CEOs of

philanthropic foundations were not included. All participants approached to participate in the pilot

study agreed to participate. Each participant held a deep knowledge of philanthropic foundations

and the philanthropic sector. The participation from both Australian (three respondents) and

international (six respondents) experts has made a major contribution to this study. There were five

women and four men amongst the participants with an age range of 45 – 75 years.

The pilot study process enabled a robust testing of both:

• indicators of innovation within a philanthropic foundation in 2015 (when the pilot study was

undertaken); and

47

• the possible factors (potential independent variables) affecting whether a philanthropic

foundation embraces innovation.

The definition of innovation, being social innovation within the context of the work of a

philanthropic foundation, was also explored especially by one participant. This enabled the

definition to be refined (see chapter 4.2).

6.2: Pilot Study Outcomes: philanthropic foundations embracing innovation

6.2.1: Why value Innovation?

All nine participants valued innovation by a philanthropic foundation. At a high level, a theme

emerged: Innovation within and by philanthropic foundations should be embraced not for its own

sake, but because it can lead to more effective responses to community problems. A sample of

responses is included below:

Pilot study participant 2: It is hard for a foundation to be effective if it is not innovative.

Pilot study participant 3: There is little justification for money which would otherwise flow into

consolidated revenue being retained in private hands, and at the discretionary use of private

individuals, unless it is used to make a meaningful contribution to solving our most entrenched

social challenges or provide a meaningful service or benefit that cannot otherwise be offered to

neglected or marginalized populations. I think you could add that it is useful risk capital for the

non-profit sector.

Pilot study participant 7: Foundation should seek to improve things – either their own work and

certainly the work of those addressing the issues they care about. Innovation is also about trying

and learning, a pursuit of innovation requires a learning and improvement mindset. That’s what is

important, not innovation for its own sake.

6.2.2: A definition of social innovation within the context of philanthropy

The pilot study provided useful feedback on the definition of innovation within philanthropy, both

confirming that it is social innovation and adding two additions to the Stanford University definition

to take account of the operations of a philanthropic foundation via its grant and social investment

assessment processes of philanthropic foundations (see bold below):

A social innovation is a novel proposal or solution to a social problem that is or could be more

effective, efficient, sustainable, or just than present solutions and for which the value created accrues

primary to society as a whole rather than private individuals. (Centre for Social Innovation, Graduate

School of Business, Stanford University, 2015).

48

These additional words capture the role of philanthropic foundations as social investors, where a

solution is often proposed but requires testing or demonstrating through a pilot or demonstration

project funded by a philanthropic foundation.

The respondents all spoke of innovation within a Foundation as both the way the Foundation itself

operates to identify and fund potential innovation, and the actual making of grants or social

investments to innovative projects or projects that explore new ideas and potential solutions to

entrenched social or environmental problems. The “embracing of innovation” is both a strategic

choice and in some cases embedded in the Foundation’s “culture”. The notion of “culture” was a key

issue arising in two of the responses to the suggested Indicators (see 6.4.2)

6. 3: Determining the factors to include in the major study

6.3.1: Factors influencing innovation within a philanthropic foundation

The objective of the pilot study was to identify a group of factors that were considered likely to be

active influencers of a philanthropic foundation embracing innovation. This object was achieved.

There were a number of organisational attributes or factors (possible independent variables) that

were considered worthy of further investigation by the expert participants. Other factors were

considered most unlikely to be significant factors by more than 50 percent of respondents. This

informed the choice of factors within the major study.

The factors are considered in their groups as they were presented in the pilot study questionnaire

(see Appendix 2). A table setting out the factors that were considered by the expert participants to

more likely to be independent variables is set out in 6.3.2 below.

6.3.2 Analysis of pilot study responses

The responses to the pilot study responses are included in a table in Appendix 2. The pilot study

grouped factors relating to attribute variables (Governance characteristics, Foundation profile and

Foundation processes) and behavioural variables (Governance characteristics, Foundation profile

and Foundation processes). The following table sets out the factors that were considered to be

worthy of further investigation as an organisational attribute (factor) or as an indicator of innovation

to include in the Innovation Index.

6.3.3 Identifying Factors (organisational attributes) for major study

The following tables set out the summary of responses to the proposed factors.

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Table 6.1 Attribute Variables: Governance characteristics

Governance characteristics Responses

1. Average age of Board Members 6 (67%)

2. Percentage of Board Members that are women 7 (78%)

3. Percentage of Board Members from professional backgrounds e.g. law, accounting,

medicine etc.

7(78%)

4. Percentage of Board Members from corporate backgrounds 3 (33%)

5. Percentage of Board members from private business and entrepreneurial

backgrounds.

4 (44%)

6. Cultural diversity 7 (78%)

7. Average length of tenure 4 (44%)

8. Maximum length of Board tenure specified in constitution, deed or will establishing

foundation.

7 (78%)

9. Skills or qualification of Chair of Board. 9 (100%)

10. Skills background of CEO 9 (100%)

Discussion

Board Diversity (1, 2 & 6)

The issue of Board diversity was regarded by all participants as likely to be relevant to a Foundation

being open to embracing innovation. The responses varied as some respondents rated cultural

diversity as highly relevant and some gender diversity as highly relevant.

Finding 1: Board diversity, gender, cultural, and age, and diversity overall should be tested as

possible independent variables.

The influence of Board Members from corporate backgrounds or professional backgrounds received

varied responses. Some respondents considered that corporate backgrounds resulted in Board

Members who were more able to understand organisational transformation and strategy. One

respondent was particularly negative about the influence of professional Board Members on

innovation – to the extent that he felt they could be a constraint on innovation. However, the

various backgrounds of Board members is tested in the major study as one element of Board

diversity.

50

Maximum Board Term (8 & 7)

The response to factor 7, being the length of time Board Members had served on a Board was not

rated highly. However, the presence of a maximum or specified Board term within the constitution

of a foundation did rate highly, largely because it was thought that Board renewal could allow for

fresh ideas to be brought into a foundation.

Finding 2: The presence of a maximum or specified Board terms within the constitution or other

governance rules should be tested as a potential independent variable.

Skills and qualifications of the CEO and Board Chair (9& 10)

There was a unanimous positive response to the critical importance of the role of both the Board

Chair and the CEO to embracing innovation. There was a more common view that the CEO could

drive innovation, but it was possible for a Chair to drive innovation if the CEO was prepared to

implement organisational processes to support this. If either the CEO or the Chair did not support an

innovative approach to the foundation’s work, then innovative practices and innovative granting

would not happen i.e. that either could block innovation.

Risk appetite was also tested in the Governance characteristics item 4 so I will return to this factor

later in this report. The responses to these factors mirrored the factors later in the questionnaire.

Several responses said it was not the qualifications of the Board or Chair that mattered but the way

they operated. Given this, the specific qualifications of the CEO and the Chair were not included in

the major study, however their commitment to innovation was included.

Finding 3: The commitment of both the CEO and the Board Chair to embracing innovation are

factors that should be examined in the major study. This overlaps with Governance characteristics

5, 6 and 7 later in the questionnaire.

Table 6.2 Attribute Variable: Foundation Profile

Foundation profile Responses

11. Size of corpus 4 (44%)

12. Age of Foundation (date of establishment) 3 (33%)

13. Legal status (trust, company or hybrid) 1 (11%)

14. Public or private 2 (22%)

15. Fund development (fundraising) activities as part of

Foundation’s role

4 (44%)

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16. Size of staff team 1 (11%)

17. Average length of tenure of grant program staff 3 (33%)

18. Funding areas e.g. environment, homelessness, youth, poverty

& disadvantage, education etc. (use Foundation Centre lexicon)

4 (44%)

19. Percentage of corpus allocated to social investment

[Note: also included in the list of possible indicators]

6 (66%)

20. Percentage of grants program allocated to innovation/ higher

risk projects and programs (referred to as an indicator in some

responses)

6 (66%)

New factor: Agreed written policy of Foundation includes risk.

In the context of a philanthropic foundation’s approach to

innovation, risk especially relates to grantmaking and

investment.

Discussion

Overall, this set of factors was not considered likely to influence a philanthropic foundation to

embrace innovation. In fact, one respondent labelled them “Janus” factors that would be difficult to

interpret in any particular way.

During interviews, the topic of risk came up in terms of a philanthropic foundation’s mission or other

policy position. There was a sense that if the mission statement (or high-level policy) of a foundation

allowed some level of risk, that this was a factor that could influence innovation. Risk appetite also

arises later in the questionnaire.

The responses to item 19 aligns with the response to the Indicators section of the pilot study. On

reflection, this is better included as an indicator not as a factor. The responses to this item expand

on this further:

Pilot study participant: Important: readinesss to invest a part of the corpus in MRI's, PRI's, lines of

credit, short or long term loans, impact investments is an excellent indicator of a foundation's

readiness to embrace new methodologies with respect to entrenched social issues.

Finding: The percentage of corpus allocated to social investment and the allocation of some of the

grants budget to innovation/higher risk projects and programs are better regarded as indicators of

innovation. While both items 19 and 20 were regarded as relevant or highly relevant by the majority

of participants, the actual comments made on the questionnaire or during interview reveal that

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these are regarded as indicators of innovation, rather than factors. Agreed risk appetites around

granting and investment could be regarded as relevant factors.

Table 6.3 Behavioural attributes: Governance characteristics

Governance characteristics Relevant

1. Board Members are recruited through Board Member networks. 2 (22%)

2. Board Members are recruited through public advertisement or assistance from

recruitment agency i.e. from a wide pool of candidates.

4 (44%)

3. Decision-making processes allow or encourage innovation. 8 (89%)

4. Risk appetite profile indicates high levels of risk tolerance. 8 (89%)

5. Board Chair champion of innovation 7 (78%)

6. CEO is a champion of innovation 8 (89%)

7. Board and CEO undertake strategic planning process every year, including some

form of scan of the external environment.

[Note: this question should be extended so it includes strategic discussions at

Board meetings, not just the annual strategic planning process.]

7 (78%)

Discussion

Many of the factors in this category rated highly by respondents and merited inclusion in the major

study.

The responses to items 5, 6 and 7 relating to the CEO and the Board and their relationship

overlapped significantly with items 9 and 10 (in the attribute variables; governance characteristics).

Item 7 around strategic planning could be a factor focused on strategic focus, which again emerged

as an important factor to test – whether it is an item at every Board meeting or an annual process.

The importance of including external input to strategy was also mentioned in interviews.

The way the Board was recruited did not rate very highly. The earlier discussion about Board

diversity was considered to be the likely key attribute i.e. the experts considered that final

composition of the Board was more important than the way they arrived on the Board.

Item 3 which focused on decision making processes raised issues relating to organisational culture,

which was an area that a number of respondents made additional comments at the conclusion of

the survey.

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Item 4 raised some very important comments around risk during interview. The responses indicated

that the wording of this factor requires editing to capture the concept that the willingness to take

risks with some of the grants budget is what is critical. (See table on following page).

Discussion

There were some strong responses in this section.

The responses to items 8 – 15 were tested during interviews and it became clear that being part of a

network is not a factor per se. It is the membership of networks that actively encourage learning and

provide opportunities to look at new methodologies and ideas that matter. It was noted that

networks also provide collaboration opportunities.

Finding 7: The network membership question needs to be included with a focus on learning and

being exposed to new ideas.

Finding 8: A history of supporting innovation is potentially an important factor.

Finding 9: The aspirations of the founder were considered important by just over half the

respondents. Some noted that this legacy might drop away over time so may not be a factor.

Finding 10: A written commitment to innovation or the taking of informed risk could be included

as factor. This is also mentioned above specifically in relation to risk appetite relating to

grantmaking and investment.

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Table 6.4 Behavioural attributes: Governance characteristics

BEHAVIOURAL VARIABLE Please select if you think the

attribute is relevant.

Governance characteristics (continued) Relevant

Foundation is engaged in networks or connections that emerge as

significant:

8. Subscribe to Stanford Social Innovation Review or other relevant

academic journal

9. Attended Skoll Forum for Social Entrepreneurs at least once

10. Member of Jewish Funders Network

11. Member of Australian Environmental Grantmakers Network

12. Members of Australian Community Philanthropy

13. At least one staff member who is a member Swinburne Philanthropy

Alumni

14. Member of at least one overseas philanthropy support or advisory

organisation

15. Other memberships?

8 (89%)

Foundation profile

16. Aspirations/intent of founder, personal experience of founder (e.g.

entrepreneur)

5 (56%)

17. History of supporting innovation (i.e. expertise) 8 (89%)

6.3.4 Organisational attributes (factors) to include in major study

A review of appropriate data to measure the factors was considered. As indicated, many factors

required a question in the major study survey.

Table 6.5 Organisational attributes to include in study

Attribute Variable

1. Board diversity (gender).

2. Board diversity (cultural diversity).

3. Board diversity overall (gender, cultural, age, work backgrounds).

4. Maximum or specified terms in constitution or other governance document of the foundation.

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5. Innovation or risk taking as a written and agreed goal.

Behavioural Variable

6. The CEO is a champion of innovation within the foundation.

7. The Board Chair is a champion of innovation within the Foundation.

8. Decision making processes within the Foundation explicitly allow or encourage innovation.

9. The Foundation is aware of and manages risk.

10. Strategic discussions at Board meetings and strategic planning processes that include external

input.

11. Foundation is a member of networks that provide opportunities for learning and the exchange

of ideas.

12. Aspirations of founder.

13. History of supporting innovation.

These factors were expanded in the survey questions. For example, a range of aspects of Board

diversity and Board composition were surveyed.

6. 4 Indicators of Innovation

6.4.1 Response to proposed indicators

The responses to the Pilot Study varied in relation to the possible indicators of innovation within a

philanthropic foundation.

The main new issue that arose related to “culture” as a factor influencing a foundation to embrace

innovation. A recent publication on Foundation Culture reflects this point. “Organisational culture is

the personality, behaviours and underlying assumptions of an organization…foundations have an

extraordinary opportunity to rethink and reinvent key outdated aspects of their culture while

building on longstanding strengths.” (David T & Enright K, 2015, p2)

One shared insight was that indicators of innovation change over time. As commented by one

participant as an example, while some ICT indicators may have indicated innovation five years ago,

this may no longer be the case. For this reason, the authors of the Global Innovation Index (INSEAD

& Cornell University, 2014) also review the country indicators every year. ICT are now regarded as

business as usual tools in philanthropy practice. ICT use is not in itself used as an indicator for this

reason.

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6.4.2: Summary of responses to indicators of a philanthropic foundation embracing innovation.

The first four indicators received a positive response between 100 percent and 77 percent. The fifth

indicator received a positive response of 67 percent. The last two indicators received a response of

55 percent.

An indicator relating to ‘culture’ requires further consideration. An indicator related to a culture of

learning, reflection and evaluation could help address this. One of the respondent’s comments

about culture are reflected in a recent research report by Grantmakers for Effective Organisations:

“Organizational culture is the personality, behaviours and underlying assumptions of an

organization. While culture can be understood in various ways and is hard to pin down, it has

a persistent influence on how an organization behaves. Over the course of our exploration we

have become convinced not only that a positive internal culture is an essential bedrock for

effective philanthropy, but we have also, as a sector, habitually neglected this important

contributor to our success.” (David T & Enright K, 2015, p2)

The set of indicators of innovation that a majority of the expert participants responded to are set out

below.

Table 6.6 Majority indicators

Participant Response

(relevant)

Indicator

1. 89% % of annual operating budget spent on research and developing new

ideas/programs

2. 100% % of annual granting budget spent on projects or programs that explore

or demonstrate a new idea or service model.

3. 78% Number of research collaborations with universities, research institutes

or business in last 12 months

4. 78% Number of joint ventures/ collaborative funding ventures/ strategic

alliances in last 12 months

5. 67% % of annual budget spent on staff development

6. 55% % of grants to start up programs/ projects

7. 55% % of corpus allocated to impact investment (i.e. to achieve a social and

financial return)

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7. Major Study Data Analysis

7.1 Introduction

The initial sample of foundations was provided by the Australian Charities and Not-for-profit

Commission. Medium or large (as defined by the ACNC), independent philanthropic foundations

which had selected grantmaking as their primary activity in their Annual Information Statement 2016

to the ACNC were included. This did not include trusts or foundations that were managed by

commercial trustee companies as they were not sufficiently independent. Details of the research

method are included in chapter 5. The survey responses of 30 philanthropic foundations were

analysed.

7.2 Data Analysis Steps

The major study data analysis includes the following steps:

1. Descriptive data analysis was undertaken of the 30 responses to the survey. The survey

includes questions relating to the person completing the survey, organisational attributes

(factors) and the indicators to be used in the proposed innovation index. In addition, data in

relation to two further organisational attributes (number of women on the Board; the

presence of defined Board terms), is obtained from document analysis of annual reports and

constitutions or trust deeds. The organisational attributes and innovation indicators survey

question responses were coded into SPSS to enable analysis. This is explained in the

following section.

2. Constructing an innovation index relevant to the philanthropic foundation sector from

survey responses to the questions linked to indicators within innovation index, including

taking into account weightings given to various activities by 22 respondents (Question 50).

Survey respondents indicated the relative importance of activities, which related to the

indicators. Ultimately two indices were developed and analysed, known as Innovation

Indices 1B and 3.

3. Scoring the respondent foundations against the two innovation indexes (both versions)

against the innovation indicator responses x, taking into account the range of responses

within each question. This step is also explained in the following sections.

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4. Seeking answers to the research question by undertaking a correlation analysis of the scores

on the innovation index (both version Index 1B and 3) and the factors that had been posed

as possibly influencing a philanthropic foundation to embrace innovation. Five

organisational attributes (factors) were significant on both version of the index. Three

further factors were significant under Index 3 and one applying Index 1B. The five shared

factors are most compelling as they are significant on both Indices (see section 7.3).

The following sections describe the work undertaken and the results of each step in the research

approach.

7.3 Descriptive Data Analysis

7.3.1 Introduction

The survey included questions relating to factors (questions 5 to 32 of the survey, see Attachment

3), and two factors obtained from document analysis). The survey also included questions relating to

indicators within the innovation index (Qs 33 to 49) and a further question provided a weighting

amongst the various indicator activities (Q50). The first step undertaken was descriptive data

analysis, providing information about the response range and frequencies.

While the descriptive data does not in itself answer the research question, this depth of data about

governance and organisational processes and culture has not been collected on a group of 30

Australian philanthropic foundations previously and therefore provides some interesting insights

into independent, medium or large, grantmaking Australian philanthropic foundation as

organisations.

7.3.2 Descriptive Data Analysis of Factors

The full Descriptive Data Analysis report of the organisational attributes (factors) is contained in

Appendix 4. The following is an overview of findings from the descriptive data analysis.

7.3.2.1 Foundation Leadership

(Questions 1-4)

The age of the person responding to the survey who were CEOs, Executive Chairs or other senior

executives was spread between 30 – 69 as follows: 30s 10%, 40s 26.7%, 50s 26.7% and 60s 36.7%.

More than one third are leaders in their 30s and 40s.

The gender balance of respondents was women 56.7 percent and men 43.3 percent.

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7.3.2.2 Governance

Table 7.1: Response Summary: Board Profile Questions 5 – 14

Topic Responses

Size of Board 3-14 (and one sole trustee)

Gender diversity

66.7% of philanthropic foundations applied a gender diversity policy.

There were between 0 and 11 women on the Boards of the

respondent foundations. The mean was 3.14 women.

Cultural diversity

Board recruitment

policy

Only 30 percent of respondent foundations applied a cultural

diversity policy. The lack of cultural diversity policies is reflected in

the actual Board composition.

Cultural diversity Nearly half (46.7%) of Boards did not include a member born

overseas. One had three members and five had two members.

Another ten had one member. Two thirds (66.7%) of Boards did not

include a Board member who spoke a language other than English at

home. A further 20% had one member who spoke a language other

than English at home. Three foundations (10%) had a Board member

who identified as Aboriginal or Torres Strait Islander. Given

Australia’s culturally diverse population, this is an area where change

might occur in future.

Age diversity The number of years between the youngest and oldest Board

member ranged from 10 to 50 years. Eighty percent of Foundations

had age ranges of 20 years or more. 33.3% had age ranges of more

than 30 years.

Board members with

professional

backgrounds.

The number of Board members with professional background ranged

from 0 (two foundations) to 13. 76.6% of respondents had between 2

and 7 Board members with professional backgrounds.

(Professional background was defined as ‘a qualification that has an

ongoing professional standards requirement such as law, accounting,

engineering, medicine or other)

Board members with

research backgrounds Board members with research backgrounds were less common with

seven respondent foundations having no Board members with

research backgrounds. Fourteen foundations had one Board member

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with a research background, five had two members, one had three,

and three had four members.

Board members with

business backgrounds Twenty percent had two members with business backgrounds and

36.7% had three members. The most number was seven members

with business backgrounds.

Specified Board terms Only 43.3% of respondent foundations had specified terms for Board

appointments.

7.3.2.3 Leadership

66.7 % of respondents indicated that their Chairperson was a champion of innovation (Question 15).

50% of the Founders of the foundations were known to be specifically interested in supporting

innovation (Question 28).

83.3% of respondent foundations indicated that the foundation had a history of supporting

innovation (Question 29).

The survey respondents were CEOs or Executive Chairs or in two cases, senior executives. Question

32 was used to test the approach to innovation of the person completing the survey’s, usually the

CEO. 86.7% of respondents chose: ‘innovation is readily accepted in our program/project

management’. Two foundations selected: ‘Innovation is resisted’, one foundation selected

“innovation is perceived as too risky”, while one foundation did not answer this question.

While this indicates a willingness to embrace innovation, the innovation index tests for evidence of

innovation commitment i.e. the actual embracing of innovation.

7.3.2.4 Organisational decision-making processes

Another survey response which indicated a high level of organisational interest in innovation was the

high positive response at 73.3 percent to Question 16: Does the foundation have decision-making

processes that include visioning or creative thinking opportunities to generate ideas?

Another high response was to the Question 17: Does the foundation undertake feasibility studies

(internally or for granting purposes). 73.3 percent responded positively to this.

Question 18: Does the foundation have decision making processes that include designing and pilot

testing to test possible solutions (internally or via a grant for that purpose) attracted a positive

response of 76.7 percent.

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7.3.2.5 Risk Appetite

Fewer foundations had a Board approved Risk Appetite in relation to granting (56.7%; Question 19)

compared with a Risk Appetite in relation to investment (70%: Question 20). There were three don’t

know answers in relation to Investment Risk so this may in fact be higher.

7.3.2.6 Strategic Planning

70 percent of respondent foundations indicated that the Foundation’s Board and CEO undertake a

strategic planning process each year (Question 21). In addition, 73.3 percent responded that senior

management undertook a planning process each year that includes strategic topics (Question 22).

During strategic planning, 86.7 percent of foundations reviewed external materials (reports or

presentations) (Question 23). The difference in responses between this question and the question

relating to strategic planning each year is explained by the fact that some foundations do not

undertake strategic planning every year. 73.3 percent of foundations discussed strategic matters at

most Board meetings (Question 24).

7.3.2.7 Networks

The section on networks scored strongly.

83.3 percent of foundations were members of one or more formal or organised networks within the

philanthropic sector that have learning about philanthropic practice as one of its primary aims. This

would largely be attributed to membership of Philanthropy Australia, Australian Environmental

Grantmakers Association or Australian Community Philanthropy and other US based philanthropy

membership bodies.

Membership of networks outside the philanthropic sector where there are opportunities to share

knowledge and learn from external experts scored 60 percent.

7.3.2.8 Culture

One survey questions tested the foundation’s response to innovation, drawing from research by

(Choi & Choi, 2014). This question sought to respond to the organisational attribute of culture, which

one of the expert participants had identified as central to a foundation embracing innovation.

93.3 percent of respondents selected the choice that their foundation ‘actively seeks innovative

ideas’. Innovation is a process and the being open to innovative ideas is part of this process.

(Anderson et al, 2014) The response to this question does not respond to execution and other

innovation processes.

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The very high response was analysed for kurtosis because 28 of the respondence selected one

possible response of three. It is possible that the very high responses in support of a culture of

innovation are a result of the demand effect. In the literature relating to innovation, this can be

described as the innovation bias. There may be limitations of the response to this factor. Other

factors supporting an innovation culture would be expected in a foundation that scores highly on the

Innovation Index.

7.4 Developing the Innovation Index

7.4.1 Introduction

In order to test the factors that influence a foundation embracing innovation, the research approach

requires a tool to assess the level of innovation of the 30 foundations who participated in the survey.

The Innovation Index (two versions) enables an innovation score to be assigned to each foundation.

Various approaches to building an innovation index within the philanthropic foundation sector are

considered in this chapter.

Within the research question, the term “embrace innovation” is crucial. The definition of embrace is:

Accept (a belief, theory, or change) willingly and enthusiastically. For example: ‘besides traditional

methods, artists are embracing new technology’ (Oxford Dictionary, 2018). Within this definition,

‘take up” is provided as a synonym for ‘embrace’. In this study embracing innovation therefore

means to actively take up innovation as part of a philanthropic foundations way of delivering

philanthropy. This includes both in the work that they do, the projects they fund and the way they

manage their foundation as an organisation (for example, their approach to risk, investment, staff

development and governance). It is not enough to say that an organisation has an innovative culture

or mention it in marketing materials, the indicators of innovation demonstrate action in embracing

innovation. The wide range of factors to be examined for their influence relate to these different

organisational dimensions.

7.4.2 Constructing the Innovation Index

One of the more challenging aspects of this study has been the development of an Innovation Index

(an innovation ranking tool), which is valid and relevant to the context of the philanthropic sector. As

a tool that related to philanthropic foundations did not exist, a tool has been developed based on

adapting the Global Innovation Index (INSEAD & Cornell University, 2014) for an organisation. As

described in chapter 6, the adapted Innovation Index was tested in the pilot study and a set of seven

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relevant indicators of innovation were identified. Data responding to indicators in the Innovation

Index were gathered from responses to the survey from 30 philanthropic foundations.

The Innovation Index applied in this study has been built through the following methodology:

1. An initial review of Global Indicators of Innovation Report 2014 (INSEAD & Johnson

University), which bases an Innovation Index on seven pillars or indicator groups; five relate

to Innovation Inputs and two to Innovation Outputs. The Index is based on the simple

average of the results of the Inputs and Outputs sub-indices. The pillars are:

• Innovation Input: Institutions Human capital and research; Infrastructure; Market

sophistication; and Business Sophistication.

• Innovation Outputs pillars are: Knowledge and Technology Outputs; and Creative

Outputs.

2. The indicators within the Global Innovation Index were reviewed to identify measures

that could relate to philanthropic foundations as organisations i.e. philanthropy undertaken

by a foundation or trust, which was set up with a governing board, staff and a grantmaking

program. The pillar relating to Institutions relates to an entity that is a state and is therefore

not relevant to an organisation. The Indicators potentially relating to an Innovation Index for

philanthropic foundations were tested in the Pilot Study with nine experts in philanthropic

practice from Australia, UK and the US interviewed in depth. Seven indicators were

identified (see chapter 6).

3. A further literature review was undertaken to consider the approach taken by other

researchers interested in innovation within the not-for-profit sector more generally (see

chapter 4).

4. Responses to the survey question relating to the seven Indicators showed a range within

each Indicator. These are included in Table 1. The Descriptive Data Analysis is contained in

Appendix 4.

5. Survey participants were asked to allocate 100 points amongst organisational activities

that reflected the seven Indicators. 22 participants completed this task. These weightings

inform the Innovation Index version 1B, with some reweighting for Index 3. Both these

Indices were used in the subsequent correlation analysis.

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Five approaches to developing an Innovation Index for the philanthropic foundation sector are

explored in the following section. The approaches are based on the mean of seven weightings of

various innovation activities provided by survey participants. These activities are indicators of

innovation developed through the pilot study and include innovation inputs, processes, outputs and

outcomes. One approach then overlays the equal weighting between innovation inputs and outputs

as applied in the Global Innovation Index (INSEAD & Cornell University, Figure 1: Framework for the

Global Innovation Index 2014, 2014, p 46). Two versions of the Index were used in the correlation

analysis.

From an organisational perspective, embracing innovation means focusing on both generating new

ideas and also on execution. From a granting perspective, this means ensuring that the granting

process both encourages innovative thinking but also provides funding that supports innovative

projects and the process of execution.

7.4.3 Philanthropic Foundation Innovation Index: A user perspective

The motivation to undertake further research into the research question arose from experience

within philanthropic foundations, both as an adviser to private and community foundations for 12

years and, for the last seven years, as the CEO of a large foundation with assets of $250 million.

Through these roles, a perspective on how foundations as organisations operate and evolve has

been gained, which informed the initial development of the Innovation Index indicators. The

researcher has been keenly aware of the potential for researcher bias in the development of the

survey questions, upon which the scoring is built. As has been mentioned previously in this study,

the researcher understands that some foundations may choose to not embrace innovation for a

range of valid governance and management reasons as they pursue their philanthropic objectives

(Giving Australia, Philanthropy and philanthropists, 2016) On the positive side, deep sector

experience is of assistance in considering the survey responses and the construction of the Index.

The seven indicators of innovation applied in this study were drawn initially from a wide range of

potential indicators drawn from the Global Innovation Index (INSEAD & Cornell University, 2014) and

then tested in the survey and during the in-depth interviews with the nine experts in philanthropy

during the Pilot Study stage of this research. These experts included academics from Australia, US

and UK, and practitioners with many years of experience, again from Australia, US and UK. The Pilot

Study is reported earlier in chapter 6. The seven indicators were chosen based on the pilot study

65

expert responses. They include at least one indicator that relates to each of innovation inputs,

process, outputs and outcomes.

The following overview provides further context for considerations informing the innovation

indicators which are applied to philanthropic foundations as organisations.

Indicator 1: Funding research and development

Research and development is an indicator within the Global Innovation Index. Research and

development are intrinsic to innovation. Without the exploration and testing of new products,

services or processes, innovation will not be achieved. This is likely to be useful indicator as there are

a range of responses to the survey question relating to research and development. There are

foundations that do not fund research and development. These foundations are often established by

private individuals to support mainstream charitable causes which need support for existing

programs such as material aid, scholarships or disability services. A foundation that funds research

and development both internally or externally is demonstrating an interest in testing new ideas,

whether they be about new products, services or processes. This is an essential element to

embracing innovation.

Indicator 2: Investing in staff development

This is quite a thought provoking indicator from a philanthropic foundation management

perspective. The range of survey responses to this indicator question is wide. Traditionally, until

about 20 years ago, Australian foundations have been largely run by volunteers including Boards of

often male, retired professionals and business people. Spending money on staff training and

development has often not been a high priority when setting operating budgets. This is beginning to

change as Foundation Boards and CEOs recognise the need to employ thoughtful, professional staff

who can understand community issues at a complex systems and multidimensional level and build

new collaborations and networks to tackle difficult issues. For a foundation to have an innovation

mindset, one would expect that the executive has recognised that staff development was required

to create a culture of learning and opportunities for scaling up projects, both part of the process of

innovation.

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Indicator 3: Collaborating with others on projects

Philanthropic foundations have traditionally funded projects alone, sometimes hoping to receive a

high level of community recognition for these grants. When foundations have looked outside their

organisation to find partners, this usually indicates a desire to share knowledge and learn from each

other, and to scale-up impact, both elements that are part of the innovation process.

Indicator 4: Research collaborations with Universities, research institutes or business

Foundations that are part of research collaborations, which include co-funding but may also include

adding their networks and knowledge to the project, are more likely to be open to innovation. There

is a growing realisation within more progressive foundations that one foundation alone will not have

the necessary financial or intellectual clout to tackle systems level change. This is especially true in

relation to community wide challenges such as homelessness, which require policy and funding

changes by government at several levels alongside support from the commercial sectors.

Indicator 5: Funding innovative projects and programs (i.e. new services)

This may seem like a very obvious indicator but the very wide range of responses to survey questions

relating to this indicator make this a very useful indicator. There are certainly foundations that do

not have an interest in funding new services, preferring to reduce risk through making grants to well

established charities with well-tested programs. A foundation may of course make a valuable

contribution to society through funding established services (Giving Australia, Philanthropy and

philanthropists, 2016). In the context of the current research, the commitment to funding new

solutions to entrenched problems within some social issues indicates a greater commitment to

embracing innovation as an organisational choice.

Indicator 6: investing in social impact investments (i.e. with a financial and social return)

Within the context of 2017, when the survey was completed by 30 philanthropic foundations, this is

a strong indicator of embracing innovation. In ten years’ time, it may not be as strong an indicator

and another innovation output indicator could be found to replace it that is relevant to those times.

While social impact investment as a core part of a philanthropic foundation’s investment policy and

asset allocation is growing around the world (led by the Global Impact Investment Network, Impact

Investment Australia, Community Foundations of Canada, Rockefeller Brothers Fund and others),

there are only a minority of Australian foundations that have made a commitment to allocate a

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percentage of their asset allocation within their investment strategies to impact investments. In

some instances, three or four foundations have invested alongside each other as a way of sharing

the learning and the risk in this new form of investment. An excellent review of the state of Impact

Investing in Australia at the end of 2013 describes a limited number of ‘early adopters’ who have

embraced impact investment:

“First-mover charitable trusts and foundations, together with insitutional investors, have

successfully established and implemented impact investment strategies.”(Charlton et al, 2013)

Indicator 7: Funding start-up organisations

Funding a start-up organisation is often the highest risk grantmaking made by a philanthropic

foundation. With no organisational track record and often few financial assets, foundations would

not fund a start-up unless they were wanting to support the testing of an important new response to

a tough social problem. Leaders of charities who can demonstrate a community need and a well-

conceived idea about a process, service or product to test may attract philanthropic support from

foundations that are embracing innovation in the way they operate. Only a foundation committed to

innovation and which accepts informed risk would fund a start-up. Start-ups within the survey

responses can include social enterprises, which are for-purpose businesses that use a charity

structure. Social enterprises seek to generate earned revenue to help fund a charity’s activities

and/or provide services or employment to people facing financial disadvantage.

7.4.4 Review of Innovation Index approaches

7.4.4.1 APPROACH 1

In order to weight the seven indicators of innovation, Question 50 in the survey asked respondent

foundations to weight the various activities listed. Twenty-two of the 30 survey participants

allocated 100 points across the seven options (indicator activities). The other respondents did not

respond to the question, which was at the end of the rather lengthy survey. The survey question was

as follows:

Please allocate 100 points between these seven areas to reflect their relative importance to your

foundation:

• Funding research and development

• Investing in staff development

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• Collaborating with others on projects

• Research collaborations with universities, research institutes or business

• Funding innovative projects and programs (i.e. new services)

• Investing in social impact investments (i.e. with a financial and social return)

• Funding start-up organisations, including not-for-profit social enterprises.

The mean of the results of the responses for each of the seven indicators are set out in the following

table. These were then extrapolated to a 100 point system.

Table 7.2: Comparison of scoring Innovation Index IA (applying median for point allocation) and IB

(applying mean for point allocation)

Indicator Survey results Median

Innovation Index 1A (100 points based on Median)

Survey results Mean

Innovation Index 1B (100 points based on Mean)

1 Funding research and development 0.100 11 0.1264 12

2 Investing in staff development 0.065 7 0.0918 9

3 Collaborating with others on projects 0.225 25 0.2264 22

4 External research collaborations with

Universities, research institutes or business

0.100 11 0.1114 11

5 Funding innovative projects and programs

(i.e. new services)

0.225 25 0.2486 25

6 Investing in social impact investments (i.e.

with a financial and social return)

0.090 10 0.1091 11

7 Funding start up organisations, including not

for profit social enterprises

0.100 11 0.1048 10

0.905 100 points 1.0185 100 points

The points allocated to each indicator based on the Median and Mean results are very close. There is

a slight higher emphasis on research and development and investment in staff development rather

than collaboration in the mean results compared with the median results. There is a one point

difference in relation to social impact investing and funding start-up organisations.

This approach benefits from applying the perspectives of 22 philanthropic foundations that

responded to the survey thereby adding a sector specific dimension. This weighting can be applied

to the indicators according to the mean of the practice of 22 foundations as a more objective

measure, rather than relying on the researcher’s practice knowledge. The foundations considered

each area of activity and give all seven indicators a weighting that reflects the importance of that

69

activity within their foundation. The mean results Innovation will form the basis of constructing the

Innovation Index.

In this index, the indicators relating to inputs total 65 points and the indicators relating to outputs

total 35 points.

This data includes both innovation inputs and outputs as shown in the following Table 2 but does not

have a balanced weighting between these measures as is applied in the Global Innovation Index

(INSEAD & Cornell University, 2014). The Global Innovation Index provides equal points to the total

of the indicators relating to innovation inputs (e.g. 50 points) and equal points to the total of the

indicators relation to innovation outputs, reaching a 100 possible score.

7.4.4.2 APPROACH 2

The following table explains the indicators in relation to the pillars within the Global Innovation

Index (GII). In particular, grouping the indicators into Innovation Inputs and Outputs. As observed in

the literature review (Anderson, 2014), research that considers the full innovation process and not

only innovative products is an area where more research would be useful.

The first column of Table 2 below states the sub-indices headings in the Global Innovation Index on a

simple scale. Each indicator is evenly weighted within the innovation output and innovation input

indicators. One pillar of the Global Innovation Index relates to Institutions at a national country level.

As previously mentioned, this does not apply at an organisation level so no indicator relating to state

Institutions has been applied in the Innovation Index in this study. All other GII pillars are included in

the Index.

The weighting of each indicator in column B is informed by the researcher’s practice knowledge (see

section 3 above).

This has been applied as follows:

Human capital and research: Funding research and development and investing in staff development

are both critical elements of investing in innovation.

Investing in staff development is an indicator of importance as this is an area where many

foundations have not directed resources, often due to the wish to reduce overheads rather than

recognising that staff development is likely to be a critical part of building capability to embrace

innovation.

70

While collaborating with others is often important within the innovation process, collaborations that

involve cross sector collaborations are more likely to be indicators of innovation. For this reason, the

second indicator relating to collaborations has been given a slightly higher weight.

Social impact investment, meaning investing the corpus of a foundation (not granting income) with

the double objective of achieving both a social and a financial return, is an indicator of innovation in

2018. This may change as social impact investment practices mature across the Australian

philanthropic sector and more foundations adopt this approach. Because of this, the weighting has

been reduced.

In terms of the innovation outputs, the funding of innovative projects and programs has been given

more weight within Index 2A than funding start-ups. This is because some of the start-ups may be

social enterprises and, while they may be risky as a new enterprise, they may not in fact be

operating an innovative model or within an emerging industry. For example, there have been many

cafes funded by foundations to employ disadvantaged young people, so this is no longer an example

of especially innovative granting.

Table 7.3: Innovation Index 2A (based on simple allocation of 50 points for scoring innovation inputs

and 50 points for innovation outputs across indicators), compared with Index 2B (based on the

allocation of points for innovation inputs and innovation outputs based on the researchers practice

knowledge).

Global Innovation Index

Pillars

Innovation Index

Indicators

Column 1

Index 2A Same weight

given to the sub-

indices

Column 2

Index 2B Reweighted

based on

practice

knowledge

Indicator Innovation Input Innovation input – 50 points Points Points

1 Institutional Not relevant at organisation level

2 Human capital &

Research

1. Funding research and

development

1. Investing in staff

development

10

10

10

12

3 Infrastructure 2. Collaborating with others on

projects

10 10

4 Market sophistication 3. Investing in social impact

investments (i.e. with a

financial and social return)

10 5

71

5 Business sophistication 4. Research collaborations with

Universities, research

institutes or business

10 13

Innovation Output Innovation Output – 50 points

6 Knowledge and

Technology

5. Funding start up

organisations, including not

for profit social enterprises

25 20

7 Creative Outputs 6. Funding innovative projects

and programs (i.e. new

services)

25 30

SCORING 100 points 100 points

7.4.4.3 APPROACH 3

This version of a potential Innovation Index within philanthropic foundation takes into account the

means of the weightings provided by 22 survey participants across the Indicators (applied in

Approach 1) and overlays this with the Global Innovation Inputs and Outputs high level scoring

approach. It aligns with the approach of the Global Innovation Index where the average of the

Innovation Input indices and the Innovation Output indices lead to the final Innovation score.

In order to achieve a balance of 50 points for innovation inputs and 50 points for innovation outputs,

the responses have been calculated as a percentage of the domain (i.e. Inputs: x/65 ÷ 2, Outputs:

points/35 ÷ 2).

Table 7.4: Innovation Index IB (see Table 1 above) compared with Innovation Index 3 (survey

weightings of activities overlaid with Global Innovation Index weightings to innovation inputs and

innovation outputs).

Indicator Survey results

Mean

Innovation

Index 1B

Innovation

Index 3

Innovation Inputs 65 points 50 points

1 Funding research and development 0.1264 12 9

2 Investing in staff development 0.0918 9 7

3 Collaborating with others on projects

(external collaborations)

0.2264 22 17

4 Investing in social impact investments (i.e.

with a financial and social return)

0.1091 11 8.5

5 Research collaborations with Universities,

research institutes or business. (Leading to

an innovation)

0.1114 11 8.5

Innovation Outputs 35 points 50 points

72

6 Funding innovative projects and programs

(i.e. new services)

0.2486 25 36

7 Funding start up organisations, including

not for profit social enterprises.

0.1048 10 14

1.0185 100 points 100 points

In order to consider whether this reweighting is preferable, some related research was consulted.

A study of Dynamics of Innovation in Nonprofit Organisations: The Pathways from Innovativeness to

Innovation Outcomes (Choi S & Choi J-C, 2014) studied human service organisations and chose to

adopt systems theory to try to understand the innovation process of non-profits and also consider

cultural aspects of innovation as the forerunner to innovation.

“Despite the general agreement on the necessity of innovation, there is no standard definition and

measurement of innovation in either the for-profit or the non-profit sectors, as the characteristics of

innovation tend to cover an extremely broad range (Roger, 1999). Innovation can be culture or

activities, processes or products, and adoption or diffusion within a firm or industry, and is

conceptualized in a variety of ways. While some studies have focused only on the output of

innovation, others have investigated the process of innovation.” (Choi & Choi, 2014, p362) The Choi

model for innovation in the not for profit sector includes innovation input, innovation process,

innovation outputs and innovation outcomes.

The importance of viewing innovation within organisations (and hence the Innovation Indicators) as

including both the ideas generation and the implementation of ideas is supported by the

comprehensive review: Innovation and Creativity in Organisations: A State of the Science Review,

Prospective Commentary and Guiding Framework (Anderson N, Potocnik K & Zhou J, 2014). This

Review considered the question of innovation and creativity in organisations from four levels:

individual, team, organisation and multilevel. In the Organisational Review the authors used a

framework organised around these headings: Management related factors, Knowledge utilisation

and networks, Structure and strategy, Size, Resources, Culture and climate, External environment,

Innovation diffusion, Corporate entrepreneurship as innovation. (Anderson N et al, 2014, p1310.)

These elements have helped inform the selection of factors for this study.

In terms of the construction of an innovation index, the seven indicators in the current study have

been reviewed against the dimensions from the Choi not-for-profit sector study to check for

relevance. It is however noted that a philanthropic foundation is primarily but not exclusively a social

investor and not a direct deliverer of social services.

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Table 7.5: Innovation Indicators in Philanthropic Foundation Innovation Index cross referenced with

Choi (2016) Innovation dimensions

Innovation Indicator Alignment with Choi Innovation

Dimensions

Aligned with GIII Innovation Inputs

1 Funding research and

development

Innovation input

2 Investing in staff development Innovation input

3 Collaborating with others on projects Innovation process

4 Investing in social impact investments (i.e. with a financial

and social return)

Innovation outcome

5 Research collaborations with Universities, research institutes

or business

Innovation process

Aligned with GIII Innovation Outputs

6 Funding innovative projects and programs (i.e. new

services)

Innovation output

7 Funding start up organisations, including not for profit social

enterprises.

Innovation outcome

This review provides support for the relevance of the seven innovation indicators. It does not

provide a reason to change the weightings between indicators as it is possible to view innovation

indicators within these four dimensions.

7.4.4.4 Innovation Index

Innovation Index 1B appears the more objective approach because it covers a range of innovation

measures and draws on the responses of 22 survey participants (CEOs or similar of philanthropic

foundations). However, the approach applied in the Global Innovation Index where innovation

inputs and innovation outputs are both equally important and receive the same total points (50

points each) in the scoring of the Index takes account of the importance of innovation processes as

well as innovation outcomes (products and/or services). Innovation Index 3 applies this approach

and for this reason is also appealing.

Both Innovation Index 1B and Index 3A will be applied during the analysis of the factors for

significance against the Innovation Index scores of the 30 participating foundations.

74

Table 7.6: Comparison of Innovation Index 1B (Table 1) and Index 3 (aligned with GII scoring at a high

level)

Indicator Survey results

Mean

Innovation

Index 1B

Innovation

Index 3

Innovation Inputs 65 points 50 points

1 Funding research and

development

0.1264 12 9

2 Investing in staff development 0.0918 9 7

3 Collaborating with others on projects 0.2264 22 17

4 Investing in social impact investments

(i.e. with a financial and social

return)

0.1091 11 8.5

5 Research collaborations with

Universities, research institutes or

business

0.1114 11 8.5

Innovation Outputs 35 points 50 points

6 Funding innovative projects and

programs (i.e. new services)

0.2486 25 36

7 Funding start up organisations, including

not for profit social enterprises.

0.1048 10 14

1.0185 100 points 100 points

7.5 Scoring the Innovation Index

The scores are based on Innovation Index 1B (see previous chapter). A further comparison Index 3 is

also scored. This uses the survey responses to the questions related to the indicators but applies the

even scoring of the Global Innovation Index i.e. 50 points out of a potential total of 100 points for

innovation inputs and 50 points for innovation outputs.

Table 7.7: Innovation Index 1B and 3 (maximum points per indicator for two Indices which will be

applied in the correlation step in the data analysis.

Indicator Innovation

Index 1B

Innovation

Index 3

(reflects GII equal

inputs/outputs

weighting)

Innovation Inputs 65 points 50 points

1 Funding research and development 12 9

2 Investing in staff development 9 7

75

3 Collaborating with others on projects 22 17

4 Investing in social impact investments (i.e. with a financial and

social return)

11 8.5

5 Research collaborations with Universities, research institutes

or business

11 8.5

Innovation Outputs 35 points 50 points

6 Funding innovative projects and programs (i.e. new services) 25 36

7 Funding start up organisations, including not for profit social

enterprises

10 14

100 points 100 points

The scoring approach for each Indicator is explained here.

7.5.1 Research & Development

Indicator 1 (Variable 31 in spreadsheet in Appendix 5): Percentage of the Foundation’s annual

operating budget spent on Research and/or Development related to new and /or improved granting

programs or other programs or projects.

This indicator is expressed as a percentage. The highest survey response is 80 percent so 80 percent

will be treated as the top score i.e. 100 percent of available points. The lowest response is 0 percent

indicating a wide range of approaches. This percentage is applied directly to the full points available.

In Index 1B this is 12 points and in Index 3 it is 9 points. Respondents who did not answer this

question (initially coded as 17) or who answered don’t know (initially coded 19) will gain 0 points.

Table 7.8 Survey Responses to Indicator 1

Research & Development

Response Frequency Percent Valid Percent Cumulative Percent

Valid .00 3 10.0 10.0 10.0

.01 1 3.3 3.3 13.3

.02 2 6.7 6.7 20.0

.03 2 6.7 6.7 26.7

.05 3 10.0 10.0 36.7

.07 1 3.3 3.3 40.0

.08 3 10.0 10.0 50.0

.10 7 23.3 23.3 73.3

.15 3 10.0 10.0 83.3

.40 1 3.3 3.3 86.7

.80 1 3.3 3.3 90.0

76

No

response

2 6.7 6.7 96.7

Don’t

know

1 3.3 3.3 100.0

Total 30 100.0 100.0

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Research &

Development 30 .00 .80 .0973 .15398

Valid N (listwise) 30

Note: Don’t know 19 and Not completed 17 transformed to 0 in this calculation.

7.5.2 Staff Development

Indicator 2 (Variable 32 in Appendix 5): Percentage of the foundation’s operating budget spent on

staff development and training.

Variable is a percentage expressed as a decimal in the SPSS coding. The highest response is 10

percent so this will gain the full possible points. Responses that are don’t know (initially coded 19) or

did not complete this response (initially coded 17) will gain no points for this indicator.

Table 7.9: Survey Responses to Indicator 2

Staff Development

Response Frequency Percent Valid Percent Cumulative Percent

Valid .00 1 3.3 3.3 3.3

.00 1 3.3 3.3 6.7

.01 5 16.7 16.7 23.3

.02 7 23.3 23.3 46.7

.03 6 20.0 20.0 66.7

.04 1 3.3 3.3 70.0

.05 3 10.0 10.0 80.0

.06 1 3.3 3.3 83.3

.07 1 3.3 3.3 86.7

.10 1 3.3 3.3 90.0

No

response

2 6.7 6.7 96.7

Don’t

know

1 3.3 3.3 100.0

Total 30 100.0 100.0

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Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Staff Development 30 .00 .10 .0264 .02304

Valid N (listwise) 30

Note: Don’t know 19 and Not completed 17 transformed to 0 in this calculation.

7.5.3 External Collaborations

Indicator 3: (Variable 33 in Appendix 5): Number of external collaborations in which the foundation

was an active partner within the last financial year.

Variable is the actual number of external collaborations. In this indicator, the maximum number of

external collaborations was 10. 10 gains the full available points. Again, respondents who answered

Don’t know (initially coded 19) or who did not respond (initially coded 17) will gain no points.

Table 7.10 Survey Responses to Indicator 3

External collaborations

Response Frequency Percent Valid Percent Cumulative Percent

Valid .00 3 10.0 10.0 10.0

1.00 6 20.0 20.0 30.0

2.00 2 6.7 6.7 36.7

3.00 4 13.3 13.3 50.0

4.00 2 6.7 6.7 56.7

5.00 1 3.3 3.3 60.0

6.00 4 13.3 13.3 73.3

8.00 3 10.0 10.0 83.3

10.00 2 6.7 6.7 90.0

No

response

2 6.7 6.7 96.7

Don’t

know

1 3.3 3.3 100.0

Total 30 100.0 100.0

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

External

Collaboration 30 .00 10.00 3.4333 3.15882

Valid N (listwise) 30

78

Note: Don’t know 19 and Not completed 17 transformed to 0 in this calculation.

7.5.4 Collaboration(s) leading to innovation

This survey question sought to reflect research collaboration questions in the Global Innovation

Index survey within the philanthropic foundation context. Research in this context can be action

research, piloting and testing and other methodologies to provide a concept. The actual number of

collaborations is recorded.

Indicator 4 (Variable 34 in Appendix 5): The Foundation was an active partner in a collaboration that

has led to an innovation – process or outcome. Table 7.11 Survey Responses to Indicator 4

Research collaboration leading to innovation

Frequency Percent Valid Percent Cumulative Percent

Valid .00 5 16.7 16.7 16.7

1.00 15 50.0 50.0 66.7

2.00 3 10.0 10.0 76.7

3.00 1 3.3 3.3 80.0

No

response

3 10.0 10.0 90.0

Don’t

know

3 10.0 10.0 100.0

Total 30 100.0 100.0

Note: Don’t know is 19, Not completed Is 17

In scoring the index, Not completed is 0 and Don’t know is allocated 0.5. Given the historical

information required for this question, Don’t know may simply indicate that poor historical data is

available.

7.5.5 Grants investment in innovative projects and programs

Indicator 5 (Variable 35 in Appendix 5): The Foundation allocates part or all of its annual granting

budget to innovative projects and programs, including researching and testing new service models,

applying new project financing models or other process or product innovations.

79

This indicator response is a percentage expressed as a decimal in the coded SPSS table. The highest

response was 75 percent so this response gains the maximum points available. Again Don’t know

(19) and did not answer (17) will receive no points.

Table 7.12 Survey Response to Indicator 5

Funding Innovation

Response Frequency Percent Valid Percent Cumulative Percent

Valid .00 9 30.0 30.0 30.0

.02 1 3.3 3.3 33.3

.10 4 13.3 13.3 46.7

.15 2 6.7 6.7 53.3

.20 4 13.3 13.3 66.7

.24 1 3.3 3.3 70.0

.30 1 3.3 3.3 73.3

.31 1 3.3 3.3 76.7

.50 2 6.7 6.7 83.3

.75 1 3.3 3.3 86.7

No

response

3 10.0 10.0 96.7

Don’t

know

1 3.3 3.3 100.0

Total 30 100.0 100.0

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Innovation grants 30 .00 .75 .1373 .18437

Valid N (listwise) 30

7.5.6 Social Impact Investment

Indicator 6 (Variable 36 in Appendix 5): The Foundation has invested in a social impact investment (an investment with a social and financial return) using its corpus. The responses to this question were yes or no. Twenty-one respondents did not undertake social impact investment. The survey provided an opportunity for respondents who answered yes to provide the number of impact investment they had made. The range for this was from 1 to 5. Given that this provides a wider range for scoring purposes, this data will be used to score this indicator. 5 will gain full points. Those who replied No, Did not reply or Don’t know are scored as 0.

80

Table 7.13 Survey Responses to Indicator 6 (follow on question)

Social Impact Investment

Frequenc

y Percent Valid Percent Cumulative Percent

Valid .00 1 3.3 11.1 11.1

1.00 4 13.3 44.4 55.6

3.00 2 6.7 22.2 77.8

4.00 1 3.3 11.1 88.9

5.00 1 3.3 11.1 100.0

Total 9 30.0 100.0

No response 21 70.0

Total 30 100.0

7.5.7 Funding Start ups

Indicator 7 (Variable 37 in Appendix 7): The Foundation has funded one or more start-up organisations or programs in the last financial year. Sixteen respondents answered Yes to this question. In addition, these respondents provided the

amount of grant $ provided to start up organisations. The scoring uses the amounts to create a

range across the Yes respondents. $750,000 of grants to start up organisations in the financial year

was the largest amount in the responses so this will gain the full points available in the score.

Table 7.14: Survey responses to Indicator 7

Investing in Start Ups

Frequency Percent Valid Percent Cumulative Percent

Valid .00 11 36.7 36.7 36.7

1.00 17 56.6 56.6 93.3

No

response

1 3.3 3.3 96.7

Don’t

know

1 3.3 3.3 100.0

Total 30 100.0 100.0

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Investing in start ups 30 .00 3.00 .6333 .66868

Valid N (listwise) 30

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Note: Don’t know 19 and Not completed 17 transformed to 0.

Table 7.15: Survey Responses to Indicator 7 (follow on question)

$ invested in start ups

Frequency Percent Valid Percent Cumulative Percent

Valid No response 1 3.3 6.3 6.3

10000.00 1 3.3 6.3 12.5

25000.00 1 3.3 6.3 18.8

30000.00 1 3.3 6.3 25.0

40000.00 2 6.7 12.5 37.5

70000.00 1 3.3 6.3 43.8

75000.00 1 3.3 6.3 50.0

100000.00 2 6.7 12.5 62.5

145000.00 1 3.3 6.3 68.8

240000.00 1 3.3 6.3 75.0

300000.00 1 3.3 6.3 81.3

404000.00 1 3.3 6.3 87.5

500000.00 1 3.3 6.3 93.8

750000.00 1 3.3 6.3 100.0

Total 16 53.3 100.0

Missing System 14 46.7

Total 30 100.0

Table 7.16: Summary of scoring approach for indicators within Innovation Indices

Indicator Scoring

1 Funding research and development Range 0-80%

2 Investing in staff development Range 0 -10%

3 Collaborating with others on projects Range 0-10%

4 Research collaborations with Universities,

research institutes or business

Yes/No

5 Funding innovative projects and programs (i.e.

new services)

Range 0 -75%

6 Investing in social impact investments (i.e. with

a financial and social return)

Number 0 -3

7 Funding start up organisations, including not

for profit social enterprises

Number 0 - 3

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7.5.8 Innovation Index Scoring Results

Total scores across the indicators for each responding foundation were calculated based on the

scoring explained above. Innovation Index results are included in the Table below.

Table 7.17: Innovation Scores for 30 philanthropic foundations

Index 1B Index 3

34.13

34.93

29.08

16.16

37.27

37.50

22.81

35.92

11.00

10.17

33.05

19.52

16.75

25.47

27.48

30.57

45.07

31.32

54.53

56.47

30.67

63.30

32.12

11.00

7.70

.00

7.15

8.13

44.40

10.20

15.86

23.53

21.68

10.08

19.23

29.96

12.38

38.46

8.50

5.45

30.09

14.50

7.27

18.46

29.37

23.53

40.26

20.20

34.27

50.36

22.36

60.93

22.05

2.83

1.70

.00

2.68

8.50

31.96

13.22

There are a very wide range of scores applying both Indices. The indicators which show the highest

response ranges are:

• the percentage of the Foundation’s operating budget spent on Research and/or

development related to new and/or improved granting programs or other programs or

projects where the responses ranged from 0-80 percent;

• external collaborations, which ranged from 0 to 10;

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• grants investment in innovative projects and programs, which ranged from 0 to 75 percent;

• social impact investment, where 21 foundations did not undertake this innovative form of

investment;

• the amount of grants funding invested in start-ups, which ranged from $10,000 to $750,000

(and one no response).

It was possible for a foundation to receive zero points in the Innovation Index scoring approach. Only

one respondent scored zero and indicate a foundation that intentionally did not embrace

innovation.

It is interesting to reflect on the level of support for an innovation culture in the responses to the

organisational factors, where 93 percent of respondents selected that Innovation Is readily accepted

in our program/project management. There is clearly a commitment to embracing innovation by

many Foundation leaders. The highest scores are 63 and 60.3 respectively. This study does show that

while the intent may be there, without taking practical steps to embrace innovation, it may not

actually be demonstrated if one applies objective indicators. However, this does indicate that is

likely to be room for more active embracing of innovation by Australian philanthropic foundations.

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8. Results

8.1 Methodology

The purpose of this study has been to answer the research question: What factors influence a

philanthropic foundation to embrace innovation? In order to build a framework for this analysis, a

survey was developed which included questions relating to possible organisational attributes

(factors) and also indicators that would build a philanthropic foundation Innovation Index. The

responses from 30 philanthropic foundations meeting specific criteria based on the Australian

Charities and Not-for-profit Commission Annual Information Statement (medium or large,

independent and which selected grantmaking as their primary activity) were analysed.

The previous section describes the development of an Innovation Index for Australian philanthropic

foundations. Two Indexes were developed described as Index 1B (based on weightings given to

activities reflecting the indicators in the survey by 22 survey respondents) and Index 3 (based on

these survey responses that were reweighted as a further step to reflect the 50 percent scoring

balance between outputs and inputs as contained in the Global Innovation Index (INSEAD & Cornell

University, 2014).

This section of the study correlates the organisational factors responses against the Innovation Index

scores and identifies correlations of significance. The outcomes help answer the research question

by identifying five factors of significance shared by Index 1B and Index 3 and two further factors of

significance in Index 1B and three factors of significance in Index 3. The factors which appear as

significant in both Indices are of most interest. The factors that appear as significant in only one

Index are also discussed.

8.2 Results

Index 1B and Index 3 have a correlation coefficient of 0.898 indicating that the scores on each Index

are highly correlated. Despite this, the correlation analysis reveals five shared and five different

factors of significance. The key difference between Index 1B and Index 3 is the weighting given to

innovation outputs and inputs. Index 1B draws on the weightings provided by respondent

foundations to the survey in the major study and Index 3 draws on this but also adds a balancing

calculation so that 50 percent of the score stems from innovation input indicators and 50 percent

from innovation output indicators. This Index gives greater weighting to the output indicators and

reflects the Global Innovation Index approach (INSEAD & Cornell University, 2014).

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The factors of significance in relation to the innovation score on the two Indices are set out in the

following table.

Table 8.1: Organisational attributes influencing a philanthropic foundation to embrace innovation

Organisational Attribute Index 1B Index 3

A history of supporting innovation

0.004 0.002

The foundation’s founder was specifically

interested in supporting innovation

0.006 0.054

The CEO supports innovation; innovation is

readily accepted in our program/project

management.

0.03 0.03

The number of Board members with professional

backgrounds.

0.02 0.003

Active member of one or more formal or

organised networks within the philanthropic

sector that have learning about a particular

funding area of your foundation (e.g. education,

environment etc) as a primary aim.

0.045 0.053

Organisational culture: Our foundation actively

seeks innovative ideas.

0.054 Not significant

Board approved Risk Appetite in relation to

grantmaking.

Not significant 0.013

Board approved Risk Appetite in relation to

investment.

0.05 Not significant

The Foundation has one or more decision–making

processes that include designing and pilot testing

to test possible solutions (internally or via a grant

for that purpose).

Not significant 0.05

The Foundation’s Chairperson is a champion of

innovation.

Not significant 0.04

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8.3 Discussion: Significant Factors in both Index 1B & Index 3

Factor 1: A history of supporting innovation

The strongest factor influencing a philanthropic foundation to embrace innovation appears to be a

history of supporting innovation. The Spearman correlation coefficient for this factor when

correlated with Innovation Index 1B was 0.004. This was also significant when correlated with Index

3, at 0.002.

This finding has three explanations. Firstly, the process of innovation is known to improve through

practice. Innovation often takes the form of repeated experimentation. Secondly, the history of a

foundation has a connection with its organisational culture (Finding 3). Organisational culture is a

complex concept with several definitions.

“Organisational culture forms the glue that holds the organisation together and stimulates

employees to commit to the organisation and to perform. Literature on how to

operationalise this “glue” is fairly rare…We define organisational culture as shared

perceptions of organisational work practices within organisational units that may differ from

other organisational units. Organisational work practices are the central part of this

definition.” (van den Berg et al, 2004, p571)

The focus in this definition on practices, is relevant to this finding as it is the long-term practice of

supporting innovation i.e. the foundation’s practice, that is a significant factor.

The concept of building up innovation experience over time has also been investigated in other

innovation research: “Comparisons of the persistence effects associated with the resource stocks

reveals that own production experience provides a more enduring advantage as compared to patent

stocks and the production experience of partners.”(Madsen TL & Leiblein MJ, 2015, 1118).

Thirdly, the history of a foundation relates to the founder’s vision when establishing the foundation.

The particular context of philanthropic foundations and the impact of legal concepts such as

fiduciary duty are discussed in the following section.

However, this factor is not especially useful when considering steps a foundation leader could take

now to further embrace innovation. An organisation seeking to enhance its approach cannot rely on

history to lead change.

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Factor 2: The foundation’s founder was specifically interested in supporting innovation

The next factor of significance influencing a philanthropic foundation to embrace innovation is the

founder’s interest in supporting innovation. The Spearman correlation coefficient for this factor is

0.006 (Index 1B) and 0.054 (Index 3).

Philanthropic foundations are established by people wishing to contribute to the community (and

receive a tax deduction in some cases). Foundations are either trusts or incorporated bodies with

charitable status. The law of charity in Australia stems from the Preamble to the English Statute of

Elizabeth 1601 which defined the meaning of charity. It was only in 2013 through the Charities Act

(C’th) that the common law of charity was defined within Australian legislation. While many

foundations are now established as companies, many charitable trust law concepts still underlie the

way foundations are administered. A relatively recent case reflects this unusual context: “Historical

practice, tradition and historical attitudes hang heavy in the entire law of charity” (Wesley Mission

Melbourne Ltd v Commissioner of State Revenue [2004]VCAT 419).

Board members of foundations act as trustees of the funds within their charitable trust or fund,

whether this is set up during a Founder’s life time or under their will. A Foundation’s Board of

trustees or Board of directors, depending on the legal structure of the foundation, should be

cognisant of the wishes of a founder if this was made clear at the time of creating the philanthropic

foundation or if this is held in foundation archives. A trustee has a fiduciary duty to carry out the

terms of a trust. “Unlike the trustees of private trusts, charity trustees do not owe duties directly to

individual beneficiaries; their duty is owed to the promotion of the charitable objects of the trust.”

(Dal Pont, 2010 p459)

Foundations often try to translate the intent of the founder to a contemporary context. If a Founder

explicitly states that he or she was wanting to embrace the foundation in the way the foundation

made grants and operated, trustees would usually consider they are obligated to take this into

account in their administration of the philanthropic foundation.

A foundation leader seeking to further embrace innovation in the present within his or her

philanthropic foundation, whether they are the CEO or the Board Chair, could investigate whether

the Founder’s original intention was to embrace innovation in order to solve social causes.

Sometimes this intention may be lost in archival documents. Many Founders were solutions-focused

farsighted people.

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Factor 3: The CEO supports innovation; innovation is readily accepted in our program/project

management.

The survey question used to gauge the CEO’s approach to innovation gave several options from

which to select. 26 of 30 respondents (who were CEOs, Executive Directors or similar) selected:

Innovation is readily accepted in our program/project management.

One would expect that the CEO would have a major influence on whether a philanthropic

foundation embraced innovation. However, the CEO alone cannot make this happen. There are

many other organisational factors at play within a philanthropic foundation.

This finding aligns with the pilot study survey and interview responses. In the pilot study, there was a

unanimous positive response to the critical importance of the role of both the CEO and the Board

Chair embracing innovation. There was a more common view that the CEO could drive innovation,

but it was possible for a Chair to drive innovation if the CEO was prepared to implement

organisational processes to support this. If either the CEO or the Chair did not support an innovative

approach to the foundation’s work, then innovative practices and innovative granting would not

happen i.e. that either could block innovation.

The leadership role of the CEO can be an important factor in supporting innovation within the not-

for-profit sector (Sarros et al, 2011). The leadership style can be transactional or transformational,

with grades across this spectrum. The study by Sarros et al found that:

“Taken together, these empirical studies show that transformational leadership has been

found to have a significant relationship with organizational innovation, both in terms of

creating the conditions required for innovation (i.e. support for innovation) and as a direct

contributor to innovation as an organizational outcome.” (Sarros et al, 2011, 295)

This dual focus reflects the approach of this study, which has investigated innovation within

philanthropic foundations both internally within the organisation (for example, operating budget

supports R&D and staff development, decision making processes that support innovative problem

solving) and externally through the grants and investments made.

The commitment of transformational leaders to learning and adapting is also relevant to social

innovation. A recent study sought to identify the intra-organisational environment factors that

support an orientation toward social innovation within service delivery not-for-profit organisations.

(Schier & Handy, 2016). Direction from the leadership team and staff development and engagement

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were found to be particularly important. The investment in staff development is an indicator within

the Innovation Index in this study.

Clearly the choice of CEO is an important factor in the decision to embrace innovation. The CEO is

likely to have a significant influence on culture, which is discussed below. However, the CEO’s

commitment could be undone by other factors including but not limited to a Board Chair who does

not embrace innovation; an unsupportive organisational culture; a low risk appetite, and/or budget

allocation decisions (often requiring Board approval at least at a high level) which do not prioritise

items supporting an innovation commitment (such as staff development, R&D, collaborations to

support learning).

Factor 4: The number of Board members with a professional background (i.e. a qualification that

has an ongoing professional standards requirement such as law, accounting, engineering,

medicine or other).

This is the only factor of significance that relates to Board composition. This is in some ways a

surprising result given the discussions about Board diversity and creative thinking in practice and

academic literature (see chapter 4 Literature Review). However, diversity may be important to

decision making within philanthropic foundations but not a factor in embracing innovation per se.

On reflection, an explanation for this finding is likely to relate to the fact that risk management is

part of professional training for professions such as law, accounting, finance and engineering. The

survey question described professional background as “a qualification that has an ongoing

professional standards requirement such as law, accounting, engineering, medicine or other.”

Risk and innovation are closely related. A Board that understands risk management, may be well

positioned to understand innovation.

The concept of philanthropy as risk capital for piloting innovative programs in the social sector is

becoming well-understood (Smith, 2014, p 14).

The notion of informed risk and the relationship between innovation and risk is a possible

explanation for this:

“Dodgson et al. (2005), for example, have pointed out that there is a broad understanding in

innovation research that the innovation process requires experimentation. Innovators, public

and private investors need to manage innovation risks.” (Grimm, 2013, 446)

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The role of the Board and innovation within not for profit organisations generally is an emerging

area of research. Board members can use their professional knowledge and skills, help access

resources and influence strategic preferences (Jaskyte K, 2015).

The notion of risk is also reflected in two different factors of significance in each Index (see

discussion below). In Index 1B, a Board approved Risk Appetite in relation to its grantmaking is a

significant factor, and in Index 3, a Board approved Risk Appetite within its overall Investment

Strategy is a significant factor.

Factor 5: The Foundation is an active member of organised networks within the philanthropic

sector that have learning about a particular funding area as a focus.

This factor reflects the insights from the pilot study in relation to a culture of learning.

It is also a good indicator of a foundation being “porous” or “outward looking” as raised by many

participants in the Pilot Study. It relates to the active commitment required to overcome the natural

isolation of philanthropic foundations. Knowledge acquisition and transfer are elements of an

innovation culture:

“The second major finding of innovation research is that innovators are encouraged in

situations or networks that involve significant overlaps among groups, cultures and

perspectives in ‘being able to see the wood for the trees’. Innovations happen not in isolation

but at cultural, political, and social crossroads and in situations that bring different and

frequently contradictory elements together.” (Anheier & Leat, 2002, p170).

The importance of obtaining external knowledge to the process of innovation is recognised. (Aldrich

and Kim, 2007; March, 1991)

A study considering factors contributing to differences in innovation also highlighted knowledge and

experience sharing:

“Theory on innovation and technical change suggests that a firm’s innovativeness is a function

of the depth and breadth of its knowledge base. Scholars in strategy and organization theory

emphasize that a firm’s knowledge base is informed by its experiences, including experience

generated within the firm and experience generated by others (e.g., competitors, partners,

network affiliates) outside the firm.” (Madsen & Leiblein, 2015)

Learning as an important attribute for philanthropic foundations seeking to have an impact on

complex social and environmental issues is highlighted in work on strategic philanthropy. In some

recent research, an adaptive, emergent model that reflect the process of social change is

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recommended. (Kania J et al, 2014). The notion of emergent strategy based on testing and learning

is also relevant to the finding below that a significant factor in embracing innovation (result from

correlation analysis of factors and Innovation Index 3), is that The foundation has decision making

processes that include visioning or creative thinking opportunities to generate ideas.

8.4 Additional Factors (one Index only)

There are several organisational factors, which are meaningful when correlated with only one of the

Innovation Indices, rather than both. Index IB has a weighting towards innovation inputs/outputs

(65%/35%) and Index 3 has an even weighting between Innovation Inputs and Innovation Outputs.

Index 3 weights output indicators more highly. The factors that are found to be significant in one of

the Indices are explained in the following section.

8.4.1 Organisational culture: Our foundation actively seeks innovative ideas (Index 1B).

This reflects the insight of one pilot study expert participant said: “Of course, it is all about culture”.

Culture has a connection with the founder’s intention and with the foundation’s history. It has a

connection with the organisation’s approach to innovation overall. Organisational culture relates to

values, artifacts and underlying assumptions (Schein, 1988). Organisational culture can impact on

strategy, structure and operations. (Dauber et al, 2014)

The “embracing of innovation” is both a strategic choice and in some cases embedded in the

foundation’s values and underlying assumptions often stemming from the Founder’s intentions.

The survey question (Q32) sought to elicit a response about organisational culture. The multiple-

choice options were drawn from a previous study into innovation within not for profit organisations

(Choi & Choi, 2014). Ninety-three percent of survey respondents selected: Innovation is readily

accepted in our program/project management It is possible that pro innovation bias is at play in

these responses. Pro-innovation bias describes the “presumption that innovation is a desirable

characteristic and that positive outcomes will invariably arise from all forms of innovation.”

(Kimberly, 1981). In order to understand an innovation culture in action, the innovation indices

include a range of indicators that relate to innovation in action.

The commitment to learning, staff development, being part of collaborations, learning from

networks and decision-making processes that encourage pilot testing and innovative thinking are all

part of building an organisational culture that supports innovation (Shier & Handy, 2016). In this

study, while there is a desire to embrace innovation by many respondent foundations, the actual

actions relating to the full innovation process are sometimes patchy. However, the response to the

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survey question on culture indicates that there is an interest in further building organisational

cultures that embrace innovation across the innovation process, both in how the foundation

operates internally and how it funds (and invests) externally.

8.4.2 Board approved Risk Appetite

A different factor relating to Risk Appetite was found to be significant in each of Index 1B and Index

3. In Index 1B, The Foundation has a Board approved Risk Appetite relating to investments was

significant at 0.05. Investment risk is a strategic choice which is made within a philanthropic

foundation.

The factor relating to Risk Appetite which was significant in Index 3 was The Foundation has a Board

approved Risk Appetite in relation to grantmaking. Given that grantmaking is an output, it makes

sense that this was more significant in the Index which gave greater weighting to the innovation

output indicator scores.

Innovation requires the CEO and Board to make a commitment to embrace informed risk.

Innovation is about finding new solutions (services and/or products) through experimentation. A

philanthropic foundation that has clearly considered risk management in the development of its

grantmaking and investment policies is likely to understand to be clear about their risk appetite in

respect of embracing innovation.

8.4.3 The foundation has decision making processes that include visioning or creative thinking

opportunities to generate ideas.

This factor was significant in the correlation analysis with Index 3.

Studies on innovation within other sectors have considered decision making processes. Innovation

process includes Visioning, Feasibility Studies, Design and Pilot Testing, and Implementation. “This

form of innovation is a continuous process and required skill throughout the organization.” (Delbecq,

2010).

From a practitioner perspective, this is a helpful factor as it is within a CEO’s delegation to

implement these sorts of decision making processes, which can be a demonstration of

transformational leadership (Sarros et al, 2011).

8.4.4 Chairperson is a champion of innovation.

A significant factor in the correlation analysis with Index 3 is that the Foundation’s Chairperson is a

champion of innovation.

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A Chairperson who is a champion is likely to be looking out for opportunities to embrace innovation.

Both factors relating to the Board setting the risk appetite for a foundation, in either grantmaking or

investment, and the role of the Chair as a champion of innovation, resonate with recent governance

studies relating to innovation:

“The challenge of leading innovation is bringing about a sea change in corporate governance.

Boards, once the dependably cautious voices urging management to mitigate risk, are

increasingly calling for breakthrough innovation in the scramble for competitive advantage.”

(Hill & Davis, 2017)

The challenge of leading innovation is shared by Boards and CEOs of philanthropic foundations.

Understanding the relationship between risk and innovation and being able to articulate a Risk

Appetite in key activity areas and selecting or appointing a Board Chair who is a champion of

innovation are within the Board’s remit. A finding from the Hill & Davis study relates to the need for

productive relationships between the board and management, so that they work together to

support innovation.

This finding and those related to risk appetite in respect of granting and investment relate to the

governance of a philanthropic foundation. The important role of the Board in determining a not-for-

profit organisation’s capacity for innovation and developing effective responses to changing

environmental conditions has been recognised (Jaskyte, 2015).

8.4.5 Reflection on findings

The results of the study were thought provoking in many ways. The notion that a Founder’s

intention to support innovation would be maintained and become part of the Foundation’s enduring

culture reflects the long-term perspective and fiduciary relationship between the Board of Trustees

or Board of Directors of the Foundation and the charitable purposes set by the Founder, sometimes

stated in the constituent documents (trust deed or constitution). The history of supporting

innovation reflects this and contributes to innovation knowledge within a foundation but does not

provide any new tools for increasing innovation commitment.

The role of CEO leadership in embracing innovation, such as leading a culture that supports

innovation and providing opportunity for creative thinking and networking, is empowering for CEOs.

However, they cannot embrace innovation on their own. Board support is an important element,

especially from the Board Chair.

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The role of the Board in setting the Risk Appetite and the role of the Chair in championing innovation

sit with current research in governance and innovation (Schiehl & Llewellyn, 2018). While that study

looks at the for-profit sector, issues around investing in R&D and championing innovation-aligned

activities are also applicable to the not for profit philanthropic sector.

The importance of a willingness to embrace innovation by the CEO and the Board are important

insights as philanthropic foundations become more professionally staffed and more concerned

about demonstrating relevance and value in society (Leat, 2016; Reich, 2016). In a sense,

foundations are having to earn their social licence to operate in liberal democracies.

This study sought to answer the question: what factors influence a philanthropic foundation to

embrace innovation? It focused on the organisation level of enquiry and examined organisational

attributes. It developed an Innovation Index (two versions) for measuring the current innovation

score for an Australian independent philanthropic foundation. There is more innovation potential

within philanthropic foundations and this study has identified steps that foundations could take to

further embrace innovation. Major change will require a commitment from the CEO and the Board,

especially the Board Chair.

As noted in chapter 9, there are opportunities for further research in relation to the individual

leadership styles of CEOs and even Board Chairs, which requires enquiry at the individual level rather

than this study’s organisational level. This study did not seek to address other aspects beyond

innovation which relate to the justification for foundations’ beneficial tax status and perpetual

nature, such as power, accountability and transparency.

8.5 Implications for Practice

The implications for practice of this study for independently constituted Australian philanthropic

foundations (i.e. not simply funds managed by a commercial trustee) are presented firstly from the

perspective of the Board (governance perspective) and then from the CEO (management

perspective).

8.5.1 Board perspective

Maintaining the Founder’s Legacy

If the Board of a philanthropic foundation wishes to embrace innovation, it should first look to the

legacy of the Founder. Was the Founder’s intention to embrace innovative practices and processes

and to support innovation within the charitable sector? The implementation of this intention may

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have dimmed over time but it is the Board’s role to review historical documents and to ensure that

the charitable intentions of the Founder are maintained. If the intention of the Founder was to

embrace innovation, then a demonstrated history of embracing innovation will strengthen the

present work. Innovation expertise is gained over time and can become or be refreshed as part of

developing the innovation culture of the foundation (through demonstrated commitment to values

that underpin innovation and the development of knowledge).

Appointing the CEO

The Board appoints the CEO. It almost goes without saying that a Board that wishes a foundation to

embrace innovation, must appoint a CEO with a track record in embracing innovative processes and

practices and knowledge of innovation within the charitable sector. The CEO must also be focused

on creating a culture of learning, openness to new ideas and must be able to understand and

manage risk.

The role of the Chair

For maximum impact, the Chairman of the foundation must also embrace innovation. The Board

supports organisational culture. This finding was well described by a pilot study participant in the

early part of this research:

If the CEO and the Board Chair are not committed to innovation, you’re climbing up a hill. Well

the fact is that the Chair of the Board could be a blanket or a firecracker and I think you might

have a great CEO leader but be smothered by the Board. I think if you have a good leader and

a good Chair, you’ve got the ingredients to make things happen. (Pilot Study Participant, 2015)

Board composition

The study found that the number of Board members with a professional background (i.e. a

qualification that has an ongoing professional standards requirement such as law, accounting,

engineering, medicine or other) had a significant correlation with the level of innovation of the

foundation. The training for these professions all include training in relation to risk management.

Understanding risk is a precursor to embracing innovation. While the view with practice currency

may be that people with business, entrepreneurial or research backgrounds on Board might lead to

greater innovation, this study demonstrates the importance of a professional understanding of risk.

While the lawyer, accountant, engineer and/or doctor will be contributing to other governance and

compliance Board tasks, they are likely to also be helping provide a considered framework for the

Board’s approach to risk management.

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Risk

Within its governance responsibilities, the Board is responsible for setting the risk framework of the

foundation. Management will operate the foundation within the risk framework. By establishing a

Risk Appetite for granting that encourages informed risk taking and a Risk Appetite for investment,

the Board will facilitate the foundation embracing innovation.

8.5.2 The CEO perspective

Relationship with the Board

The CEO will be well placed to lead the foundation to embrace innovation if he or she has a Chair

that is a champion of innovation and if the Board has set Risk Appetite’s for both granting that

encourage testing of ideas and funding innovative services and products.

The Innovation Process

It is critically important that the CEO understands that innovation is a process with innovation

inputs, processes, outputs and outcomes.

The study indicates that the most important factor from a management perspective is for the

foundation to be an active member of organised networks within the philanthropic sector that have

learning about a particular funding area as a focus.

This is an important finding as it highlights two key aspects of the innovation process: learning and

access to external knowledge. The CEO should be ensuing that the grants and investment teams are

part of these networks.

One Index also highlighted another significant factor: the foundation has decision making processes

that include visioning or creative thinking opportunities to generate ideas. This is not the strategic

planning process with the Board. This is within the staff group. It points to activities such as involving

staff in creative thinking meetings and in processes such as Challenge grants, where grant partners

pitch ideas and there are opportunities for co-creation of projects and programs. It is within the

CEO’s role to provide for these opportunities within the foundation’s work program.

Organisational culture

The Board has a role in the setting of organisational values and overall strategy which contribute to

organisational culture. The CEO has the responsibility for building the organisational culture with the

rest of the leadership team and staff. Culture is a complex concept and includes values, artefacts and

underlying assumptions (Shein, 1988). The CEO has a choice about which values, artefacts and

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underlying assumptions to celebrate and share with the team. When embracing innovation, the

culture encourages learning (including from so-called failure), external collaboration, openness to

testing new ideas, and funding incremental improvements, as well as large innovations where a

grant or an investment has resulted in a major innovation, often a service or product innovation.

Ninety-three percent of survey respondents selected the option of “our foundation actively seeks

innovative ideas”, so there is an interest in this approach. However, a word of caution here. It is not

enough to make these statements. As CEO, to put specific opportunities in place for the team for

learning, external knowledge sharing, creative thinking and celebrating innovation outcomes.

Building organisational capability

In this study, the Innovation Index was built on innovation indicators that covered inputs, processes,

outputs and outcomes. The Index considered the following factors:

• Funding research and development

• Investing in staff development

• Collaborating with others on projects

• Research collaborations with Universities, research institutes or business.

• Funding innovative projects and programs (i.e. new services).

• Investing in social impact investments (i.e. with a financial and social return).

• Funding start up organisations, including not for profit social enterprises.

If a foundation wishes to embrace innovation, it is essential that the CEO is both increasing staff

capability, through both training but also appointing staff with the skills and mindset to work in a

less than certain operating environment. The CEO and grants team need to be outward looking,

monitoring developments within philanthropic foundation management practice and the social and

environmental issues they are trying to address. They must burst out of the philanthropic foundation

bubble to learn from networks and be part of collaborations testing new ideas and solutions.

It is noted that, as for other innovation indices such as the Global Innovation Index (INSEAD &

Cornell University, 2014), indicators may change over time to reflect changes in practice. For

example, it is possible in 15 years’ time that social impact investment will be the norm and no longer

a social innovation.

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8.5.3 Conclusion – a practice perspective

The leader of a philanthropic foundation who wishes to embrace innovation both internally and in

the foundation’s granting and impact investment, should consider the following initiatives:

1. For the CEO, ensuring that the staff team are part of learning networks relevant to the

grantmaking priorities is critical. This relates to learning and also collaboration, both often

important aspects of innovation.

2. For the CEO, building a culture of innovation, with the support of the Board, that builds on

the innovation intention of the Founder (if this is the case) and value a history of supporting

innovation.

3. For the Board, ensuring the commitment of the CEO to innovation is critical. For the CEO,

having a Board Chairperson who is a champion of innovation will make a difference. The

combination of a CEO and a Board Chairperson demonstrating a commitment to embracing

innovation should enable the foundation to embrace innovation.

4. For the CEO and Board, providing opportunities for creative thinking – visioning, pilot

testing, feasibility studies and incremental experimentation – both in the grants program

and internally within the philanthropic foundation processes should also be helpful in

strengthening an innovation culture.

5. Risk management is a critical component of the innovation process. Having a Board that has

members with a professional understanding of risk management will be an asset. Setting a

Risk Appetite for Grantmaking and a Risk Appetite for Investment is likely to assist in setting

a risk/innovation framework.

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9. Limitations & Areas for Future Research

9.1 Limitations

9.1.1 Organisational factors

This study focuses on Australian philanthropic foundations that meet criteria relating to asset size

(medium or large under Australian Charities & Not-for-profit Commission definitions) and have

independent governance. While the factors investigated and the innovation indicators used to

construct the Innovation Index were tested with nine independent experts in philanthropy, including

five international experts, the choice of indicators within the Index could vary between geographies

and over time. For example, ten years from now social impact investment may not be an indicator

of innovation. Impact investment may become mainstream, as evidenced by the growth in

membership of organisations such as the Asian Venture Philanthropy Network and the Global

Impact Investment Network. Another organisational attribute could replace this indicator that was

relevant for future times.

It is of course possible that further factors could have been included or that other researchers will

identify factors that could be investigated in future studies. The present writer has a background in

law, governance and management of not for profit organisations. Other lenses might lead to other

factors being considered.

9.1.2 Transformational leadership

While the leader’s view of the foundation’s culture and a number of other factors that could be

related to transformation leaderships are included within the organisational factors tested in this

study, the level of transformational, as opposed to transactional leadership (Jung et al, 2003)

demonstrated by the CEO completing the survey have not been studied. Given the findings of this

study, this could be an area of future research. This would require a different set of survey questions

about personal leadership qualities, qualifications, skills and actions, together with perhaps a 360

degree review process. This was not in the scope of this study.

9.1.3 Australian focus

This study has focused on Australian foundations as the wider sample for the major study could be

identified by information held by the Australian Charities and Not-for-profit Commission. It is

possible that the Index could be applied within other geographic contexts where independent

foundations holding endowments might show similar characteristics to Australia.

100

9.1.4 Digital innovation

As mentioned in the introduction, the impact of the digitial age has reached philanthorpic

foundations. There is now potential to access enormous data sources about societal need, there is

the opportunity to analyse the data the foundations hold about donors, grant seekers and grants.

However, the use of data and digital platforms were seen as a tool for philanthropy operations and

not necessarily an indicator of innovation by respondents to the pilot study so was not included

within the major study. This might be an area to consider in a future study.

9.1.5 Granting areas

Philanthropy funds across policy areas covering a myriad of social, cultural and environmental issues

that are regarded as charitable at law. While the issue areas were raised during the pilot study as

potential factors influencing innovation, less than half of those interviewed thought the policy or

issue area was in itself a factor within the context of philanthropic sector. This factor was therefore

not included in this study. This could be explored further in a future study.

9.1.6 Individual leadership

Because the study did not study individual leadership styles, the work of Sarros, Cooper & Santora

(2011) on the comparison between transaction and transformational leadership styles was not

included in the survey. As noted in the results, given that the CEO role has a significance in this study

future research could investigate the leadership styles of CEOs of philanthropic foundations. Some

connections are made in the results section between the transformational leadership and creating

the conditions required for innovation (i.e. support for innovation). The leadership style of the CEO

also has a relationship with overall organisational culture, “Our results are consistent with the

proposition that socially responsible cultures enhance the impact of visionary leaders on innovation

in NFP organizations…” (Sarros et al, 2011). The relationship between a transformational leadership

style and organizational innovation was confirmed in an earlier study (Junga, Chowb & Wu, 2003)

and in terms of the current study, the opportunities for the staff team to apply creative thinking

skills to try different approaches. Foundations that provide opportunities for creative thinking are

likely to be led by transformation leaders.

9.1.7 Data

The data to support the factors and indicators that are the subject of the study required individual

and specific responses from philanthropic foundations. An initial document analysis indicated that

some information on Board composition, governance and history, could be gleaned from annual

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reports and Annual Information Statements filed with the Australian Charities & Nor-for-profit

Commission. The major study included 50 questions so a real commitment was required from the

respondent philanthropic foundation leaders. On reflection, their contribution was extremely

significant and should be acknowledged.

9.1.8 Innovation Index

This study has developed indicators of innovation relevant to philanthropic foundations in Australia

in 2014. These were extrapolated from indicators within the Global Innovation index (INSEAD &

Cornell University, 2014) and validated through testing via a survey and in-depth interviews with

nine experts in philanthropy, including six international experts. The indicators applied in the Index

(two versions in which indicators were weighted differently, one to reflect the survey responses and

one to also reflect the Global Innovation Index approach, see Appendix 4) were:

Table 9.1 Innovation Indicator Dimensions

Innovation Indicator Alignment with Choi Innovation

Dimensions

Aligned with GIII Innovation Inputs

1 Funding research and

development

Innovation input

2 Investing in staff development Innovation input

3 Collaborating with others on projects Innovation process

4 Investing in social impact investments (i.e. with a financial

and social return)

Innovation outcome

5 Research collaborations with Universities, research institutes

or business

Innovation process

Aligned with GIII Innovation Outputs

6 Funding innovative projects and programs (i.e. new

services)

Innovation output

7 Funding start up organisations, including not for profit social

enterprises.

Innovation outcome

The indicators and weightings could change over time and be adapted for another geographic

jurisdiction. If other studies follow this approach, it would be important to check the indicators for

relevance at that time and in that context and to ensure that innovation inputs, outputs, outcomes

and processes are included so that the whole innovation effort is considered.

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9.2 Areas for Future Research

9.2.1 Organisational culture

The question of culture emerged throughout the research. Firstly, within the pilot study, then in the

survey and finally in the results. While a survey question on culture was drawn from another study

of innovation in the not for profit sector (Choi & Choi, 2014), culture could also be seen to

demonstrated in a combination of some of the factors measured which relate to values. Measuring

culture is complex and in one well recognised model of organisational culture, it involves three

levels: artifacts, values and underlying assumptions (Schein, 1988).

The approach used has tried to analyse the factors individually to identify some organisational

factors that will be easily translatable into practice. Measuring organisational climate generally

requires staff surveys and is therefore not included in this study. There is clearly potential for further

research into the organisational culture of foundations in a study focused on several levels beyond

the organisational level, for example around individual leadership and/or organisational culture

(including individual Board members, staff and volunteers). This study has considered the foundation

at the organisation level.

9.2.2 Transformational Leadership

A closer examination of the personal attributes of CEOs and Board Chairs as leaders could be

worthwhile (see above).

The combination of CEO and Chair leadership in embracing innovation could also be investigated

further, especially in view of the findings of Hill & Davis (2017) about the importance of a productive

relationship between management and the Board when supporting innovation. The benefit of a

cooperative power relation between the CEO and Board is also noted in Board of Directors and

Innovation in Nonprofit Organizations Model (Jaskyte, 2015). This is an area where further research

would be worthwhile.

9.2.3 Board effectiveness & Board culture

The importance of the role of the Board in setting a Risk Appetite for granting and investment, and

the leadership role of the Chair in championing innovation within a philanthorpic foundation

indicates that further research could be undertaken in relation to Board culture, Board effectiveness

and the relationship between the CEO and the Board Chair in supporting innovation. This would

build on the work relating to Boards of not for profit organisations and innovation (Jaskyte K, 2015).

103

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APPENDICES

APPENDIX 1

Global Innovation Index 2014 Conceptual Framework (Cornell University and INSEAD, 2014)

For this seventh edition, the Global Innovation Index 2014 (GII) covers 143 economies, accounting for 92.9% of the world’s population and 98.3% of the world’s Gross Domestic Product (in US Dollars). Global Innovation Index 2014 (GII) relies on two sub-indices, the Innovation Input Sub-Index and the Innovation Output Sub-Index, each built around key pillars. Five input pillars capture elements of the national economy that enable innovative activities: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. Two output pillars capture actual evidence of innovation outputs: (6) Knowledge and technology outputs and (7) Creative outputs. Each pillar is divided into sub-pillars and each sub-pillar is composed of individual indicators (81 in total). Sub-pillar scores are calculated as the weighted average of individual indicators; pillar scores are calculated as the weighted average of sub-pillar scores. Four measures are then calculated:

* The Innovation Input Sub-Index is the simple average of the first five pillar scores.

* The Innovation Output Sub-Index is the simple average of the last two pillar scores.

* The overall GII is the simple average of the Input and Output Sub-Indices.

* The Innovation Efficiency Ratio is the ratio of the Output Sub-Index over the Input Sub-Index. Global Innovation Index 2014 Conceptual Framework The GII gathers data from more than 30 sources, covering a large spectrum of innovation drivers and results; privileging hard data over qualitative assessments (only five survey questions are included this year). The framework is revised and adjusted every year in a transparent exercise. Out of 81 indicators, 64 are identical to GII 2013, and a total of 17 indicators were modified in 2014: four indicators were deleted or replaced, ten underwent methodological changes (new computation methodology at the source, change of scaling factor, change of classification, etc.), and three changed indicator number as a result of the framework adjustments. Scores and rankings from one year to the next are not directly comparable. Making inferences about absolute or relative performance on the basis of year-on-year differences in rankings can be misleading. Each ranking reflects the relative positioning of that particular country/economy on the basis of the conceptual framework, the data coverage, and the sample of economies—elements that change from one year to another.

INSEAD & Cornell University, The Global Innovation Index 2014: The Human Factor in innovation,

Cornell University, INSEAD, and WIPO, Fontainebleau, Ithaca, and Geneva, 2014

109

APPENDIX 2

Responses to Pilot Study Questionnaire: Indicators of Innovation Tables

GLOBAL INNOVATION INDEX

INDICATORS

PHILANTHROPIC SECTOR – INDICATORS

CONSIDERED IN PILOT STUDY

RESPONSES

(INDICATOR

RELEVANT TO

PHILANTHROPIC

SECTOR)

2.1.1 Expenditure on education

Government expenditure on education

(% of GDP) | 2010

1. % of annual budget spent on staff

development

6

67%

2.2.1 Tertiary enrolment

School enrolment, tertiary (% gross) |

2011

2. % of staff with tertiary qualifications or

enrolment

2

22%

2.2.2 Graduates in science and

engineering

Tertiary graduates in science,

engineering, manufacturing, and

construction (% of total tertiary

graduates) | 2011

3. % of staff who are graduates in science,

engineering, manufacturing and

construction

3

33%

2.3.1 Researchers

Researchers, headcounts (per million

population) | 2011

4. Number of staff employed in research

roles

4

44%

2.3.2 Gross expenditure on R&D

(GERD)

5. % of annual operating budget spent on

research and developing new

ideas/programs

8

89%

110

GERD: Gross expenditure on R&D (%

of GDP) | 2011

6. % of annual granting budget spent on

projects or programs that explore or

demonstrate a new idea or service model.

9

100%

3.1.2 ICT use

ICT use index | 2012

7. ICT use index (How would you measure use? For example: Data used in measuring granting impact. Data used to determine granting priorities.

8. Other

2

22%

3.1.4 Online e-participation

E-participation Index | 2012

9. Online e-participation (How would you

measure e-participation?)

3

33%

3.3.2 Environmental performance

Environmental Performance Index |

2014

10. Environmental sustainability policy 3

33%

11. % grants to environmental organisations 1

11%

4.1.3 Microfinance institutions’ gross

loan portfolio

Microfinance institutions: Gross loan

portfolio

(% of GDP) | 2012

12. % of grants to microfinance institutions 4

44%

13. . % of investment (corpus) in microfinance

social investments

2

22%

4.2.4 Venture capital deals

Venture capital per investment

location:

Number of deals (per trillion PPP$

GDP) | 2013

14. % of grants to start up programs/ projects 5

55%

15. % of corpus allocated to impact

investment (i.e. to achieve a social and

financial return)

5

55%

5.1.5 GMAT test takers [qualifications

of staff]

Number of test takers of the Graduate

Management Admission Test (GMAT)

16. . % of staff under 34 years [or overall?]

with graduate management qualifications

3

33%

111

by citizenship (scaled by million

population

20–34 years old) | 2013 5.2.1 University/industry research

collaboration

Average answer to the survey

question: In your country, to what

extent do business and universities

collaborate on research and

development (R&D)?

[1 = do not collaborate at all; 7 =

collaborate extensively] | 2013

17. Number of research collaborations with

universities, research institutes or

business in last 12 months

7

77%

5.2.4 Joint venture/strategic alliance

deals

Joint ventures/strategic alliances:

Number

of deals, fractional counting (per

trillion

PPP$ GDP) | 2013

18. Number of joint ventures/ collaborative

funding ventures/ strategic alliances in

last 12 months

7

77%

5.3.3 Communications, computer and

information services imports

Communications, computer and

information services imports (% of

total trade) | 2012

19. . % of annual budget spent on

communications, computer and

information services

3

33%

6.1.4 Scientific and technical

publications Number of scientific and

technical journal articles (per billion

PPP$ GDP) | 2013

20. Number of scientific and technical journal

articles published.

21. Number of published articles around

philanthropy or social impact.

3

33%

112

22. Number of publications on research

undertaken by foundation, including

collaborative projects.

3

33%

6.2.3 Total computer software

spending

Total computer software spending (%

of GDP) | 2012

23. . % of annual budget spent on computer

software

2

22%

6.3.3 Communications, computer and

information services exports

Communications, computer and

information services exports (% of

total trade) | 2012

24. . % of annual grants made to not for

profits to purchase ICT services or

products

2

22%

7.1.3 ICTs and business model

creation Average answer to the survey

question: In your country, to what

extent do ICTs enable new business

models?

[1 = not at all; 7 = to a great extent] |

2013

25. . In your foundation, to what extent do ICTs enable new service or program models?

4

44%

7.1.4 ICTs and organizational model

creation

Average answer to the survey

question: In your country, to what

extent do ICTs enable new

organizational models (e.g. virtual

teams, remote working, and

telecommuting) within businesses?

[1 = not at all; 7 = to a great extent] |

2013

26. In your foundation, to what extent do ICTs enable new organisational models?

27. [1 = not at all; 7 = to a great extent]

4

44%

7.2.1 Cultural and creative services

exports

28. . % of annual grants to cultural and creative projects/programs [Note: some foundations cannot grant to the

29. Arts for legal reasons]

1

11%

113

Cultural and creative services exports

(% of total trade) | 2012

7.2.2 National feature films produced

Number of national feature films

produced

(per million population 15–69 years

old) | 2011

30. Number of documentary films funded in

the past financial year

1

11%

7.2.4 Printing and publishing output

Printing and publishing manufactures

output (% of manufactures total

output) | 2010

31. % of funded programs that produced

printed or published outputs.

4

44%

7.3.4 Video uploads on YouTube

Number of video uploads on

YouTube

(scaled by population 15-69 years old)

| 2013

32. Number of uploads to YouTube by your

foundation or funded organisations?

1

11%

33. Number of visits downloads from

foundation website?

1

11%

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APPENDIX 3: Major study survey questionnaire

PARTICIPANT INFORMATION FOR SWINBURNE RESEARCH

PROJECT TITLE:

What factors influence a philanthropic foundation to embrace innovation?

SWINBURNE ETHICS APPROVAL NUMBER:…

PRINCIPAL INVESTIGATORS: Prof John Fitzgerald, Catherine Brown

1. PROJECT DESCRIPTION

OVERVIEW

This short questionnaire forms part of a major study aimed at seeking answers to the research

question: What factors influence a philanthropic foundation to embrace innovation?

This is a study of the organisational attributes of philanthropic foundations and whether they

influence innovative practices. The learnings from the study have potential to provide insights to the

Australian and international philanthropic sector, potentially allowing foundations to apply certain

organisational attributes to enhance their support of innovation both in their own governance,

decision making practices and/or their grants and other social investment.

Social innovation can be defined as follows: A social innovation is a novel solution to a social

problem that is more effective, efficient, sustainable, or just than present solutions and for which the

value created accrues primarily to society as a whole rather than private individuals. (Centre for

Social Innovation, Graduate School of Business, Stanford University).

The study aims to examine the factors that influence a foundation to embrace innovation through

analysis of both innovation (applying an Innovation Ranking Scale) and the relationship between the

level of innovation and certain attributes. The organisational attributes include factors such as size,

age, Board composition, length of tenure of staff, allocations to social investment and participation

in certain networks, amongst others. The Innovation Ranking Tool examines both inputs that support

innovation and outputs that indicate innovation. This survey is part of research being undertaken

towards a PhD by practice related research.

115

Understanding the variables that contribute to a philanthropic foundation embracing innovation will

help interested foundations position themselves for greater impact within the community. The

researchers are aware that there are other valid approaches to philanthropy. Some foundations will

be using a range of approaches within their work.

METHODOLOGY

Respondents to the questionnaire are part of a sample selected by the Australian Charities & Not for

Profit Commission at the request of the researchers. The sample are foundations or trusts that

submit Annual Information Statements to Australian Charities and Not for profit Commission, that

are charitable at law, and have nominated their primary activity as grantmaking within the 2014

Annual Information Statement.

The major study is using a combination of document analysis from ACNC data and survey responses

to analyse factors that my influence innovative practices and the support of innovation, together

with a range of indicators of innovation adapted from the Global Innovation Index 2014 Conceptual

Framework Global Innovation Index 2014, Johnson Cornell University and INSEAD, 2014.

PARTICIPATION

The survey should be completed by the Chief Executive Officer, Executive Officer or Executive

Chairman of the philanthropic foundation or trust. The person completing the survey needs

knowledge of your foundation or trusts governance, decision making processes and annual budget.

It is expected that the online survey will take 15-20 minutes to complete. Please provide and

informed estimate if you do not hold information in your usual foundation records.

Participation is voluntary and you are free to withdraw from participation in this study at any time.

Your consent to participate will be implied once you complete the online survey.

Your foundation or trust’s contribution to this research will be acknowledged in the final published

research thesis unless you indicate that you do not wish to be identified. All responses will be de-

identified and aggregated in any published document.

116

EXPECTED BENEFITS It is expected that this project may provide practical findings that could be of value to the management and governance of your philanthropic foundation or trust. The research will add to the knowledge of the philanthropic sector in Australia and abroad. As a participant, your foundation will be invited to a group briefing once the data has been analysed prior to any other report being published. RISKS Any reputational risk will be managed by not publishing any information identifying particular foundations and their responses to this survey. Only de- identified data will be used in the research report. PRIVACY AND CONFIDENTIALITY Responses to the questionnaire will be kept confidential and only used to inform the research

project. We will not attribute any specific comments to you or, if relevant, your organisation. We

will not identify you or your organisation by name in any of the project reports unless you expressly

permit us to do so for the purposes of acknowledging your contribution.

Please note that non-identifiable data collected in this project may be used as comparative data in future projects or stored on an open access database for secondary analysis by academics. If you have any questions about this research please email Professor John Fitzgerald, Director of the Asia Pacific Centre for Social Investment & Philanthropy, on johnfitzgerald@swin.edu.au.

2. CONSENT CONDITIONS TO CONSENT: 1. I consent to participate in the project named above. I have been provided a copy of the project

consent information statement to which this consent form relates and any questions I have asked have been answered to my satisfaction.

3. I acknowledge that:

(a) My participation is voluntary and that I am free to withdraw from the project at any time without explanation;

(b) The Swinburne project is for the purpose of research and not for profit; (c) Any identifiable information about me which is gathered in the course of and as the result of

my participating in this project will be (i) collected and retained for the purpose of this project and (ii) accessed and analysed by the researcher(s) for the purpose of conducting this project; and

(d) I will not be identified in publications or otherwise without my express written consent. By completing this survey, I agree to participate in this project. Date: ………… Contact for more information: Professor John Fitzgerald, Director, Asia Pacific Centre for Social Investment and Philanthropy Email: johnfitzgerald@swin.edu.au

3. SURVEY QUESTIONS

Please indicate which of the following best describes your role:

• CEO or Executive Officer □

• Executive Chairman □

• Other (please describe briefly) □ ____________________

Are you: M/F

Please select your age (tick box):

30-45 years □ 46-55 □ 56 – 65 □ Over 65 □

1. Does your foundation apply a cultural diversity policy when recruiting

new Board Members or Trustees?

Please Circle:

Yes / No

What percentage of your Board would be people who have a culturally

and linguistically diverse background:

Note: ABS GUIDELINES:

The recommended set of core data items required in determining an individual’s cultural and

linguistic background includes:

Country of Birth

Main Language Other than English Spoken at Home;

or

Aboriginal and Torres Strait Islander Status.

___%

2. What is the approximate age difference between the youngest and

oldest member of your Board?

Please circle:

10 years

15 years

20 years

25 years

1

30 years

30+ years

3. What percentage of your Board Members have:

• professional backgrounds

___%

• academic or other research backgrounds ___%

• Business (including private or listed company) backgrounds ___%

4. Is the Foundation’s Chairman a champion of innovation?

If yes, please provide a brief example: [text box]

Please circle:

Yes / No

5. Does the foundation have one or more decision making processes that

includes one or more of the following elements:

• Visioning (brainstorming or creative thinking opportunities) to

find solutions or ideas.

Yes / No

• Undertaking feasibility studies (internally or via a grant for that

purpose).

Yes / No

• Designing and pilot testing (internally or via a grant for that

purpose).

Yes / No

6. Does the Foundation have a Board approved Risk Appetite or risk

policy in relation to:

Yes / No

2

1. Its grantmaking?

2. The management of its investments? Yes / No

7 Does the Foundation’s Board and senior team/CEO undertake a

strategic planning process each year?

Yes / No

Does the Foundation’s Board and senior team/CEO undertake a review

each year?

Does the Foundation review external material (reports or

presentations) during this process?

If yes, you may provide some examples: [text box]

Yes / No

Does the Board meeting agenda allow time to discuss strategic

matters?

Yes / No

8 Is your foundation a member of networks where there are

opportunities to share knowledge and learn from partner

organisations:

1. Within the philanthropic sector?

Yes / No

2. Outside the philanthropic sector? Yes / No

3

9 Is your foundation a member of networks where there are

opportunities to share knowledge and learn from external experts?

Yes/No

10 Was the foundation’s founder specifically interested in supporting

innovation?

Yes / No

If yes, how is this manifested today? [text box]

11 Does your foundation have a history of supporting innovation?

If so, how has this experience impacted on your foundation’s way of

operating? [text box]

Yes / No

12 Which of the following best describes your foundation?

1) Our foundation actively seeks innovative ideas. □ OR

2) Our foundation wants all the staff to follow the general way.□

In our foundation,

1) Innovation is readily accepted in program/project

management. □ OR

2) Innovation is perceived as too risky.□ OR

3) Innovation is resisted.□ OR

4) Staff are penalized for new ideas that don’t work.□

Please tick box:

Please tick box:

13 What percentage of the foundation’s annual operating (not granting)

budget is spent on the research and/or development of new and/or

improved granting or other programs?

4

14 What percentage of the foundation’s operating budget is spent on

staff development and training?

Please select:

Less than 1% □

1%-5% □

5.1%-10% □

More than 10% □

15 How many external collaborations was your foundation an active

partner within (participated in regular steering committee meetings,

provided funding or human capital) during the last financial year?

Please provide a

number:

Is there a collaboration that has led to an innovation – process or

outcome? If yes, please provide a brief overview: [text box]

16 Does your foundation allocate part or all of its granting budget to

innovative projects and programs, including researching and testing

new service models?

If yes, what percentage of the granting budget is allocated to

innovative projects and programs? [tick box]

Yes/No

If yes, please

select

0-20% □

21-40% □

41-60% □

61-80% □

81-90% □

91-100% □

5

17 Has your foundation invested in a social impact investment (an

investment with a social and a financial return) using your corpus

rather than a grant?

If yes,

I. How many different social investments has your foundation made

in the last financial year?

II. What is the total amount of social impact investments you have

made in the last financial year from corpus?

III. What percentage is this of your total corpus?

Yes/No

If yes, please

provide details

____

$___

___%

18 Has your foundation funded start up organisations or programs in the

last financial year?

1. Not for profit start up, excluding social enterprise.

If yes,

I. How many?

II. What was the total amount of funding?

III. What percentage is this of your total annual granting?

Yes/No

Yes/No

____

$___

___%

2. Social Enterprise start up Yes/No,

if yes,

I. How many?

II. What level of funding in total?

III. What percentage is this of your total annual granting?

____%

IV. What percentage is this, if any, of your total corpus

investment? ___%

Yes/No

___

$___

__%

6

__%

19 Would you like to make any final observations? [text box]

Thank you very much for taking the time to complete this questionnaire and participate in this

research. Your contribution is greatly appreciated.

You will be notified when the research is due to be published.