In-kind donations for nonprofits
By closely managing corporate partnerships,
nonprofit organizations can ensure that they receive the
goods and services they need.
Ragnar Hellenius and Sofia Rudbeck
The McKinsey Quarterly, 2003 Number 4
Corporations are usually more
willing to donate products and services than hard cash to
nonprofit organizations. Nonprofits, however, are generally
less keen to receive their donations in kind, because they
fear getting the wrong products at the wrong times (Exhibit
1). Yet our research suggests that carefully managed in-kind
donations can do a lot to help nonprofits—especially international
relief organizations—narrow the gap between their aims and
their resources. The trick is to create long-term
partnerships between nonprofits and donor companies and
to make the benefits for both sides explicit. This
approach gives nonprofits more control over what they receive
and when they receive it—in effect, allowing them to look
a gift horse in the mouth.
An in-kind gift’s market value can be more than double
the value of a cash donation from the same donor, since
the gift’s cost to the donor is only the product’s marginal
cost, which might be only half of its market price. Moreover,
many corporations have spare capacity that they could put
to use for nonprofits at a negligible extra cost to themselves;
for example, transportation or shipping companies may have
spare container space; IT consultancies, temporarily underutilized
communications engineers.
Why should a corporation use its resources in these ways
to benefit a nonprofit? Is it possible to change the basic
fact that the recipient of a gift usually isn’t in a position
to discuss, let alone dictate, the terms of the donation?
To build a more equal and businesslike partnership in which
donors assume the role of suppliers and nonprofits the role
of customers, nonprofits must offer the donors something
valuable in return. One important benefit that
corporations can derive from their in-kind gifts is the
ability to meet—and be seen to meet—their corporate social
responsibilities: donations in kind can easily (and more
creatively than cash) be communicated externally for the
purposes of public relations. Companies can also benefit
internally because employees take satisfaction in working
for good causes.
The first step in creating mutual value of this kind is
to determine the benefits of an in-kind donation for the
nonprofit and the corporate donor. A timber company, for
example, might at the same time support both a social and
an environmental cause by providing construction materials
to help repatriated or resettled refugees build new homes
for themselves and by donating timber grown outside the
area of settlement to ensure that scarce local vegetation
wasn’t cleared. The donor’s reward might be positive publicity
triggered by press releases from the nonprofit organization.
Similarly, an automotive company could gain valuable exposure
for a new product line by donating vehicles to a relief
agency working under the media spotlight.
But nonprofit organizations must solve the problems associated
with in-kind donations. In some cases, companies use nonprofits
to dump inadequate, second-rate products—say, a shipment
of tents that couldn’t withstand high humidity in a refugee
camp. Sometimes the cost of transporting and maintaining
in-kind donations is too high. What’s more, the timing and
size of the donations are often hard to control; if donated
field kitchens, for example, don’t arrive on time, the relief
organization must spend hard cash to buy substitutes.
For in-kind donations to work, a nonprofit organization
must adopt an integrated approach involving not only its
donations and fund-raising unit but also the departments
that oversee its operations and manage its resources (Exhibit
2). First, the operations unit needs to specify its requirements
for the products and services it needs. Next, the resource-management
and fund-raising units should together break down the operational
budget into categories suitable for in-kind donations and
provide minimum product specifications and the like. These
units should then rank potential target companies,
which ought to be approached with a business idea
that spells out exactly what benefits the nonprofit organization
has to offer them. (Local information about human-rights
and business issues could help a company act in a socially
responsible way, for instance, or the nonprofit might offer
courses in handling problems that arise when the company’s
people work in unfamiliar cultures. It could also help get
the media interested in the joint project.)
In one example of the kind of partnership we recommend,
a telecom company provides equipment and expertise for an
international aid organization’s field operations; among
other things, the company installs telecom equipment in
emergency warehouses. For the aid organization, the value
is substantial, since telecommunications invariably presents
a problem in such conditions. For the telecom company, the
project helps to keep up the spirits of employees in an
economic downturn.
It is important to draw up a business contract,
which should include details about the resources required
and what both parties are expected to deliver.
The nonprofit’s resource-management unit should estimate
the total cost of using the donation—administration, transport,
maintenance, and repairs—to see if it is truly worthwhile
for the organization (Exhibit 3), as well as coordinate
the logistics and procure any needed items that are not
being donated. Finally, most donors understandably want
feedback on the progress of a project and their involvement
in it. Such information—provided, for example, through field
visits—must be delivered in cooperation with the people
who run operations.
http://www.mckinseyquarterly.com/article_page.aspx?ar=1345&L2=33&L3=95
