How Cordaid transformed from NGO to social enterprise

In pursuit of a more sustainable and diversified funding base, more accountable division managers and better results for their programs, an increasing number of development and aid organizations are talking about the benefits of operating as social enterprises in the sector. But how does this conversion actually work? Few understand what it means to operate on a social enterprise model and even fewer have actually done it. Cordaid, headquartered in the Netherlands, is a notable exception, having recently undergone a transformation from a nongovernmental organization focused on foreign aid to an international development agency operating as a social enterprise. Chris Meyer zu Natrup, founder of MzN International, sat down with Cordaid’s Chief Operating Officer Henri van Eeghen to discuss his experience of transition. Here are some highlights from that conversation: What was the impetus to make this transformation happen? Firstly, there’s been a lot of talk around shrinking the foreign aid budget and the phasing out of funds of large partnership grants, which represented 80 percent of Cordaid’s funding at the time. When I arrived at Cordaid in late 2009, I found an organization that was basically an unofficial civil service organization. The mix of finances was unhealthy. We’ve also come to realize that the old grant model of northern tax monies funding programs in the “global south” via NGOs is — rightly — being challenged. For NGOs, this means facing the reality of dwindling grant funding, which should be a wake-up call to any NGO and a sure sign that they needed to change their mindset and operational principles. I knew we needed to transition from a foreign aid organization to an international development organization, and operating as a social enterprise was the answer. How did you manage this transition? We spent the whole of 2012 restructuring Cordaid. We sought some external help and hired new program management [staff] with an attitude for transformation; external consultants helped create 11 business units; and we also trained staff in financial management and started using program and divisional [profit and loss accounts] as management tools, rather than just reporting ones. Finally, we introduced a balance “scorecard” to look into five different domains: programs, communication, funding of operational functions and support functions, and human resources. Each domain has its own key performance indicators. The idea is to use these tools to inform future strategies. All this meant that instead of focusing on our past performance with quarterly reports, we spend more efforts planning ahead. Did you encounter much resistance to change when proposing such a transformation? Before my arrival in December 2009, Cordaid had attempted a smaller reorganization. Unfortunately, there was change fatigue and it all amounted to some tinkering around, without any real transformation. When we gave reorganization another shot in the second half of 2011, we genuinely asked ourselves why we were doing this. Eventually, we came up with a much more defined mission and established 11 business units that we would concentrate on. All other activities were transferred into a specialist unit that would wind these programs and activities down. That made the change very clear. Everyone knew we meant business and resistance was lowered. Good external help with the right capacities, reach and flexibility can sometimes be hard to find in the development and aid sector. How did you manage to secure this? We hired consultants in 2012 who specialized in change management and transformation, but were familiar with the sector too. Knowing the sector was critical. They stayed with us for 18 months. We worked together to hire senior staff for the strategy and funding units, as well as implementing the corporate communications system targeting the business world. This close cooperation was crucial for success. What about the costs of what some would consider a radical change? The human cost was high, but crucial. More than half of the Cordaid’s midlevel and senior management has changed as a result of the transformation. The other half was promoted from within and provided with training, coaching and assistance. This was a good balance, ensuring knowledge retention while stimulating organizational change. So what obstacles did you have to overcome while implementing this change? Of course, some people in Cordaid were initially unwilling to change their minds. But the move toward open data and full transparency made a real difference, making us all feel far more accountable. It was hard sometimes to restrict and streamline some program managers toward a particular way of working. Most managers preferred the freedom to do things the way they had done so in the past. But it was definitely worth it. The fact that we helped the organization to focus on fragile and conflict-affected areas made it possible for the business units to make choices in programs, funding and communication. Our integrated approach to building flourishing communities in fragile areas was an inspiring challenge for all experts to work together. And this focus on fragility appeared to be a driver of financial and programmatic innovation. The implementing power of Cordaid is shown in the way we use results-based finance for health care, education and security programs. But also in our investment funds, our local risk management and the cooperation with different companies all over the world — it [embodies] the entrepreneurial spirit that defines the changes we made within Cordaid. And once our projects moved to open data, people started coming to us with questions, making managers feel more accountable. What’s more exciting is that if a donor wants to know our output and social impact, they can see it all on our website. For some donors, we don’t even need to send additional reports any more, saving a lot of time and money. Many NGOs acknowledge all of this and yet still shy away from such a transformation, citing financial costs as an insurmountable barrier. Is that a valid point? What was the cost of the change in your case? The direct costs included hiring a change manager and a few consultants to help design a business plan. Altogether it amounted to — excluding indirect costs — 300,000 euros ($385,000). In other words, less than 1 percent of our turnover for one year. Given the immediate return, I don’t think that this is too high a price to pay for “future-proofing” your organization. And in the first year after the transition, our overall annual budget grew from 129 million euros to 181 million euros. Considering the cuts in the budgets coming from the Dutch government, this growth was considerable — and proved that Cordaid’s people were quick learners. What advice do you have for organizations considering this path? It’s important to make a clear assessment of where you are as an organization. Take some time to understand the aspects of your internal culture, the way people work with each other — or not — and how they create their own islands. A good gap analysis clarifies a lot of questions and allows for ambitious targets. Remember that the human capital in your organization will be your biggest asset. In Cordaid, most of our people really flourished with — and actively promoted — the change, experiencing it as something liberating. I see a completely different organization now. So what’s next for Cordaid? The transition has created many new work streams in Cordaid: those still need to grow and consolidate themselves. But we feel blessed by the trust and support from our 320,000 Dutch private donors, as well as from large international foundations. Our integrated approach on the situation of women in fragile areas is showing to be a very interesting proposition for international funders, but also for our work on lobbying and advocacy, our local support for entrepreneurs, and our focus on youth and employability. All of this gives us the possibility to build strong multistakeholder coalitions. A big challenge is not to be afraid to keep our organization on the move in this rapidly changing world. If our aim is to bring change to the most difficult places in the world, then we should also be able to keep changing ourselves. That’s what we did in the past 100 years — and that’s what we will be doing in the coming 100 years. Check out more insights and analysis provided to hundreds of Executive Members worldwide, and subscribe to the Development Insider to receive the latest news, trends and policies that influence your organization.