[Editor’s note: This blog series has been purposefully adapted for On Think Tanks from a working paper Gerard Ralphs developed as the 2011 Research Awardee in the Donor Partnerships Division at Canada’s International Development Research Centre (IDRC). The original paper was compiled as a think piece for participants attending the IDRC’s Resource Mobilisation for Research programme workshops in Ghana, Senegal, and Kenya, hosted in collaboration with the Think Tank Initiative (TTI) targeting think tank leaders. The views expressed in this series are solely those of the author, and do not represent the views of IDRC, TTI, or IDRC’s donor partners.]
In the first of two blog postings, I broadly map out the chief operational urgencies that think tanks/policy research institutes encounter in their efforts to shape political and policy discourses using informed analysis.
Since this series is largely an exploration of a set of key concepts, the discussion quickly turns on the idea of a business model and how this idea might translate in think tank organisational development circles.
While the inflection of this piece is that it focuses on Africa, the discussion tries to remain broadly relevant, adopting a conversational/informal style where possible to invite further engagement from think tanks managers/leaders.
Context matters
Some think tank scholars argue that “what think tanks do and how they behave” is a function of the political environments in which they exist.
This perspective represents an important departure from a perhaps unconscious tendency among research and policy communities to model think tanks on Washington or London canons, such as the Brookings Institution or Chatham House.
Over and above their diverse and particular political milieus, the regulatory environment in which a think tank must operate is equally critical to its behaviour. Regulatory regimes of countries, or regions, differ markedly, which can enable or circumscribe the ability of think tanks to mobilise resources in order to deliver research or advocacy outputs that can influence policymaking.
Additionally, the scientific or intellectual community within which a think tank produces research and in which this research receives its validation, determines in large part its capability to impact policy formulation or critique. Without trust in the research it conducts, a think tank may face irrelevancy or redundancy.
How cleverly think tanks straddle political, regulatory, and academic urgencies, this blog series suggests, can contribute to their sustainability and success.
In exploring this proposition a bit more deeply, think tank business models represent an interesting and a potentially useful place to start.
An effective business model, management thought reminds us, lies at the heart of a successful organisation.
From for-profit to not-for-profit organisations, many examples exist to illustrate this: The 2008 Obama election campaign, which used social media and a very broad base of donors to mobilise financial and political support, is one case in point. Safaricom’s M-PESA system, which relies on local airtime vendors to facilitate efficient money transfers using customer mobile phones, is another. The list goes on.
Yet, what these examples share in common is the idea that resources and products are as important to an organisation’s business model as deep knowledge of the environment in which the organisation functions and the stakeholders it seeks to influence. +
But what exactly is a think tank business model?
Definitions
The term business model is often associated to activities within the for-profit sector. Catchphrases like ‘disruptive business models’ or ‘business model innovation’ have become common parlance in management consulting and tech circles.
But, arguably, every organisation, across sectors, has a business model.
Simply put, a business model is a conceptual tool: it describes the way in which an organisation goes about achieving its goals.
This basic definition suggests a range of activities—from raising funds to hiring staff, communication to travel, and strategy, programmes and outputs.
More precisely perhaps, a business model can be defined as the “rationale of how and organization creates, delivers, and captures value”.
In different terms, a business models has been characterised as the story of an organisation. Writing in the Harvard Business Review in 2002, Joan Magretta said:+
The word “model” conjures up images of white boards covered with arcane mathematical formulas. Business models, though, are anything but arcane. They are, at heart, great stories—stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? It also answers the fundamental questions every manager must ask: How do we make money in this business? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?
While there are obvious differences between enterprises and think tanks, the very definition of a business model is easily adaptable between the two types of organisation.
So if an enterprise business model can be described as such:
The essence of a business model is that it defines the manner by which the business enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit: it thus reflects management’s hypothesis about what customers want, how they want it, and how an enterprise can organize to best meet those needs, get paid for doing so, and make a profit.
Then a think tank business model can be adapted:
The essence of a business model is that it defines the manner by which the think tank delivers value to stakeholders, entices funders to pay for value, and converts those payments to research with the potential to influence policy: it thus reflects management’s hypothesis about what stakeholders want, how they want it, and how an think tank can use its resources to best meet those needs, get paid for doing so, and make a achieve its mission.
In sum, a think tank business model describes the interface of a policy research institute’s rationale and underpinning economic logic.
Funding models vs business models
Business models and funding models, while often equated, should be thought of as somewhat distinct. Why is this?
The key point to make, here, is that funding simply enables but definitely does not guarantee quality in programmes or services. For an organisation to be successful—and sustainable—over time, it must repeatedly add value to, and be trusted by, the recipients of its outputs. Through this trust-based mechanism, value delivered allows the model to be replicated or advanced.
To be clear, then, a funding model, on the one hand, is the approach of an organisation to raising, receiving, accounting for, and reporting on funds.
Extending Magretta’s analogy introduced earlier, a funding model tells the story of the different sources of funding of an organisation and how this funding pool is maintained, expanded, or diversified.
An illustrative example: A notable shift in the funding model of the International Development Research Centre
During the 1990s and in response to cuts in the parliamentary appropriation of the International Development Research Centre, the Centre’s leadership took a strategic decision to develop a resource mobilisation effort that would target other development research donors to support Centre programming. This approach represented something of a shift in the funding model of the IDRC; that is from complete reliance on Government of Canada funding to a diversified combination of state and other donor support. The business model of the IDRC, however, arguably remained the same: it continued to grant funds into research tackling the problems of the developing world. +
A business model, on the other hand, incorporates a funding model into a larger system of organisational components and interdependencies: It is in and through this larger system that the organisation’s staffing contingent deliver outputs (services, programmes, new knowledge) that stakeholders (citizens, policymakers, sponsors) value and in which they are willing to invest their resources.
Differences between funding and business models
| Funding Model | Business Model | |
| Focus | Revenue generation | Value creation and delivery, cultivation of trust and reputation |
| Activities | Raise, receive, account for, report on funds | Research performed and communicated |
| Staff | Director, Financial Officer, Project Officer, Board | All staff, Board, peer-reviewers |
| Goal | Cash in the bank, audit reports signed off, funders’ support maintained over time due to correct financial processes and management | Organisation is empowered to achieve its mission on a continuous basis |
| Key stakeholders | Donors (individuals, companies, governments, philanthropic organisations) | Research community writ large, policymakers, private sector and third sector actors, donors, ordinary citizens |
| Example statement | Organisation X derives 20% of its budget from subscriptions to its flagship publication; 30% from research contracts; and 50% from international sponsors. This funding model requires the full-time services of a book-keeper, the part-time services of a financial manager, and an external audit partner. The inputs of middle-management and the organisation’s director are also required month-on-month to ensure steady revenue generation and correct financial reporting. | Organisation X conducts and disseminates original research on key public policy issues in Country Y. It receives financial support from three sources, which enable it to employ the services of a team of professionals, including a high-level and widely cited and respected policy researcher. The director of Organisation X is widely regarded too by the research community, and its Board is made up of individuals that leverage their positions to create new policy influence and funding opportunities. |
Since funding is so often the major concern for think tank leaders, how can think tanks develop stronger linkages between their funding models and their business models?
The answer would depend largely on the particular strengths of the organisation as well as what opportunities exist (or are created) for it to leverage its resource base in pursuit of new funding at any given point in time. For instance, a think tank may be mostly directed toward conducting and managing work on short-term research contracts, publishing the results across national and international media and in peer-reviewed journals, and participating actively in policy dialogues as these arise. However, there may be a demand for the think tank’s particular expertise—ie as embodied in its staff contingent—in the education or training sectors. Fees solicited through, for example, talks or lectures, or training courses delivered, might be pooled to create a challenge fund for new research programmes. In addition, these (alternative) types of engagement may have many direct or indirect benefits for the think tank: for example, its brand and key messages may be better recognised by a wider stakeholder community, leading to further opportunities for revenue generation or policy influence. In this way, what began principally as a funding diversification exercise could become an integral part of a new business model for the organisation.
Conceptual tools and practical recommendations
There are many adaptable ‘tools’ or conceptual approaches from the annals of management and organisational development theory to assist think tank leaders to cultivate their understanding of the concept of business models.
I briefly describe three of these approaches below and their possible utility for think tank leaders (see recommendations).
Four elements of a business model
Clay M. Christensen and others suggest that a business models is made up of four elements:
- A customer value proposition
- A profit formula
- Key resources
- Key processes
With some modification, these elements or criteria can be instructive for think tank leaders in evaluating their organisational systems.
- A value proposition:
- Outputs: Research papers, Articles and interviews, Policy dialogue, Training manuals, Convening capacity
- Services: Workshop and conference organisation services, Research consultancies, Educational services, Project management:
- A funding formula:
- Revenue: Individual or organisational donors (local, international, private or public sector donors), Membership fees, Speaker fees, Event fees (for example, annual conference; topic specific events), Government, local or international consultancy contracts, Subscriptions, Subsidies, Other research funding
- Costs: Staff, Infrastructure, Travel, Administration
- Key resources:
- People: Researchers, Policy experts, Administrators, Communicators, Management, Board
- Research resources: Publications, Libraries, Internet, Data collection and analysis tools
- Equipment: Phones, Computers, Office furniture, Office space
- Collaborations: Local/international, Funding partnerships, Intellectual or knowledge production partnerships
- Brand: Logo, Materials, Reputation and goodwill
- Key processes:
- Research: Methodologies, Communication of research, Research management, Proposal writing and costing
- Human resource: Employment policies, Travel, Performance monitoring and evaluation, Reward systems
- Communication: Radio, television, print media, Website and social media, Publications (books, reports, brochures), Marketing
Recommendation: Try developing your own table showing your business model’s building blocks. Does this process reveal any gaps or limitations? Can these be easily addressed?
A business model statement
Setting out a statement that captures the essence of the business model could be useful in focusing think tank leaders on the essentials of what’s important to an organisation’s daily functioning.
A business model statement contains all the elements of a think tank’s business model; that is the story of how the organisation accomplishes its mission.
Recommendation: Try writing that story, and then see if it rings true for key staff and stakeholders.
Three characteristics of good business models
What defines a good business model, in other words, a business model that works well? Organisational development thinkers such as Casadeus-Masanell and Ricart (2011), writing in the Harvard Business Review, have narrowed this to three essential characteristics:
- Alignment: A good business model is aligned to leadership’s strategy and decisions.
- Self-reinforcement: A good business model reinforces the mission of the organisation.
- Robustness: A good business model enables an organisation’s activities to be sustained and its opportunities to be exploited and threats or risks to be mitigated.
Recommendation: Think tank leaders might ‘test’ of their business models against these three criteria, and reflect on the results with key staff and stakeholders.
Read the second blog post: are think tanks a distinctive type of organisation?