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In fall 2007, Jacob Harold, the Philanthropy Program officer at the William and Flora Hewlett Foundation in Menlo Park, Calif., was on his way to meet with Paul Brest, the Foundation’s president. Harold had set up a meeting with Brest, also the acting director of the Foundation’s Philanthropy Program, to discuss what the Foundation should do in the confusing and complex space Brest had labeled “the online marketplace for giving.”
Susan Bell, prior vice president and director of the Foundation’s Philanthropy Program, had just stepped down from that position in October 2007 to shift her focus to a new energy initiative at the Foundation.
Although Bell remained actively engaged in the online marketplace for giving initiative, Harold and Brest were tasked with exploring the development of an online system that not only provided financial information but also programmatic data on the entire nonprofit sector in the United States so that donors could make more informed investment decisions.
What Brest had labeled the online marketplace for giving sat within the greater macro “social capital market” or “the system that fills the gaps most nonprofits experience between the revenues they can earn by providing services or selling products for a fee, and total outlays.” This gap was typically filled by individuals, foundations, or corporate investors who made donations or investments to nonprofit organizations.
In an efficient social capital market, nonprofits could find the right donors and more donors easily, and on the other side, donors could efficiently find the best nonprofits for their donations based on basic information and performance information.
One of the main inefficiencies of the social capital market, especially when compared to the for-profit financial capital markets, was the lack of accessible information, which led to a more significant problem where, according to Harold, “the best nonprofits don’t necessarily get the most money.”
He added: “The nonprofit-giving marketplace in the U.S. is not a value-driven allocation process, so society loses out. That market doesn’t do a good job figuring out where the money should go.
The next obvious question is: How do we help the best nonprofits get the most money since our perspective is to solve social problems? That leads us to think about the marketplace and how donors give their money.”
In 2007, Brest and Harold hired consulting firm McKinsey & Company to help the Foundation explore the online information marketplace for giving space, given McKinsey’s prior work in the area.
By the end of 2007, McKinsey had worked with Hewlett for several months to assess the space at a macro level, including trends and opportunities.
Specifically, the team collaborated to develop a framework for analysis that included an assessment of both the demand side of information (donors, or those using the information to invest their funds) and the supply side of information (nonprofits and other constituencies that could provide the information about nonprofit performance and other stakeholders), as well as where demand and supply met (or external organizations that used technology to enable the collection and packaging of information that donors might find useful).
Armed with the McKinsey study’s findings, Brest and Harold wondered what to do with the plethora of information they had received.
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Case No: SI107