Strategy for financing foundations: how do they create value?

Traditionally, the research on strategy has rather focused on profit-seeking organizations whose primary objective is to generate revenues through the price mechanism. Nevertheless, all organizations benefit from developing a strategic approach (Moore 2000). This paper focuses on financing foundations, non-profit organizations that are private, non-membership based, self-governing and serving a public purpose (Anheier 2001) and that make grants, give loans or hold equity. The core activity of a financing foundation is to finance operating intermediaries, for example non-profit association, NGOs or social enterprises, which will then implement projects and programs directly in line with the mission of the financing foundation. During the last decades, these organizations have made a breakthrough by establishing themselves as private actors that will look after the public interest. For long, strategic thinking has been impeded in foundations because the essence of the philanthropic action was giving without any expectation in terms of social impact. Today, the legitimacy of these organizations is challenged and there is a stronger demand for efficiency reinforced by the emergence of a new philanthropy inspired by corporate management principles (e.g. venture philanthropy considered as the more advocated strategic approach (Gautier et Pache 2014) ) and the question of strategy really matters. This paper aims at designing a conceptual strategic framework for financing foundations whose ultimate goal is to create value for society. To justify the development of a specific strategic framework for financing foundations, I first compare financing foundations with other financing organization according to six dimensions: ultimate goal, sources of resources, nature of the contribution, means, logic of action and accountability. Then, I review the academic literature in the field of philanthropy having a strategy focus in order to highlight the current gaps in the literature. Only few authors give a comprehensive view of the strategic question for this type of organization. Existing papers focus only on fragments of strategy and tackle two strategic issues: the mission statement and the evaluation. The decision-making processes by which the initial objectives are achieved are ignored; the strategic choices which philanthropic organizations make to fulfill their mission have not yet been identified. Based on the identification of key strategic commitments (in terms of scope and mechanisms) underlying the implementation of the predefined social mission and two crucial trade-offs (impact expectation and level of mission objectivity), the strategic dimensions of a financing foundations, leading to value creation for the society, are conceptualized. Two processes of value creation are distinguished: direct and indirect value creation. The course of actions chosen by a financing foundation is closely connected to its ultimate goal that is, increase the utility of a target group of beneficiaries (i.e. direct value creation). In addition, even if the very objective of the financing foundation is not to increase the utility of its donors and founders, it is effectively what happens (i.e. indirect value creation). The empirical research that will be conducted based on the strategic conceptual framework is then described and additional research questions are highlighted