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Maximizing IBM’s Philanthropic ROI

Sunday, June 26th, 2011

My June 12 blog examined the changing objectives of IBM’s Corporate Philanthropy programs and how the company is redefining its priorities to better align with the company’s business strategies. This blog looks at some of the ways the company is attempting to maximize and measure the returns of its charitable investments.

The Business Value of Social Investments

IBM, as I discussed in the previous blog, is increasing its social spending and aligning this spending around new priorities. Now that it has come to view these expenditures more as investments than as gifts, it is focusing growing effort both on maximizing and measuring the returns they generate—the returns both to society and to IBM and its stakeholders.

It is, for example, increasingly channeling these investments into defined programs that can be applied, replicated, and scaled worldwide. For example, as I explained in detail in my 2010 reports on IBM’s Academic Initiative and its Corporate Service Corps initiatives, it has:

  • Developed a formal, global program to help universities more easily and effectively partner with IBM to address their needs in areas including technology access and implementation, curriculum development and course design as well as to share best practices with other universities (while simultaneously increasing IBM’s involvement in cutting-edge research projects and identifying and building relationships with promising students); and
  • Created a structured, rapidly expanding program, modeled loosely on the Peace Corps, to help emerging countries, cities and communities identify and implement solutions to critical development and other societal problems (while simultaneously contributing to and reducing the cost of IBM’s executive development efforts and demonstrating the value of, and sometimes creating demand for the company’s Smarter Planet solutions).

IBM is even programitizing programs as individualized as employee community volunteer activities. Although employees are certainly free to (and can qualify for IBM matching funds) select the type of causes to which they will contribute their time and money, IBM’s On Demand Community program is creating a line of proven, Web-based management solutions that volunteers can deploy in schools and other not-for-profit organization and agencies.

Increasing Social Leverage

This, however, is only one example of IBM’s use of in-kind contributions. Although the ratio of in-kind to cash contributions has increased relatively modestly over the last five years (from an already large 2.8:1 in 2005 to 3.6:1 in 2009), its contributions of IBM’s technologies has grown from $64 million to more than $102 million. These contributions range from entry-level servers used in classrooms and on-line delivery to supercomputers for research organizations and a broad range of hardware and software used to manage the day-to-day operations of all types of educational and non-profit organizations. There has been a particularly rapid growth in the software given for universities to use in post-secondary classroom education through IBM’s aforementioned Academic Initiative.

Although services represent only 23% of the company’s total contributions, they have the potential of delivering disproportionately high levels of value. After all, while IBM certainly produces products, its primary value is in its people. They embody not only IBM’s expertise (in technology, business, science, mathematics and dozens of other disciplines), but also the company’s commitment to innovation and excellence.

Although most of the services that IBM donates are in the form of technical services (as in helping organizations evaluate their IT needs and implement appropriate solutions), a growing percentage will come from Web-based on-demand services, such as the On Demand Community management solutions mentioned in my previous blog, and its Small Business Toolkit, which entrepreneurs can use to learn and implement effective business practices. The range of such online service offerings will certainly increase as IBM expands its cloud service offerings and its Lotus family of collaboration and social networking tools.

The greatest value, however, promises to come from a growing number of programs that contribute professional services. These include management consulting services from the company’s Global Business Services group and the broad-based services provided through the company’s Corporate Service Corps, and more recently created Executive Service Corps programs. Then, of course, there are the less programmatic contributions, such as the contributions of IBM scientists and medical doctors to organizations including the National Academy of Sciences and a rapidly growing number of partnerships with universities. Examples include partnerships with the University of Missouri on a cloud-based genomic research solution and the City University of New York on electronic textbooks and an Analytics Center of Excellence.

But while IBM certainly created and manages many of its own philanthropic endeavors, it also understands that many specialized Non-Governmental (NGO) and Community-Based Organizations (CBO) are better suited to delivering many specialized and on-going services than is IBM, can better service the needs of remote communities and can more effectively scale programs that IBM has created. It, for example, relies on partners including Digital Opportunity Trust and CDC Development Solutions to organize its Corporate Service Corps engagements and is now working with the U.S. Agency for International Development (USAID) to expand the CSC model to facilitate participation by many other companies, international organizations and foundations. The company also partnered with the World Bank to create the Small Business Toolkit, which can entrepreneurs use to learn and implement effective business practices.

Assessing the Benefits

As of now, there are no generally accepted principles for precisely measuring either the social or the business benefits of corporate philanthropy. Although business consulting firms like McKinsey and BSG, and social consulting firms like FSG and BSR are certainly working on such measures, corporations currently use their own measures. IBM, for example, cites benefits including improvements in:

  • IBM’s brand, including frequent write-ups in business periodicals and books by thought leaders, such as Rosabeth Moss Kantor (in her 2009 book, SuperCorp;
  • Talent recruitment, morale and retention attributable to the opportunity to contribute to society and pride in working for a company that encourages, enables and is known for these contributions;
  • Entry into new, and expansion into nascent markets, such as Vietnam and Nigeria, in which IBM has conducted philanthropic programs;
  • Tuning and demonstrating the capabilities of IBM technologies to new needs, such as its cloud-based World Community Grid and its work with the open source Sahana disaster planning and recovery application; and even improvements in IBM’s
  • Share price, by attracting investments from the growing number of social investment funds (SIFs).

Sound a bit squishy? Perhaps, but each of these improvements is being measured with varying degrees of specificity. Although IBM does not subject proposed social contributions to a strict ROI justification, the company’s Corporate Citizenship & Corporate Affairs organization does calculate estimated returns and reports them to the company’s Corporate Citizenship Steering Committee and Board of Directors.

IBM, for example, either directly collects or contracts for data across a range of areas. These include:

  • Brand: IBM collects information on all of the media coverage of its CSR programming and assesses the value of it from mainstream media coverage (i.e. Wall Street Journal feature on the Corporate Service Corps or Fast Company coverage of World Community Grid) It also collects data on other “free publicity” in social media and electronic media. This is extensive and easily measurable.
  • Talent: IBM uses its own metrics to gauge the value of its CSR programs in the retention of top talent and its impact on recruitment and retention of talent. One publicly available example is Harvard Business School professor Chris Marquis’s study of IBM’s Corporate Service Corps, which assessed the program’s impact on factors including employee skills development, employee commitment to IBM and impact on local partner organizations and communities.
  • Finance: IBM tracks the degree to which Socially Responsible Investment Funds increase or decrease their purchases of IBM’s stock based on its CSR performance and the degree to which independent rating entities, such as Ceres or Covalence (both of which rank IBM #1) rate IBM highly.
  • Technology: Since many of its programs involve the use of critical IBM technologies such as cloud, analytics, grid, voice, digital imaging, IBM can track both new patents and the ability to obtain intellectual property or value for its technology innovations in the marketplace.
  • Geography: Most companies contribute the lion’s share of their CSR investments in major markets and in areas where they have most of their employees or clients. IBM, on a percentage basis, is the largest contributor to so-called Growth Markets and is able to track the impact its investments on business opportunity and key relationships.

All combined, these 5 areas have relatively specific measurements that permit the company to assess the ROI of its CSR investments. The company, of course, continually modifies and improves these measures over time. Although IBM Vice President of Corporate Citizenship & Corporate Affairs, Stan Litow, certainly acknowledges the subjectivity of some of these assessments, he insists that the exercise is necessary. After all, philanthropic programs must be sustained if they are to deliver long-term value. The only way to ensure sustained support for such programs, in bad economic times as well as good, is to demonstrate that they deliver strategic value to the organization.

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IBM’s Evolving Corporate Philanthropy Objectives

Sunday, June 12th, 2011

In two recent blogs, I discussed the growing trends by which companies are:

  • Integrating corporate social responsibility (CSR) and Corporate Philanthropy initiatives into their business strategies; and
  • Migrating from passive philanthropic donations of cash, to active contributions of their products, and especially the expertise of their employees to the needs of their communities.

These companies increasingly recognize that reputations for social responsibility can burnish the company’s brand, attract new customers, aid in recruiting employees and improve employee commitment to the organization. Some companies use philanthropic activities to facilitate entry into new markets, improve economies in existing markets and even increase share prices. They also see this active involvement as delivering much greater and more sustainable benefits to the causes they support.

IBM is a case in point. This is the first in a series of two blogs that examine how IBM is rapidly evolving its corporate philanthropy program to align with the company’s business strategy. This blog assesses the company’s changing priorities and their linkages to some of its core business objectives. The second blog (scheduled for June 26), looks at how the company is expanding and measuring both the corporate and social returns of these programs.

Toward a Business-Aligned Philanthropy Strategy

IBM’s Smarter Planet initiative, in which the company works with communities to improve everything from their water supply to their traffic flow, facilitates what IBM views as a growing “fusion” between its business and citizenship strategies. Its efforts to address societal issues such as the environment, community economic development, education, health and literacy, increasingly rely on “IBM’s most valuable resources, our technology and talent, to create innovative programs” to assist these communities.

This has not always been the case. Although IBM has always been a major contributor to social causes, back in the mid-1980s, it often subjectively allocated contributions to causes in communities in which IBM operated and had employees. 95% of these contributions were in cash.

While struggling to get the lumbering giant back on its feet, Lou Gerstner hired a new executive to restructure the company’s social initiatives. This executive, Stanley Litow, was charged with applying the company’s philanthropic resources to address the needs of society in a way that would simultaneously:

  • Advance IBM’s own business objectives; and
  • Maximize the value of IBM’s “social investments” through donations of the company’s technology and expertise, in addition to its cash.

These focuses were further refined under current CEO Sam Palmisano, who insisted on methodically aligning IBM’s community service efforts around the company’s business expertise and on applying IBM technology and expertise, in areas including cloud, analytics and security, to societal needs. He also required quantification of the value of these investments (the value to IBM, as well as to beneficiaries) and on working more effectively with partners to better leverage and scale IBM’s efforts. As of 2009, for example:

  • 25% of IBM’s investments were in growth markets compared with an average of 1% for other companies;
  • Almost 75% of these investments were aligned around education and employee development, with most of the remainder being spread across human services, environment, health and culture; and
  • 55% of investments were in the form of technology and another 23.3% in services, with cash accounting for less than 22% .

IBM has steadily increased the resources it donates to charitable causes from less than $150 million in 2005 to more than $185 million in 2009. While this includes the company’s Matching Grants and Community Grants programs, it does not include the $36 million individual IBMers contribute through the company’s Employee Charitable Contribution campaign or the close to 1 million hours of their own time that current and retired IBMers dedicate to social causes of their own choosing under IBM’s On Demand Community program. Valuing these hours at a modest $25 per hour translates into an additional $24 million.

IBM is also expanding its commitments to its social programs, focusing on building longer-term, more sustainable relationships with its causes and its partners as a means of maintaining continuity, ensuring meaningful knowledge transfer, and of achieving long-term and sustainable results.

Educating the Workforce of the Future

While the increase in overall funds that IBM allocates to corporate contributions has been gradual, the change in the composition of these contributions has been dramatic. Education, for, example, grew from 67.5% to 73.4% over the last five years, while the percentage donated to cultural causes has fallen by half, from $11.2 million to 4.7 million.

The allocation of these educational contributions has shifted much more dramatically than the overall sums. While more than 55% of IBM’s 2005 educational contributions went the K-12 in 2005, 67.7% now goes to higher education.

As I discuss in detail in my 2010 report on IBM’s Academic Initiative, these educational resources are being applied much more programmatically and in a way that generates greater returns—to IBM, the schools with which it works and to students—than did the company’s previous efforts. It contributes hardware and software to computer science labs; funds scholarships, internships and interdisciplinary Smarter Planet research projects; and contributes IBM talent to help universities tune curricula and teach classes. Meanwhile, its Global Citizen’s Portfolio provides a range of tools to help fund employee’s lifetime learning, encourage them to mentor other IBMers and even prepare for new careers in teaching, government or non-profit service.

Why is IBM placing such a focus on education in general and higher education in particular? First, there is a huge need. Education is the Number One-rated corporate philanthropic priority of CEOs in general, and of IT companies in particular. It is also cited as the single greatest need by community managers. Second, IBM, like many tech companies, is already struggling to find adequate numbers of people with the skills required for today’s jobs. It sees even greater talent shortages in the future—particularly for the type of “T-shaped” people (those with a broad understanding of multiple disciplines and skills, combined with deep skills in a specific field) that will be required to develop, market, implement and manage the type of Smarter Planet solutions on which IBM is betting its future.

IBM is working, first and foremost, to help universities educate adequate numbers of people with the skills that it will require in the future, while simultaneously identifying and forming relationships with the most promising of these students while they are still in school. IBM’s need for T-shaped people, however, goes well beyond its own direct needs. It is also working to ensure that such people are available to IBM partners and customers and that these people are familiar with (and ideally have favorable impressions of) IBM and its technologies.

Improving Life in IBM’s New Growth Markets

As I mentioned, there been a big shift in the geographic destination of IBM’s charitable contributions. In 2005, for example, almost 70% of IBM’s donations went to the U.S, with Europe, Japan and Canada accounting for much of the remainder. By 2009, 25% of these funds went to emerging and developing countries, with contributions to Asia Pacific and Latin America both more than tripling over the last five years.

Why the big shift to emerging countries? Three primary reasons. First, as great the needs of the developed world, those of poorer countries are even greater. Second, IBM is becoming much more global, with about two-thirds of its revenues now coming from overseas, and three-quarters of its employees now based overseas—with particularly rapid growth in emerging countries, especially India and China.

This leads to a third, more pragmatic reason. IBM, like most other large corporations, sees much of its future growth coming from these countries. While it is already established in some of these countries, it has little presence in many of the smaller countries and, even in those in which it is well-represented, has little exposure in second- and third-tier cities.

Contributions to these countries generates exposure for IBM in preparation of marketing efforts, gives IBM employees a better understanding of the needs of these areas and helps to build IBM’s bona fides as a corporate citizen of these countries. Meanwhile, programs including Corporate Service Corps, Executive Services Corps and Smarter City Challenge provide emerging country communities with pro bono consulting to address critical Smarter Planet-related needs. These engagements deliver direct and immediate benefit to these countries while simultaneously providing them with an idea of the even greater benefits that may be achieved though broader, paid engagements. The consultants, meanwhile, provide a very human face to the giant corporation.

IBM is clearly channeling its philanthropic activities more strategically than in the past, insisting that they deliver value both to their beneficiaries, and to IBM itself. But as the company increasingly views these contributions more as investments than as gifts, it is also insisting that every given dollar worth of contribution produce the greatest possible return. My June 26 blog examines how IBM is both amplifying and measuring the returns—both social and corporate—of these programs.

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IBM Corporate Service Corps: Integrating Business Objectives and CSR

Sunday, January 23rd, 2011

This is a summary of my January 2011 report “IBM Corporate Service Corps: Integrating Business Objectives and CSR”. For more information on this report or to purchase it for $995, click here.

IBM has one of the strongest talent development programs and one of the strongest corporate social responsibility (CSR) programs in the technology industry. What do you get when you combine them? IBM’s Corporate Service Corps (CSC)—a great example of how companies can do well by doing good (see my May 2010 report for a view of another IBM initiative, this one or integrating its university CSR and internal talent development initiatives.)

IBM’s Corporate Service Corps is a leadership development program, inspired by the U.S. Peace Corps. It is intended to put IBM’s most valuable resource—its people—in places that can most benefit from their expertise, and provide these employees with experiences from which they can gain broad leadership and cross-cultural experience. It provides select, high-potential employees with intense experience in working with global teams on short-duration, high-intensity projects in emerging countries. It is also a big expansion of IBM’s CSR efforts that turns social volunteerism into a life learning experience.

CSC Objectives

The program, which was launched in 2008, deploys small, 8-12-person multi-disciplinary teams to provide pro bono consulting—helping emerging country government, nonprofit and non-governmental organizations develop specific plans for addressing some of their most pressing societal needs. These can range from upgrading a government agency’s IT environment and processes, to developing a supply-chain management process for getting agricultural products to market, to improving the quality of a community’s public water supply. While each project is different, each is intended to result in practical blueprints for solving problems that are limiting a country or a community’s growth and their peoples’ ability to contribute to that growth.

Although CSC is absolutely intended to deliver broad societal benefits to emerging countries, it is first and foremost a corporate leadership development program. Its goal, however, is not so much to teach specific business skills as it is to instill the qualities individuals require to become leaders in a globally integrated business. Participants are given deep, intensive exposure to emerging markets and diverse cultures and experience in forming and working in multi-cultural, multi-disciplinary teams. They are expected to return with improved cultural literacy, better appreciation for the strengths and limitations of different cultures and work styles, and especially greater adaptability and global teaming skills.

Although the program entails a lot of additional work (30-day in-country assignments plus extensive preparation and post-return requirements) in addition to the employee’s day job, participation is seen as both a privilege and a reward. It is a validation of one’s accomplishments in the company and as a steppingstone to advancement within the company. This makes the program extremely popular and selective—attracting about 10,000 applicants for the first 400 positions.

CSC Results

Although there is certainly plenty of anecdotal evidence to validate the program. IBM, being IBM, requires more formal evidence that its goals are being met. Harvard Business School assistant professor Christopher Marquis designed and conducted a formal survey of participants and recipients and evaluated the results as part of a case study on the program. His findings: CSC is “effective and executing on its goals and mission” (of providing a unique—and highly scalable and cost-effective—leadership development experience, societal benefits to emerging countries and improving employee’s perception of and commitment to IBM). IBM claims the program also delivers some additional side benefits, as in improving IBM’s brand in new and emerging markets and even in creating some new sales opportunities for the company.

In some ways, there is little that is really new in CSC. It combines two relatively common corporate practices—the use of overseas postings as an executive development tool, and encouraging and funding employees to perform volunteer work. The big difference is that IBM has integrated them into a fundamentally new form that delivers these experiences to far more executive candidates than would be previously possible, and does it in a cost-effective way that delivers additional benefits to the company.

CSC Futures

IBM will absolutely continue, and modestly extend the program. Its ultimate value, however, is likely to transcend IBM. Some of IBM’s customers, including Novartis, Federal Express and Dow Corning are already learning from and have begun to implement similar programs. Meanwhile, the U.S. Agency for International Development (USAID) recently signed a Memorandum of Understanding with IBM to create the Alliance for International Corporate Volunteerism (ICV). The alliance will expand upon the CSC model to facilitate participation by many other companies and create corporate responsibility networks that integrate activities of corporations, governments, international organizations, foundations and other participants. USAID will also serve as a delivery coordinator for some of these projects, thereby increasing the chances that CSC’s consulting recommendations will deliver their intended value.

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