Case Study Membership Society’s and Charity Based Organisations non profit organisations using the Internet and eCommerce by Rob Abdul

To be recognised in the UK as a charity one must satisfy one of the following objectives:

• Relief of poverty
• Advancement of education
• Advancement of religion
• Other purposes beneficial to the (international) community

Most charities fall within the last category. Charities must target the public or a section of it, not individuals.

Industry concentration
The Charity Commission keep a register of charities as required by the Charities Act 1993[1]. Figure 1 illustrates how the total number of charities has been increasing, reaching 186,248 in 1998 (a 4% growth since 1994). The sector is highly fragmented and, for the supplier / donor, the choice is vast. For example, there are over 600 charities operating in the cancer field alone[2].

Fig 1, Financial Flows in the Charity Sector

(London Business School, 2000)

Figure 2 provides the financial flows in the charity sector. During 1998, the collective income of registered charities totalled to £19.7bn. This was made up largely from investments. Income from donations was £5bn, with 80% from individuals.  Figure 2 illustrates that collective income rose by 23% in the four years analysed.

Fig 2, Charity Types

(London Business School, 2000)

Charities are divided into two main subgroups:

• A small number of big players which act on a national and international basis
• Many small niche players deliver services with a limited scope.

Research by Ann Bartlett (2000) of the London Business School, reveal that the big players dominate because “they are adopting an increasingly business-like management style. Hiring professional human resources at market rates. The top 9% of charities account for over 93% of overall voluntary income.”

Figure 3 illustrates how the financial wealth of charities is concentrated in just a few large charities.

(London Business School, 2000)

1.1 Gaining Membership
The Charity Commission estimates that approximately 80,000 charities have a membership structure[3].  Their research indicated that charities with members overwhelmingly saw the role of their membership as a positive one, with 84% of charities with individual members and 81% with corporate members stating that their members made a useful contribution to the running of the charity.

Findings from the Charity Commission research show that membership charities receive wide-ranging benefits from their members, these include benefits such as:

• Enhancing the trustee board’s transparency and accountability;
• Providing a greater appreciation of the needs of beneficiaries;
• Improving a charity’s influence within the charity sector, giving weight to an advocacy role;
• Providing fundraising opportunities; and
• Providing a consistent source of trustees.

Membership can be segregated into the following two main groups Individual and Corporate Membership.  Others include; Sponsorship, Parliamentary Patrons and General Funds.  Figure 4 illustrates this.  Individual membership is the largest type of membership at 44%.

Fig 4, Combination of Types of Members in the Charity Sector

(The Charity Commission, 2004)

Retaining Membership
Membership is retained by many charities by providing an incentive to remain a Member.  For example, ROSPA the Royal Society for the Prevention of Accidents provide its Members with the exclusive access to their Members’ area on their web site.  Members’ are able to access latest training courses, seminars and online discussion forums[4].

Communicating With Members
Charities communicate with their members on a regular basis so that Members are kept informed and their interest in the charities cause is kept alive.[5]  Communication is achieved by Email briefings on current issues, including policy news, reviews and topical publications on everything from financial management to trusteeship

1.2 Fundraising
There are many options to fundraising for charity organisations. Information on how to go about this and making funding applications is included in the Charities Information Bureau’s web site.  The Charities Information Bureau provides help and advice for the Voluntary and Community Sector throughout England and Wales through its website[6].

Funding is often available from the following sources:

• Government
• European Community
• Trusts
• Banks & Building Societies
• High street stores
• Business
• Lottery

Government
Voluntary organisations which work within specialist fields will often gain funding from the government department responsible for their area of work (for example, Those alleviating poverty overseas will often gain funding from the DFID; and those resettling ex-offenders might gain funding from the Home Office) Funding opportunities will vary over time[7].

European Funding
Some examples of European Funding are as follows:

• Training for staff and volunteers
• Employing community development workers
• Confidence building for communities
• Encouraging volunteering
• Research projects

Structural Funds
Structural funds, fund a wide range of regeneration and social inclusion action. All of these provide some funds for the voluntary sector.  The 4 Structural Funds are:

• European Social Fund (ESF)
• European Regional Development Fund (ERDF)
• European Agricultural Guidance & Guarantee Fund (EAGGF)
• Financial Instrument for Fisheries Guidance (FIFG)

European Social Fund (ESF) – Revenue only
This means you can pay for project running costs such as: Staff costs, rent, heat, light, consumables, small items of equipment and training which are under £1000. Projects that bid to a co-financing organisation can get a 100% pre-matched ESF grant. If not, ESF funding will only pay for a proportion of costs (typically up to 45%) so you will need match funding.

Co-financing
Co-financing is a new way of accessing ESF through the Objective 3 Programme (Objective 3 is known as the training fund). The aim of Co-financing is to make ESF easier to get to and to add greater consistency to the use of funds.

Applicants apply directly to the appropriate Co-financing Organisation (CFO) for 100% grant and not to Government Office. Applicants contact the CFO to find out about the application, timetable and bidding processes.

Evaluating European Funding
Applying for European Funding is not always a simple process. Below are listed some of the advantages and disadvantages:

Advantages

• Valuable source of funding
• Innovation encouraged
• Staff and running costs can be paid for

Disadvantages

• Some funds are only available in certain areas
• The Organisation applying for Funding may need to match some of the money raised through funding.
• Developing and applying for your project can take a long time.

1.3 Managing Data
Charles Cox in his article “Managing risk and reducing your risk exposure“[8] explains how voluntary organisations are struggling to manage their data systems.  He says “the majority are taking the obvious precautions to safeguard their data and systems from loss. However, a significant minority are risking disruption to their activities by not having basic controls such as anti-virus software and data back ups.”  The truth is that charities are struggling to compete for qualified computer employees to manage their data management systems.  This is also the view of Ms. Connolly, Oxfam’s Director of Communications and Education.  Oxfam is one of the key market leaders in the UK voluntary market with an annual net income of 90 million.

In an article by Meg Sommerfeld dated April 20 2000,[9] Ms. Connolly says “It has been really tough for us, we have been trying to find one person who can do everything from developing the site and managing the content to engaging in high-level strategy work.”  This is also the case for charities of all sizes.  (Jessica McCallin, 2001) says that many charities are trying to diversify their revenue streams by taking advantage of its IT and management[10].

“Some charities are looking to plug any skills gap they may have, by recruiting trustees from diverse backgrounds. Those with financial, accounting and fundraising skills are becoming a sought after commodity, with many charities taking the expensive route of advertising for the right people.”

(Jessica McCallin, 2001)

Meg Sommerfeld (2000) explains that the main reason for this is that demand for skilled technology workers is outstripping the supply of 1 out of 10 technology jobs which are currently unfilled.  Commercial companies are offering salaries that charities can’t afford.  It is not just the higher salaries that are luring technology employees away from charities. In addition, higher salaries in the commercial sector, professionals are given stock options and many dot-coms are dangling enticing perks: health-club memberships, in-house massage therapists etc.

Meg Sommerfeld’s (2000) research has shown that non-profit leaders are fighting back by trying to identify other creative and less expensive ways to recruit and retain technology employees. These include cash bonuses for employees who refer friends for jobs, or to increase resources for professional development. Low-cost approaches such as, introducing casual-dress policies or allowing employees to set their work schedules have been adopted.

1.4 Best Practices – Charities’ current use of the Internet and ecommerce
Many charity organizations are experimenting with Internet fundraising. Email solicitations are increasingly popular. Despite early concerns, these solicitations are not generating prevalent complaints about spam. The key is to limit your online soliciting to those individuals who have already expressed an interest in your work by becoming a member, joining a list service, or participating in an action or event that your organisation sponsored.[11]

Charities are exploiting the enveloping nature of the Internet to increase awareness of their cause. Ann Bartlett (2000) says that “they are offering pre-written emails, which committed individuals forward. This spreads their message to a lot of people, with virtually no effort. It has worked particularly well where corporate donations to charity depend on site visits (http://www.thehungersite.com). Hungersite had 65m visitors from 162 countries in 1999.”

The moderately low entry cost allows small organisations to appeal to supporters world-wide, which would be normally expensive using traditional publication methods.  Due to the relatively low marginal cost of disseminating information charities use the web to campaign.

Jan Rogers is the Business Development Manager for Associa.  Associa specialises in offering Membership Services in providing tailored and practical solutions for charities, membership organisations and trade associations.  Jan Rogers in his article “Change for the Better“[12] says;“Direct mail campaigns to ‘cold’ new donors raise an average of £1.01 for every £1 spent. In contrast, a direct mail campaign to existing donors raises an average of £3.41 for every £1 spent.”

According to Ann Bartlett (2000) charities are pioneering new channels to network with interested parties.  They are creating online communities through chat rooms, online events and bulletin boards. Furthermore, they are adding email contacts to their databases, to enable them to
communicate via email and make direct appeals, whilst saving costs. The Samaritans[13] are encouraging people to contact them by email, as well as by telephone.

Ann Bartlett (2000) says that charities use their sites to raise funds in the following ways:

1. Secure credit card payment facilities or other options such as payments via a third party like Paypal. Charities actively promote tax efficient giving.
2. Membership fees
3. Sale of advertising space. Although charity websites may carry corporate advertisements or advertise themselves on corporate sites. This huge potential does not seem to have been realised. Beside the usual benefit, advertisements placed on a charity website can enhance a company’s image.
4. Sale of merchandise
5. Events such as auctions or sponsorship.
6. Collaborative profit sharing activities such as the Amazon Associates program (http://www.amazon.com) or the greatergood[14] site, where charities take a percentage of each purchase (http://www.greatergood.com/). It is estimated that charities raised just over 1% of funds via the internet in 1999. In the first half of that year, the Red Cross raised $1.2m in online gifts for Balkan Relief from over 9000 donors, highlighting the potential of the internet medium for fundraising.1.5 Impact of the Internet and eCommerce on the Charity Sector
   Figure 5 illustrates a framework which the London Business School have used to assess the impact of the Internet on the charity industry[15].  From their research they have found thatcharities are in the early stages of Internet adoption which is to say that they have merely concentrated on stages one and two: marketing and channel innovation.

Fig 5, Best Practices Charities’ current use of the internet and ecommerce

(London Business School, 2000)
The article in which Figure 5 appeared concluded that “Internet and ecommerce will have a far greater impact on the sector, once charities progress to stage 3 -product / service innovation, and to stage 4 -business model innovation.” (Ann Bartlett, 2000)

What exactly is stage 3 of the charities framework?
The two key elements of the product /service innovation (stage 3), and business model innovation (stage 4) is as follows:

Speed and accuracy of delivery
Much of the work charities do is reactive. Therefore, when the charities become aware of a problem and rally resources to resolve the problem, it has often developed into a crisis. According to the findings the internet has the potential to speed up every link in the chain from awareness through to action and could even prevent the problem occurring in the first place. All charities will benefit if they can answer calls for help more quickly and accurately.

Accountability
Mintel,[16]  a Market Research and Consumer Intelligence Company reported that many people believe that charities spend too much on administration. The Channel 4 programme”‘The Hunger Business” (11 / 12 November 2000)[17]  questioned why charities supply aid without asking recipients if this is what they want.  The Internet enables a way to accomplish better transparency, allowing both charities and donors to know more about the environment in which they are investing and more importantly, the efficiency of that investment.