Typically, business model innovation is understood in the context of the for-profit sector. When looking for new ways of being innovative, companies might find inspiration in the last place they would have expected: the non-profit sector. Those tasked with running a non-profit are forced to think differently in order to maximize the impact on those in need, while minimizing overhead and reducing direct costs related to providing the public service.
In a recent article in New York Times magazine, Stephen Dubner and Steven Levitt discuss a new trend -- charitable organizations run like businesses. One of these new models is an organization called Smile Train, which calls itself a “new breed of non-profit that is run like a for profit.” This non-profit shares the same mission as organizations like Operation Smile: to provide free cleft lip and palate surgery for millions of poor children in developing countries. While traditional treatment missions offered by organizations spend as much as $1,400 on a cleft surgery, Smile Train has managed to reduce the cost of a single surgery to $250.
How have they achieved this 82 percent cost reduction? (Social) business model innovation. Smile Train has managed to innovate along the same dimensions we would consider when analyzing the business model of a for-profit organization. We think of a business model as an organization’s blueprint, a complex system governed by interdependencies between four key components: a consumer value proposition, a profit system (for non-profits would include direct and overhead costs), key resources and processes. Smile Train has managed to take an innovative approach to each of these components.
Profit systems & Processes: Traditional missions provide cleft palate surgeries by transporting philanthropic doctors to developing countries to conduct as many surgeries as possible during the short period of time they are there/where there is a need. Travel expenses, equipment and supplies may account for as much as 75 percent of the total cost per surgery. Due to a small number of doctors and a large number of children in need, nearly 80% of these children are turned away. Smile Train has taken a different approach to solving the same problem by using new technologies, including digital patient charts, virtual surgery software and a digital cleft library in order to train local physicians to perform the surgery. Not only does this dramatically reduce costs, but it enables and entirely new population of physicians to perform multiple surgeries, thereby reducing costs even further.
Key resources at Smile Train –- funds provided by generous donors -– are focused solely on covering equipment and materials necessary for each surgery and improving training programs for local doctors. In the traditional non-profit model, a percentage of these donations covers administrative costs as well as efforts to raise more money. This results in a new value proposition for donors as well. Beyond key resources and processes necessary to dramatically reduce costs, Smile Train’s founders pay out-of-pocket for all non-program expenses. As a result 100% of donations go directly towards paying for cleft surgeries, and 0 percent goes toward administration and overhead, which accounted for only 2 percent of total expenses in FY07.
In order to maximize the number of free cleft palate surgeries performed on millions of children in need, Smile Train looked to traditional businesses to find new ways to approach the non-profit model. Out of all cleft charities, Smile Train claims to have the “highest productivity and lowest overhead.” Wouldn’t any for-profit company love to say the same?