Industry Fragmentation: Too Much of a Good Thing?

Posted by Tessie San Martin - Plan International USA CEO/President

The International NGO industry is highly fragmented. Barriers to entry are low. The Internet and social media make it relatively easy for anyone with a passion and a good idea to raise awareness for a cause and mobilize funding and on-the-ground support. New INGOs emerge and uncounted others disappear every week. Most of the NGOs in international development are small, with an estimated three-quarters earning less than $500,000 a year. Anyone can see this as a problem. As The Economist reported a few years ago, “…the problem is that aid is fragmenting: there are too many agencies, financing too many small projects, using too many different procedures.”

But fragmentation has another side. It means more competition, more choice, and more ideas. Over the past 50 years the development field has focused on identifying the missing ingredients that explain why some countries succeed and others fail - capital, policies, institutions, governance, etc. Many influential players in the field, including big public and private institutional donors, corporations, and even many of the smaller INGOs that are bringing to the market neat ideas and technologies, are seized with the notion that development is something we can "solve."

But this thinking is being challenged by recent research about what constitutes development. The view development economists such as Owen Barder give is that economic and political systems can best be thought of as complex adaptive systems, made up of many adaptive actors, whose actions are self-organized, constantly searching to fit in an ever-shifting landscape. There are other such systems in nature: flocks of birds, the weather, and the human brain are all examples. In this context, development is an emergent property of those systems; it arises from the interactions in that system but is not particularly related to any one component of the system.[1]

Why am I spending time talking about a seemingly esoteric topic with exotic nomenclature like “emergent properties”? Because if you buy the notion that development is an emergent characteristic of a complex adaptive system, this search for key ingredients or best solutions becomes a bit meaningless. But the ability to innovate, experiment, test, and adapt are paramount. This is why Owen Barder has called for us to design “not a better world,” but better “feedback loops.”

If development is not something that can be “solved,” and we are to encourage innovation and experimentation, fragmentation might actually be helpful; smaller INGOs that are short of funds may be long in ideas. On the other hand, all those ideas will not amount to much if we do not have the feedback loops in place so we can learn, evaluate, select, improve, and adapt. Setting up these feedback loops takes resources.

Moreover, we do not necessarily have agreement about what constitutes success, what is worth selecting for further adaptation, and what needs to be discarded when it comes to international development. As Ben Ramalingam and others have noted, the development industry has traditionally been insufficiently effective at taking success to scale, and insufficiently ruthless about failure.

Thus, fragmentation can actually be dysfunctional. It does not always (and some would say that it does not often) lead to healthy competition, where the best ideas bubble up and get replicated. Instead, it leads to too many players sub-optimizing.

Experimentation and innovation are important. But it is worth very little if we have no/few effective mechanisms for collecting, processing, analyzing and feeding back information, and for developing and agreeing on common standards of performance. The dysfunctionality is compounded by the large information and knowledge asymmetries that exist between donors and NGOs.

I do not have any magic bullets to solve this. But I think it points to the need for (a) INGOs to invest more in development education, with the objective of creating more “sophisticated” buyers (donors more willing to question, evaluate, push back) and (b) investment in developing common metrics and dashboards to improve transparency and spur discussion about common standards for collecting, aggregating and disseminating results. I am happy to say that Plan is investing in both. At Plan International USA, we are renewing our commitment to development education (even as many large institutional donors, like bilateral aid agencies that traditionally funded this some years ago, have been pulling out as aid funding has been squeezed as a result of the economic downturn). In particular, we are renewing our commitment to and expanding our investment in youth development education, working with high schools in the United States to provide curricula around specific development issues, such as gender violence and access to clean water. Our programs seek to connect youth in US schools to schools in developing countries and provide forums for learning about and discussing the challenges children face in a variety of contexts. We will also be upgrading our website to provide more in-depth information about the objectives and the impact of all our activities in the field.

In addition, our organization is among the leaders in the INGO community’s efforts to support the International Aid Transparency Initiative (IATI), a global movement to improve transparency on the part of donors, NGOs and host governments on the kinds of projects being implemented in each sector. IATI aims to provide a full picture on who is funding projects, where those dollars are going and whom the project aims to reach. In a fragmented world, IAITI is a very useful tool for tracking progress and encouraging continuous improvement, accountability and coordination among the development community to ensure that aid dollars are being used effectively.

Bottom line: fragmentation is an opportunity, not a challenge. But to take advantage of the ferment of ideas generated by the same, we need engaged and informed donors and better standards and systems for collecting, aggregating and disseminating information about every INGO’s activities. Without engaged donors we get ideas without accountability. Without systems to feed back what we are all learning from the field we are losing enormous opportunities to learn and adapt, and therefore to make tangible improvements in the lives of those we serve.

[1] Barder’s example is simple: just like you cannot say that a thunderstorm is related to any one raindrop or water molecule, you cannot state with any degree of certainty whether any one element or another in a developing country system is responsible for development.