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At an ordinary light metal fabrication and finishing factory in the industrial section of south Seattle, some 300 employees 225 of them former substance abusers, ex-cons, or both produce airplane parts for the giant Boeing Corporation. It's part of a long-standing partnership between Boeing and Pioneer Human Services, and an example of "social enterprise," one of several innovative new social sector strategies described in Common Interest, Common Good.
The Boeing Company helped Pioneer Human Services launch Pioneer Industries in 1966 and became a steadfast customer, accounting for between 55 and 70 percent of its annual sales. With revenues of $45 billion, Boeing is the world's largest commercial aircraft manufacturer, the largest NASA contractor, and the world's largest military aircraft manufacturer. 10 Almost half of the parts the company needs to produce commercial airplanes1.2 billion parts per yearare purchased from 3,000 suppliers. A tiny fraction of these parts come from the less than 1 percent of suppliers who are not traditional manufacturers, but instead nonprofit organizations in business in order to provide jobs for the hard-to-employ.
In the 1950s, Boeing began its "sheltered workshop" program, contracting with a single nonprofit to make simple parts that are not related to the plane's ability to fly. Sheltered workshops traditionally employed people with disabilities who had difficulty securing jobs before the enactment of anti-discrimination laws. Usually subsidized with charitable and government funds, sheltered workshops typically provided supportive services to workers to help them learn job skills and succeed on the job.
No one currently involved with Boeing's workshop program was around when the first workshop began"a person in our fabrication facility maybe had a relative or friend, or a personal interest in the program," believes Al Staples, the Boeing buyer who manages the workshops. Early on, Boeing regarded the workshops as "part of their responsibility to support the communitythey help support several hundred people with direct labor jobs, to provide opportunities for people who might not have them," according to Staples.
In the mid-1960s, Boeing decided to expand its program. Jack Dalton [Pioneer's founder] "knew somebody who knew somebody at Boeing," according to Gary Mulhair [Pioneer president from 1984 to 1998]. Dalton made a pitch for Boeing's business to provide jobs for the people he was helping make the transition from prison to productive lives. Boeing agreed and helped Dalton to start Pioneer Industries.
Boeing's early motives in establishing the workshop program were purely philanthropic. But today "we get good return," according to Staples. "Primarily, Boeing views the workshops as suppliers of quality parts. Therefore this is a business relationship," explains Mark Lindgren, senior procurement manager. "Sheltered workshops give Boeing an opportunity to reach out to the community while getting airplane components that meet the Boeing quality, cost and schedule requirements."
"Boeing works with subcontractors all day long. They're comfortable with that," says Mulhair. "We're not asking them to dress up like clowns and sell balloons at a fundraiser." By merging Boeing's philanthropic impulses with its operational needs, the potential for growth in the relationship is substantial. Mulhair calls this "operational philanthropy"instead of donating dollars or goods, a company contracts with nonprofit organizations for things it needs, creating jobs for the hard-to-employ in the process. "It is deeper and richer than cause marketing," says Mulhair. "It is closer to the full engagement of the American enterprise."
The original workshops chosen by Boeing in 1966 were still participating more than three decades later, and others had been added. Collectively they produce 10 million parts a year. But consistent with the company tradition of keeping silent about its extensive philanthropic efforts (only recently did the company begin to publish reports of its community involvement), Boeing does not publicize the sheltered workshop program. Nor does it include its costs in the company's philanthropic total of $50 million in cash and in kind. It is not mentioned in Boeing's "Citizenship Report," which features a dozen other efforts ranging from its summer internship program to tuition reimbursement to Boeing employees, nor is it familiar to its community affairs staff. "That's because it is primarily a business relationship," explains a company spokesperson.
The workshop program is managed as part of Boeing's Commercial Airplane Group Material Division, which provides supplier contracting, management, and quality control for airplane parts. For the most part, workshop suppliers operate under the same system as any other maker of parts for Boeing, meeting the same quality standards and being held to the same production schedule. The major difference: Boeing treats the workshops as it does internal producersproviding the support, raw material, and tooling to make the parts, and inspecting the work according to Boeing quality standards.
This arrangement leads to a great deal of interaction between Boeing and Pioneer. On a daily basis, Pioneer Industries personnel spend time with Boeing's operating, shipping, quality assurance, finance, and purchasing staff. Pioneer managers speak the language, know the customer's needs, teaching "Boeing Blueprint" and "Boeing Tooling" classes to trainees. Through the years, Pioneer and Boeing have sustained their relationship with an uninterrupted series of contracts. Over time, the type of work has gone from relatively low-skilled tasks to those requiring higher skill levelsthe kind of work rehabilitation programs often desire but rarely obtain for their clients. Says Gary Mulhair, "We look at Boeing as a customer. We meet their needs. We ask what we can do differently."
Boeing & Pioneer Human Services: The Impact
Pioneer Industries attributes much of its
success, even its very existence, to more than three decades of
support from Boeing. The company's steady business and
technical advice helped Pioneer achieve a high level of quality
and improve its profitability. And that enables Pioneer to give
more than 225 people a year the chance to turn their lives
around. Although not everyone makes it, most stick with it and go
on to become productive citizens. Evidence suggests that the
program significantly reduces recidivism rates; one study found
that over a six-year period the rate of recidivism for women
offenders who had participated in the program was 11 percent,
half the overall rate for women offenders. A related study found
that 100 percent of women participants released in the previous
two years were still employed in the community.
Profits from Pioneer Industries may be used to expand its capacity or to subsidize other programs of Pioneer Human Services. These programs include a 154-bed residential facility for the chemically dependent and mentally ill; a thirty-bed residential drug and alcohol treatment center for youth; twelve properties with 385 alcohol and drug-free residential units; and outpatient counseling, mental health, and drug and alcohol treatment programs. Other Pioneer enterprises include a wholesale food buying service that supplies 7.2 million pounds of low-cost food annually to 400 food banks and nonprofit groups; food service, facility maintenance, and laundry services; and a real estate management business. Most recently, in 1998 Pioneer purchased a full-service mail production house with a PRI loan from the Ford Foundation. By supporting its work largely through enterprise, Pioneer Human Services can forego philanthropic and government grantswhich therefore go to other organizations, expanding the resources available to help people in the Seattle area.
To further expand its services, Pioneer surveyed CEOs and senior marketing managers in the Seattle area to determine if they are receptive to "operational philanthropy." Early returns showed that "they haven't thought about it before," according to Mulhair. He is not discouraged by this lack of awareness because he sees efforts to promote operational philanthropy as a long-term process. "It's like what the environmental movement went through years ago," says Mulhair. "Now it makes sense to buy green."
Pioneer Human Services is an example of a social enterprisea nonprofit or government entity that "operates like a business in how it acquires its resources. 2 Also known as "community wealth enterprises," 3 these resource-generating entities are neither purely philanthropic nor purely commercial, notes J. Gregory Dees, writing in the Harvard Business Review 4 They serve two bottom lines: one defined by their social mission and one defined by their profit motive.
Bill Shore, in his book Revolution of the Heart, argues that "[g]overnment funds, charitable solicitations, and foundation grants all have one thing in common: they represent somebody else's money." He calls these funding sources "leftover wealth"the funds that remain once others' needs are met and desires fulfilled. By relying on philanthropic and government sources, nonprofits "shift limited dollars from one place to another, dividing the philanthropic pie rather than taking steps to create a bigger pie." 5 According to Shore, "community-based nonprofit organizations must be reconceived and reinvented so they not only distribute wealth, but actively create the new wealth necessary to meet future needs. 6 Richard Steckel and his colleagues, writing in Filthy Rich and Other Nonprofit Fantasies, a how-to book on social enterprise, puts it more bluntly: "[T]his . . . is about changing your nonprofit organization from a poor, grant-dependent, sand-kicked-in-your-face operation into one that is muscular and self-reliant. It is about paying your own way with earned income ventures, and about using those ventures to improve the delivery of your mission." 7
Pioneer Human Services, like other social entrepreneurs, "creates a bigger pie" and is "muscular and self-reliant" by providing goods and services to paying customers. It generates the wealth it uses to help people at risk by operating eight profitable businesses, which also offer employment opportunities to the ex-offenders and former drug abusers it seeks to help.
Offering for sale the work product of the hard to employ is not a new idea. Earlier relatives of social enterprises include sheltered workshops for people with disabilities, subsidized employment and on-the-job training programs for unemployed adults, and youth corps programs that engage at-risk young adults in "fee for service" conservation work. Most of these programs depended on grants and donations, with a minor portion of their budget funded by income-generating activities, and they were often underresourced. However, the idea of using market-based approaches to solve social problems took on a new life during the economic boom of the 1990s 8 These new social enterprises are finding that by giving equal weight to both the social and financial bottom lines, they are better able to choose their own paths.
Footnotes
- J. Gregory Dees, "Enterprising Nonprofits," Harvard Business Review 76, no. 1 (1998): 60.
- Bill Shore, Revolution of the Heart (New York: Riverhead Books, 1995).
- Dees, "Enterprising Nonprofits," 60.
- Shore, Revolution of the Heart.
- Ibid.
- Richard Steckel, Robin Simons, and Peter Lengsfleder, Filthy Rich and Other Nonprofit Fantasies (Berkeley, Calif.: Ten Speed Press, 1989), 3.
- Thomas Reis and Stephanie Clohesy, Unleashing New Resources and Entrepreneurship for the Common Good (Battle Creek, Mich.: Kellogg Foundation, 1999), 3.
- Bennett Davis, "Pulling Their Weight," TWA Ambassador Magazine, January 1997, 34-36.
- Defining Aerospace Leadership, The Boeing Company Annual Report (1997).