Building Innovation Portfolios in Philanthropy: Balancing Local Impact with Systems Change

In today’s rapidly evolving social landscape, philanthropic organizations are increasingly called upon to be not just funders, but strategic innovators. One powerful way to do this is by curating innovation portfolios that balance investments in local direct service models with systems change initiatives. By applying principles from the innovation business cycle—often used in the private sector—philanthropy can unlock new pathways for scalable, sustainable impact.

1. Ideation & Discovery: Listening to the Ground While Envisioning the Sky

Local organizations, much like small and medium-sized businesses (SMBs), operate close to the communities they serve. They bring fresh perspectives and agility, identifying emerging needs and experimenting with grassroots solutions. Philanthropic organizations can harness this by funding community-led ideation, while also supporting collaborative R&D with systems thinkers and policy innovators.

Example: A foundation might fund a local youth mentorship program while also investing in research on education equity policies that address root causes.

2. Development & Prototyping: Building Bridges Between Practice and Policy

Local service providers often have specialized expertise in delivering interventions that work in real-world settings. These models can serve as prototypes for broader systems change. Philanthropy can support these efforts by funding pilot programs and facilitating knowledge exchange between practitioners and policy advocates.

Example: A health equity initiative might support a community clinic’s new telehealth model while also funding a coalition working to expand Medicaid coverage.

3. Testing & Validation: Learning from the Field

Direct service models offer a real-world testing ground for innovation. Their proximity to end-users allows for authentic feedback loops that can inform systems-level strategies. Philanthropic organizations should invest in evaluation frameworks that capture both local impact and systemic relevance.

Example: A pilot program for food access in urban neighborhoods can inform broader policy recommendations on food deserts and supply chain reform.

4. Commercialization: Scaling What Works

Once validated, local models can be scaled through strategic partnerships and channel expansion. Philanthropy can play a catalytic role by connecting grassroots innovators with larger institutions, government agencies, or national networks that can amplify their impact.

Example: A successful workforce development program in one city could be replicated statewide through partnerships with public agencies and employers.

5. Scaling & Optimization: Leveraging Innovation for Efficiency

Philanthropic organizations can help local models scale by investing in process innovation and technology licensing. This might include funding digital tools, training programs, or infrastructure that enables broader adoption without compromising quality.

Example: A nonprofit’s data-driven approach to homelessness prevention could be adapted by other cities with philanthropic support for tech integration.

6. Continuous Improvement: Creating a Learning Ecosystem

True innovation is never static. Philanthropy must foster continuous improvement by supporting feedback loops and ecosystems of learning. This includes convening stakeholders, funding learning communities, and investing in platforms that share insights across sectors.

Example: A foundation might host annual innovation summits or fund collaborative learning labs that bring together service providers, researchers, and policymakers.

The Power of a Balanced Portfolio

By intentionally balancing investments in local direct service models and systems change strategies, philanthropic organizations can create innovation portfolios that are both grounded and visionary. This approach not only drives impact at multiple levels but also builds resilience, adaptability, and long-term value for the communities they serve.