The Performance Improvement Blog

Managing to Outcomes in Nonprofit Sector

This is the traditional time to reflect on trends observed during the past year. One major trend I have observed is performance management of nonprofit organizations. Actually, this is an accelerating trend that got its impetus from Peter Drucker decades ago. Nonprofits are becoming more and more focused on what McKinsey & Company calls “managing to outcomes”.  

I know, you thought all organizations managed to outcomes. Not so, particularly in the social sector. Nonprofits have been more like manage-to-what-makes-you-feel-good or manage-to-spend-the-money. It has been less about results and more about the process of doing the work and providing services. Now a shift is occurring towards greater recognition of the importance of measuring outcomes and using that information for learning. That is, learning how to be a more effective organization and how to increase impact of programs and services.

If your organization is involved in philanthropic activity, if you serve on the board of a nonprofit organization (or NGO), or if you work for a nonprofit or a philanthropic foundation, or if you donate to nonprofits, then you should pay special attention to this trend. It will affect what you do and how your money is spent.

This intensified focus on outcomes and learning is a result of a confluence of factors in the growing and increasingly important U.S. nonprofit sector (According to the Foundation Center, “In 2010, nonprofits contributed $804.8 billion to the gross domestic product (GDP); this equates to 5.5 percent of GDP… the nonprofit sector employed 13.7 million people.”). The factors that are contributing to the change include:

• Increasing demand for services for the poor, the disadvantaged, the elderly, and the marginalized
• Less public money for social programs (Mario Morino calls this the “Age of Scarcity”.)
• More people, and a wider spectrum of people, interested in “doing good”
• Greater demand by social investors for evidence of impact
• Greater demand from policy-makers for evidence of impact
• More leaders on nonprofit and foundation boards who want to see results
• Increasing professionalization of the sector (e.g., MBAs leading large nonprofits)

So the need for services is growing while resources are dwindling and, at the same time, funders and boards of directors want more accountability and more impact from their investment. Because of all of these factors, there is pressure on the sector to develop more efficient and effective organizations. These are organizations that embrace a culture of measurement and performance improvement. Mary Winkler of the Urban Institute emphasized this point when she said:

…organizational culture and a predisposition to measurement and managing toward results is perhaps the single most important ingredient to success. A culture of continuous improvement needs to be evidenced at the top. Equally important, however, is the extent to which the culture of continuous improvement is integrated at every level of the organization. 

That means having leaders who are willing to learn from what they do and apply that learning to improving organizations, as well as their programs and services. This is not an easy transition for many of these leaders who have been accountable for only process and output in the past. They will need the support of funders, staff, constituents, consultants, and the public at large, to make this change.

Learning to be Great Organizations

In a previous post, I wrote about the importance of democratizing organizational learning. I argued that organizations need to be continuously learning for the purpose of improving performance and achieving business goals. And in another post I wrote that for this to happen, organizational leaders need tools. That is, they need methods for learning from the organization and for learning how to learn from the organization. I wrote, “If we are going to democratize learning in organizations, we need to teach everyone how to learn and how to use tools to discover useful information. We need to make learning tools accessible to all employees when and where they need them.”

Developers of organizational learning tools, whether they be faculty, internal leaders, or free agents, have very few outlets for getting those tools to the people who need them in a fast and cost-effective way. Major publishing houses take too long, cost too much, and have limited distribution channels. Penelope Trunk addresses this problem in her blog post, “From PR to profits: the problems with publishing.” One could challenge her motivation for writing the piece, but her criticism of traditional book publishing, from my experience, is accurate.

Many tools, such as employee surveys, graphical representations of models, or steps to solving organizational problems, do not require a book. These tools could be made available in shorter forms and without all the trappings of a best seller. However, simply posting materials on the author’s Web site is not the answer either.

Another avenue for distribution is professional associations. These guilds develop and sell their own materials as a major source of revenue. They often work with a select cadre of member-authors and the products can be quite pricey. The American Evaluation Association is an exception to this with their AEA365 blog, a vehicle for any member to post an article and links to related resources. It is intended to be a free exchange of information and tools among members. The Employee Engagement Network is another example of a place to share information about tools for improving performance, specifically by increasing employee engagement. Although both sites serve an important purpose, neither is designed for authors to publish tools or for managers to find what they need when they need it.

It is wonderful that many free resources are available within professional communities. However, an alternative is needed where creators of organizational improvement tools can distribute those tools quickly and easily to any leader when and where those tools are needed.  And to make high quality tools available, creators must be compensated, even in a small way, for their expertise and effort. This is the space that my business partners and I hope to fill with Learning2BGreat.com.  Anyone who has created materials that can be used for organizational improvement may sell their wares from the site. The author decides what it is worth and sets the price. Anyone who needs a tool to help them help their organization may purchase and download the appropriate tool from the site. The tools are organized in topics and linked to information about the authors. L2BG is a virtual marketplace for connecting professional resources with the people who need them, on-demand. This ecommerce site is an experiment that we hope will continue to grow and have a profound effect on improving organizations of all types. 

Democratization of Organizational Learning

Organizational learning has, for too long, been owned by consultants and chief training and learning officers. Any effort to learn how to improve leadership, management, team building, communication, planning, or other organizational skills, has started with these external and internal gatekeepers. This has made learning generally inaccessible to the people with the greatest need. 

This is why Jim Stilwell and I have created Learning to be Great^tm. This Web site is an online
marketplace where internal leaders and managers, as well as external consultants and authors, can self-publish their organizational improvement products and where they can find practical, inexpensive learning tools when and where they need them. 

This rapidly-growing store has materials that can be used to:

• Enhance leadership
• Facilitate coaching
• Increase employee engagement
• Assess culture
• Improve decision-making
• Conduct strategic planning
• Evaluate programs and services
• Maximize organizational learning

Our intent is to de-mystify organizational learning and give all managers the tools they need to be successful. Learning is everybody's business. Everyone should be able to quickly find tools that will help them understand a situation, improve performance, and develop a new capability along the way. And people who have designed useful tools should have a way to get them to the people who need them. This is our hope for Learning to be Great^tm. Please let me know what you think of the site. 

Doing Good Effectively

It’s that giving time of year again. And whether you donate to charities or you are a philanthropist that gives grants to nonprofits, you should care about organizational effectiveness and efficiency.

One commonly used indicator of effective management in organizations that do-good is the percentage of their budgets that goes to administrative costs. The rule of thumb is between 11% and 13%. This is a simple and easily calculated and understandable measure. Unfortunately, it’s not the best indicator. Overhead matters, but effectiveness matters more.

Tina Rosenberg, in a New York Times opinion piece, identifies additional criteria that should be used in judging charitable organizations. She writes that the best organizations…

• Aim to solve the most serious problems (in the normal calculus, this means that providing bed nets to save children from malaria ranks above helping public radio stations or art museums).
• Use interventions that work.
• Employ cost-effective strategies (trachoma surgeries, rather than training guide dogs, to help the blind).
• Are competent and honest. The percentage of donations spent on overhead is one measure of these qualities.
• Can make good use of each additional dollar. This is the hardest point to assess, but it asks whether the group has the program on the ground to use your money well, and whether your donation will make something happen that otherwise wouldn’t.

I would also ask these questions:

• Is the program and the organization sustainable? Assuming the problem being addressed requires a long-term solution, I would want to know if the nonprofit has the leadership, infrastructure, and funding from other sources to stay with the solution as long as is necessary.
• Does the nonprofit have a culture that is consistent with my values? The leaders might have the best of intentions, but if they treat their staff and volunteers poorly, if they don’t pay their vendors, if they relate to low-income and minorities in a disparaging and condescending way, then I want to know this.
• Are they using the best interventions available? Maybe they are using interventions that work but maybe there are other interventions that are more effective and less costly. And maybe there are other interventions that should be tried to test their efficacy.

Toby Ord, in the blog Giving What We Can, argues that we should mainly be looking at cost-effectiveness. He believes that we have a moral imperative, especially when it comes to global health, to support programs that get the most bang for the buck. Ord writes:

…merely moving funding from one intervention to a more cost-effective one can produce almost as much benefit as adding an equal amount of additional funding. This is unintuitive since it isn’t the case when one option is merely 10% or 30% better than another. However, when one option is 10 times or 100 times better, as is often the case in global health, redirecting funding is so important that it is almost as good as adding new funding directly towards the superior intervention. In times of global austerity and shrinking budgets, it is good to know how much more can be done within existing ones.

People give to charities and other nonprofits for all kinds of reasons. Some because of a religious calling; some for the prestige; some because of a personal connection to the agency or the cause; some for a tax deduction; some because of peer pressure (for example, they serve on the board of the agency); some to honor a relative by making a donation in that person’s name; and some to make a difference in society. Regardless of the reason, we should be concerned about effectiveness and what it costs to be effective. No one wants to throw their money away and people receiving the money want to be proud of what they do.