Redefining the Measurements for Success in the Nonprofit RealmPublished: December 13, 2007 in Knowledge@Emory
As one of the fastest growing sectors of our economy, understanding the role nonprofits play in America today is critical. In the book Forces for Good: The Six Practices of High-Impact Nonprofits, conventional wisdom is put aside and nonprofit leaders are advised to focus on the strength of their advocacy, an empowering leadership style, business partnerships, and an adaptive structure. The authors—Leslie Crutchfield, managing director of Ashoka, a research grantee of The Aspen Institute’s nonprofit sector and philanthropy program, as well as a philanthropic advisor to foundations and high net worth individuals, and Heather McLeod Grant, a consultant advising organizations and academic institutions on organizational development—argue that the usual measurements of success do not necessarily predict the effectiveness of an organization. In a recent Q&A with Knowledge@Emory, co-author Leslie Crutchfield discussed the premise behind the new book and the need for Corporate America’s commitment to philanthropic efforts.
Knowledge@Emory: Some would argue that the nonprofit sector, as defined as an industry, is now one of the fastest growing sectors of the economy—with 1.5 million U.S. nonprofits accounting for more than $1.4 trillion in revenues annually. What does this mean for the economy, for business, and for individuals in need?
Crutchfield: We’re living at a time of unprecedented opportunity, but we’ll miss the boat if we don't do things right. With so much money and growth coming into the sector this means that we’ll need to have better tools for measuring the return on the investment of those dollars. If we can maximize the impact of all of this growth, individuals in need will benefit as never before, and our economy will become much more of a tri-sector economy with more visible parity among business, government, and the social sector.
Knowledge@Emory: It seems that theories on how to define success at nonprofits have changed over the years, as we’ve now moved away from what was once purely altruistic measurements and now more towards business management techniques. You note that grant making foundations account for some $500 billion in assets under management currently. Do you think this current push can go too far?
Crutchfield: Yes. Applying business principles to nonprofits can absolutely go too far. In the business sector, money is a useful measurement of how well a business is succeeding in the market—through profits or stock value. However, in the social sector you can only measure money in terms of fundraising (the inputs), not impact (the outputs). Striving for impact vs. striving for profitability requires very different approaches. Good management might be a fine approach for incremental change, but to mobilize a movement and transform a trend, nonprofits need to partner effectively with government and business. This all-important skill has nothing to do with typical business and fiscal techniques.
Knowledge@Emory: The nonprofit organizations selected in the book as some of the best are a diverse lot, considering the missions, liberal and conservative bent, and services. You note that the conventional metrics for success—perfect management, brand name awareness, strong mission statements, and huge budgets—do not equate to real success. Instead your book centers on the strength of advocacy. So, why haven’t we come to this definition of success before?
Crutchfield: Never before has anyone researched what makes good nonprofits become great nonprofits. To do this research effectively was a Herculean task. We received $750,000 in grant money from leading foundations and spent four years doing extensive research. In earlier times there might not have been much incentive for such a huge and expensive project. But today, huge amounts of money are pouring into the nonprofit sector, and foundations and philanthropists want to be better at measuring the return on their investment. If we know what contributes to impact, we’ll all be able to make better decisions and do our jobs better.
Knowledge@Emory: It is particularly difficult for nonprofits to be adaptive, especially with the levels of bureaucracy. This is also a common problem in many for-profit corporations. How do you change a nonprofit to become the perfect combination of “creative innovation and structured execution” that you mention?
Crutchfield: Many nonprofits are started because they have a creative, innovative entrepreneur who sees an unmet need. But, overtime, it is true that large nonprofits in particular can become stuck in their ways. Often this is because their boards or funders don’t want to take large risks or try new things. But this keeps them from being more effective. What we found was nonprofits that strike a balance between the two [are those that are successful]. The leaders at their helm (executive director, top team and board) are focused on results above all else. It’s this “relentless pursuit of results,” as Wendy Kopp from “Teach for America” calls it, driving innovation. When something isn’t working, they shift their resources into new areas. So, while the mission remains the same, they are constantly tweaking and adapting their tactics and approach to achieve greater results. If you think about the other practices, it makes sense: these nonprofits are incredibly externally focused—their end goal is change and their primary strategy is influence (influencing policy, business practices, and public behaviors). So, by definition they must continue to respond to these changes in their environment.
Knowledge@Emory: Why do you think the field of research—specifically empirical research—on success at nonprofits truly doesn’t exist? Is it that the definition of success at charitable organizations is still under debate?
Crutchfield: There has been little effort to measure nonprofit success because it is so challenging. What defines success for an environmental organization is very different from what defines success for an educational group. Also, success in the social sector can take a long time to realize. Sometimes the real impact of education is over a lifetime or in areas where groups are building social movements, they may not realize their larger goals for 30, 40 or 50 years. So the pay-back isn’t always immediate. There’s still no perfect way to measure nonprofit success, but we do need to avoid measuring the wrong things like budgets and spending ratios and instead focus our efforts on measuring the more challenging but more illuminating standard of impact. As Einstein says “not everything that counts can be counted, and not everything that can be counted counts.”
Knowledge@Emory: A number of the organizations you selected, such as Habitat for Humanity, employ a fervent devotion to mission, and other nonprofits selected, including the Environmental Defense Fund, are using business partnerships to propel their efforts. Would you say that there really isn’t a one-size fits all approach to success?
Crutchfield: Certainly every organization will need to find the right approach to achieve their primary goal. But in the book we identified six common practices that almost all high-impact nonprofits share.
Knowledge@Emory: The one universal theme here seems to be that all of the successful groups mentioned do become advocates for social change—actively involved in the political process. Do you think that all nonprofits—as advocates for change—must commit to governmental change and economic developments on a larger scale?
Crutchfield: Yes. A great example is the nonprofit Self-Help. From the outset, Self-Help’s mission has been to close the wealth gap between America’s rich and poor. Self-Help’s relentless advocacy efforts helped pass legislation in more than 22 states to curtail predatory lending, the abusive practice that effectively strips assets away from the poor. And, Self-Help created the nation’s largest secondary mortgage market for low-income borrowers, partnering with companies like Wachovia and Fannie Mae to create more than $4 billion worth of home loans. How did they create such a huge impact? Not by growing the capabilities of their own organization, but by working through others and leveraging the power of both business and government. In most cases, social causes will be better addressed with a collective solution rather than the heroic efforts of one star organization.
Knowledge@Emory: Why should the nation’s top business leaders be concerned or invested in, financially, time-wise or even spiritually, in the mission of nonprofits? Obviously, one could argue about “doing the right thing.” But, beyond that, what if any other reasons should business leaders invest in the success of charitable or social service organizations?
Crutchfield: Everyone in society benefits when great nonprofits effectively solve social problems and help those in need. In order to partner with nonprofits, businesses need to be convinced of what’s in it for them. Great nonprofits find authentic incentives for businesses to want to join their cause. To refer again to the example of the nonprofit Self-Help, they proved to companies like Wachovia and Fannie Mae that there were profits to be made from low-income borrowers. This gave them a reason for partnering with Self-Help and helping to bring their resources to a good cause.
Knowledge@Emory: Do you get the sense that more individuals in the C-Suite understand that philanthropy needs to be a part of their mission today, particularly after such grand and large-scale charitable efforts by Bill Gates and Warren Buffet? Or do they remain the exceptions to the rule?Crutchfield: There’s a huge trend right now in “giving while living.” Instead of waiting until their deaths to give money away, today’s philanthropists want to leave a legacy of having made a difference during their own lifetime. Gates and Buffett were certainly the poster-boys, but they’ve helped grow an explosive trend that is a tremendous help to the nonprofit sector, and [it] also helps these individuals to lead meaningful and fulfilling lives.