3 Things Every Nonprofit Needs Before Performance Management Can Really Work

On Monday I gave a workshop on Measuring and Managing Performance in Nonprofits at Fuqua School of Business to the students in the Fuqua on Board program; there were a few representatives from area nonprofits in the group as well.  As you might expect, folks had a lot of questions and most of these were focused on the issue of how or where to start with performance management.  
 

I've been thinking about that question over the past couple of days  So I came up with a list of the three basic things that I think are necessary preconditions for performance management to be successful in community-based organizations and I wanted to share them (of course any feedback or suggestions have will be most welcome).

#1: A clear strategy. 

When considering performance management you might be tempted to take the easy route.  You could measure what’s already been measured in the past for a funder, an evaluation, etc.  You could measure the things that are simple to measure.  But how will you know if you’re measuring what matters?

All performance management should be driven by the strategic direction and priorities for the organization.  Only measure what you should, can and will do something about - in other words what you can manage.  If you shouldn't manage it, can't manage it or won't manage it, then don't bother measuring it if your goal is performance improvement.

#2: Performance management champions.

No performance measurement project ever gets real traction just by saying it’s important.  It needs to be given serious priority.  When you have a Board and Executive Director who believe that measuring what matters is essential to excellence and are willing to be clear and consistent in the message that measuring what matters is essential to excellence, you are off to a good start.  To stay on the right track provide support, encouragement and incentives to staff for measuring what matters.

#3: Buy-in.

For a lot of people, performance management sounds like a dirty word (ok, a dirty term).  They may have a negative reaction and as a result they won't trust you when you say that performance management will be good for them, good for the organization and ultimately good for your clients.  They'll argue about lack of data availability, or that it will take too much time away from real priorities, or that it's not appropriate to their unique situation

But what if you start off with a conversation about why the result will be worth the effort?  What will be the ultimate incredible outcomes of having these great measures you're about to develop?  Beginning with the end, organizational performance improvement, in mind will build trust, focus, and motivation.

When Nonprofits Go Bad

In my last couple of posts, I considered the oft repeated concern about “too many nonprofits” (I just heard it again this week).  Basically I restricted my observations to the implications regarding startup nonprofits but I think people also frequently raise the alarm about “bad” nonprofits.  It’s definitely a valid concern because bad nonprofit organizations can do irreparable harm to the repetition of the nonprofit sector and tarnish the critically important charity brand.

Being able to spot a bad nonprofit means knowing what a good one looks like.  I think that there are a few clear identifying characteristics that make the good ones easy to recognize.  They have active, engaged boards that provide vigorous oversight.  They are forceful and zealous about their work and the need for it.  They are as frugal with contributions as they are generous with their time and energy.  And they have a rock solid commitment to high ethical standards.

But if you ask me, clearest indication of a good nonprofit is transparency; the more open and direct the accountability, the more likely it is that the nonprofit is sound.  In fact the best nonprofits are probably those that can produce lots of information in writing at a moments notice about the need they serve, their operations and costs, and their ability make progress against the promises explicit in their missions.

So what about bad nonprofits?  Over the past couple of decades some devious, unethical nonprofit operators have taken advantage of the trust and good will associated with the sector for personal benefit.  They mishandled funds and/or used organizational resources as their personal bank accounts, cheating donors, funders, and the clients they claimed to serve in the process.  Their lack of transparency covered a flagrant exploitation of the kind of trust that is essential to the functioning of most nonprofits.

Fortunately, these bad apples have been the rare exceptions.  Unfortunately, bad news is more newsworthy than good news so the few bad apples have made big waves making the problem seem much larger than it is.  This situation makes it vital that organizations work harder than ever to be transparent and ensure confidence in the nonprofit sector.  

The sector is, without question, far more complicated than the for-profit world.  The difference between for profit and nonprofit performance is a lot like the difference between a track meet and a soccer match.  With nonprofits there is usually an indirect relationship between the customer and the consumer as well as a complicated relationship between the value of the financial contribution of the donor/investor and the value of the social benefit. 

Public confidence regarding nonprofits has eroded due to a few bad nonprofits.  At this point turning the tide of public perception probably has as much to with communication about performance as anything else.  How can worthy nonprofits get better at measuring and communicating performance?  One way is for nonprofits to be collaboratively “self-policing” by actively sharing and encouraging best practices.  Another is a pro-active commitment to transparency regarding operations and outcomes.

Sprouting like flowers in the Spring

In my last post I considered the issue of too many nonprofits.  A few days later when I was having coffee with Mary Tschirhart, Director the Institute for Nonprofits at NCSU, she made a similar observation (without prompting from me).  It gave me an opportunity to discuss the issue with a real expert and flesh it out a little more  

When I pressed Mary about what she meant when she said that she thought there were too many nonprofits, this is what she had to say (to the best of my recollection).  People often start organizations (what I’d call “kitchen table” nonprofits) without doing sufficient homework to see if there are other organizations that already do the kind of work and serve the kind of folks that they are interested in.  As often as not they duplicate, or nearly duplicate, something that is already being done or could possibly be done.  Basically they are spreading out any resources they can bring to addressing the issue they are interested in when they could be contributing to an organization that already exists.  They start competing with these existing organizations for scare philanthropic resources, money, volunteer time, connections, etc., when they could be helping them.

I think these are good points but they basically have to do with what I’d call allocative efficiency - there are limited volunteer hours and limited charitable dollars and too much of both are taken up with competing, supporting redundancy, traveling up the learning curve and so forth.  

But I’d argue that most of these startups are really an expression of adaptive capacity, the ability to try out and evaluate new ideas and to respond to changing conditions.  People who might not feel welcome at an established organization can explore the freedom to grapple with new approaches and express their passion for solving the problem they care about (in my experience introducing new ideas and energy can be seen as rocking the boat and if not coupled with ample resources, there is likely to be pressure to integrate into the existing organization).  New organizations can foster innovation and facilitate energetic engagement; they can attract new volunteers and generate a different kind of funding.  All this can actually increase the energy and resources available to the sector.  

I’ve worked with a fair number of kitchen table nonprofits and I think the best question that folks thinking about starting a nonprofit can ask themselves is this - is this the most effective way to create the change we seek?  But I’d also say that this question is one that established organizations should be asking.

Too Many Nonprofits - Or Not Enough Really Good Ones?

A couple of years ago I was at a meeting with a group of folks called together to consider the potential of a capacity building effort. In response to a comment I can't remember, one person remarked that he thought that there were too many nonprofits in Durham.  I wish I had a witty comeback because I thought the statement made no sense.  Since then I've thought about this issue many times.

Just now I googled the phrase "too many nonprofits" and got at least 3 pages of results!  All these were right on topic - considerations and opinions on both sides of this question.When I saw that I had to wondered why this has become such a commonly considered issue. 

The barrier to entry into the nonprofit world is pretty low so they have proliferated over the last several years. On one hand, for most nonprofits direct market forces aren't really a factor, as they are in the private sector, nor is the rise and fall of policy agendas, like in the public sector.   On the other hand, so what - why is this a problem and for whom?

The guy who made the comment that sent my head spinning works for an organization that is not a foundation exactly but basically a funder.  I can see how it could appear as if there were a crowd of nonprofits with their hands out if you were holding some purse strings.

I think if you're not working with a foundation, then you might approach it from another direction. What can be done to encourage more good nonprofits and fewer bad ones?  While most people would agree that more good and fewer bad nonprofits would be a great thing, I think that it still raises wrong question (and who decides if a nonprofit is bad anyway). 

Basically, the number of organizations is irrelevant.  What matters is impact - the ability to deliver consistent, mission-related outcomes.  I'd say we need to be doing everything in our power to support and strengthen the nonprofit sector's ability to get results.

What's up with the nonprofit sector?

 Despite enormous growth in the past decades, there seems to some sort of prevailing opinion that there are serious shortcomings in the social sector.  All in all, nonprofits are getting a great deal of intense scrutiny.

What is it that accounts for this perspective?  Nonprofits have enormous advantages - they benefit from a highly motivated workforce, a history of service to their respective communities or constituencies, and sometimes people just give them money!  On the other hand, the nonprofit sector has been dogged by controversies and even some scandals and these have had a lingering effect.  Accordingly, there have been persistent questions and concerns about nonprofit accountability. 

At the same time, the allure of market based social entrepreneurs has drawn so much attention that nonprofits seem to be dull and dated in comparison.  The idea that the power of business can be harnessed to address intractable social problems is very attractive.  In sharp contrast to the love affair with for profit and/or hybrid social benefit enterprises, the social innovation movement, gathering steam daily, is hardly interested in nonprofits. Market based approaches just seem more compelling - more capable of creating change than their tedious nonprofit counterparts.

In reality, the social sector is very diverse.  There are enough good, efficient, impactful nonprofits to justify the public's ongoing support and trust and enough poorly run, even unscrupulous nonprofits to validate all the anxiety and alarm.

Hopefully the attention will result in strengthening the social sector while avoiding the danger of throwing out the baby with the bath water.  In order to do that, we need to take care and not be carried away with the excessive excitement around social entrepreneurship, as promising as it is proving to be.  Instead we can take advantage of the opportunity for improvement by focusing on those practices that build on the strengths of the sector to restructure and reform where needed.

In the final analysis, the current concern about the nonprofit sector is a concern about effectiveness.  Now more than ever, nonprofits need to focus on results.  Organizations must be able to demonstrate to clients, stakeholders, donors, and funders how they are going to improve their performance.