Cover Story

As long as "strategy" remains a confusing and ill-defined word, foundations can avoid confronting their ambivalence about power and control. But this ambivalence often results in vague and unrealistic goals, putting strategy and evaluation on a collision course. Here's how to make both work with, rather than against, one another.

Why does strategy prove so confusing and elusive a concept for foundations?

One reason is that many foundations feel an inherent ambivalence about power and control. They’d like to formulate a theory of change—define an improvement to society and identify the levers they can pull to make it happen—but respect for the independence of grantees and the free will of the populations funders seek to assist prevents them from strictly imposing their own agendas. So they end up with half-formulated plans that may describe a goal but avoid specifying the means of getting there.

Others might be seduced by the satisfaction of giving money to worthy causes, knowing that each grant does much-needed good in the world. A strategy might be nice, but it is hardly necessary to feel good about grantmaking—especially if it uses up time and money that could go toward direct assistance.

Another reason is more fundamental to the nature of philanthropic foundations: Free of any market forces or external constraints, nothing forces a foundation to choose realistic goals or a strategy that will work. The very nature of philanthropy—working to redress massive social problems or to enhance our civilization—leads ineluctably to goals that are worthy and inspirational, but at the same time ambiguous and unattainable.

Many funders also feel frustration that despite the large sums of money at their disposal, foundation resources are tiny compared to the magnitude of their ambitions. The results anyone can realistically expect to achieve are small. It somehow seems nobler to make an imperceptible contribution to a big problem, rather than to identify and overcome a small one. It can be extremely hard to find the courage to accept a goal that is modest enough to be achievable.

At the same time, foundations are becoming increasingly concerned about evaluation. Millions of dollars and hundreds of consultants are devoted to the issue with an ever greater sense of urgency—but with very little sense that anything useful is being achieved. The “evaluation problem” seems intractable—and as presently formulated, it is. Not because of any inherent problem in the tools of evaluation, but because the very concept of evaluation is nonsensical without realistic goals and a fully developed strategy.

But what does it take to create an effective and measurable strategy? Foundations use the word “strategy” in so many different ways that it is extremely hard to know what a well-developed strategy really consists of. Terms like strategic philanthropy, strategic planning, grantmaking strategy or a theory of change are used almost interchangeably. In fact, each of these terms is part of a well-developed strategy, but none is complete by itself.

If foundations are serious about achieving impact and evaluating results, they must begin by getting clear on what strategy is and why evaluation is impossible without it. In order to understand what an effective and measurable strategy must include, it’s worth examining what each of these more popular variations really means in practice. And what their drawbacks are.

Strategic Philanthropy

Talk of “strategic philanthropy” has been around for decades. Originally, the term was coined to refer to corporate philanthropy that also served a company’s business objectives. Over the years, the term has broadened until almost every foundation claims to practice some version of it.

Despite its many variations, there are four core principles at the heart of how strategic philanthropy is thought of today:

Addressing root causes. Foundations should bring about lasting social change by identifying and addressing the “root causes” of social problems, rather than just alleviating immediate needs and symptoms. Feeding the destitute would be charity, for example, but training the unemployed to find work would be “strategic philanthropy.”

Establishing a theory of change. Some mechanism is needed to bring about this social change. Therefore, foundations must decide how change occurs in society: Is it through grassroots movements or the leadership of elites? Or is it through research, advertising or demonstration projects? Based on this “theory of change,” foundations can determine which kind of projects to fund in order to bring about the social changes sought.

Deciding on a focus. A foundation must decide where it hopes to have impact to bring about change and concentrate its grants in that field. Focus, therefore, is a corollary of “strategic philanthropy.”

Measuring outcomes. To see whether change occurs, foundations should monitor the performance of grantees and hold them accountable for achieving what was promised in the grant request.

The Drawbacks

Zeroing in on what change the foundation seeks to facilitate is a necessary element of strategy, so these four principles are all good nuggets of advice. But even taken together, these principles fall short of a fully developed strategy.

For one thing, establishing a simple line between cause and effect is difficult and deceiving. Social problems are so complex that the search for a “root cause” can be endless: Many causes simultaneously conspire to create the problems we see evident, and another deeper root cause can always be divined. The search can even become circular as the cause of one problem becomes the symptom of another.

A theory of change is an equally dicey concept. In real life, because so many logical approaches fail and so many improbable ones succeed, it is extremely hard to tell when a theory of change is well-founded. Anyone who has studied history knows how hard it is to explain the underlying causes of social change, yet that is precisely what a theory of change tries to identify.

Using such vaguely defined terms as “root causes” and “theories of change,” “strategic philanthropy” often encourages unrealistic goals. From an evaluation perspective, it poses even greater dilemmas—as evaluators must not only ascertain the direct results of a grant, but also prove the elusive theory of change on which the grant was premised—doing the work that many historians have long considered impossible.

In fact, “strategic philanthropy” is a misnomer: The approach might be better termed “social change philanthropy” for it takes social change as its objective, although it doesn’t give clear guidance on how to bring it about. Moreover, the approach itself is not easy—or perhaps even possible—for a foundation to constructively apply. Confusing the objective of social change with having a strategy has proved one major obstacle to evaluation for many years.

Strategic Planning

A second common use of strategy is in “strategic planning.” Foundation boards and staff often engage in strategic planning retreats and exercises designed to define more clearly what they intend to do. Although there is no rigid definition, the process as commonly undertaken has two consistent aspects:

A values clarification. Much of what passes for strategic planning is an internal exercise in clarifying what the donor, board or staff really care about and would like to make happen in the world. Often, donors are new to their role and not yet clear on their values and passions—the question of what they care about, beyond work, family and religion, may take much effort to answer. More commonly, the challenge lies in bringing together different family members across generations, each of whom has a different set of values, and forging agreement on a common set of objectives that all trustees and staff can accept.

Creation of a mission statement or vision. The result of a strategic planning process is usually a carefully crafted mission statement that reflects the values identified during the process. The need to think big and find concepts that are large enough to encompass the different values of different trustees almost always ensures that the resulting mission statement or plan has broad and inspirational goals.

The Drawbacks

This form of strategic planning is a useful and necessary exercise, but it’s still not a fully developed strategy. The limited time allocated to strategic planning sessions—usually a day or a weekend—means that the deliberations are generally conducted without the benefit of outside research. And absent hard data about how and where the foundation can be most effective, it becomes impossible to prefer one trustee’s values over another. The effort to achieve rapid agreement often leads to a mission statement that represents the broadest common denominator rather than narrow or precise objectives that enable the foundation to define measurable results.

Unfortunately, drafting a mission statement with a broad focus—such as healthcare or education—is where most strategic planning processes stop. The board, by then, has used up its tolerance for abstract discussion and outside facilitators, and is eager to begin the concrete process of reviewing requests, making grants and helping to make the inspirational and compelling ideas in its new mission statement a reality.

Values clarification is one important step in setting a foundation strategy and a mission statement can be an essential starting point—but like the social change approach above, it doesn’t narrow goals. There is no guarantee that the values on which the board agrees can realistically be accomplished or reflect where private philanthropic dollars will achieve the greatest impact.

As gratifying as it may be to put the money to work immediately, the costs of proceeding without a fully developed strategy will be felt later on. One can evaluate individual grants to see if they succeeded or failed, but the goals of the mission statement are inevitably too broad to be evaluated directly, and without any linkage between grants, it becomes impossible to add the individual evaluations together into an overall assessment of the foundation’s effectiveness. At best, one is left with semi-meaningless statistics like, “12 out of 18 grants achieved their stated objectives.” But, in the end, that tells us nothing about the foundation’s true impact or the usefulness of its strategy.

Grantmaking Strategy

The more sophisticated foundations go further, and develop a “grantmaking strategy.” This approach comes closest to a fully developed strategy, yet it, too, is incomplete.

Grantmaking strategies are usually developed by program officers for the specific field they are charged with funding. Program officers often come out of agencies in that field and bring a thorough knowledge of current needs and opportunities. Frequently, they’ll talk with professional staff of other foundations to see what they’re funding, commission a study, or convene grantees and agencies in the field. From this research, a sense of what is needed is garnered, and most often, filling this perceived need is taken to be the strategy. (“Meeting unmet needs” is a constant battle cry among foundations.)

The new strategy is communicated to the field by grant guidelines that—sometimes clearly, sometimes obliquely—alert possible grantees to what the foundation seeks to fund. Internally, program officers may even specify outcomes—changes that they hope to bring about as a result of the proposed funding.

The Drawbacks

“Needs assessment” is a useful tool in strategy development. It has the great virtue of gathering external data from those knowledgeable about the field—a step missing in the first two approaches. The needs identified will, therefore, at least be real. But it mistakenly assumes a foundation brings nothing to the table except its grants, and that all foundations are equally capable of meeting the same set of needs.

This approach is also highly susceptible to fads: As funders ask one another what to fund, large amounts of money from multiple funders shift to address the “unmet needs” of the day. Then, development officers of nonprofits, watching carefully to see what major funders are supporting, begin to tailor their grant requests to highlight that same “unmet need,” so the scale of the need begins to grow as more and more nonprofit budget items are subsumed within it. After a few years, when the need has become well known, and the underlying social problem has not yet gone away, a new set of “unmet needs” emerges and gains the same iterative momentum between funders and grantees.

Another difficulty with needs assessment alone is that it often leads to an unrelated set of needs for each program area, with nothing to link the program areas together into a single overarching foundation strategy. As a result, program areas don’t reinforce each other and a “silo” effect occurs that undercuts the ability of the foundation to function smoothly as a unified entity. Even within program areas, the linkage between different grants may not be clear, making it hard to look at the overall impact of the program and go beyond a grant-by-grant assessment.

Often, the unmet need is couched in the language of social change, and so encounters the paradoxes of “strategic philanthropy,” described above. It is not enough to identify a pressing need, but to identify the need that can be seen as the root cause underlying a fundamental social problem. Here too, the price of idealism will be felt in the impossibility of evaluation later on.

The Elements of Real Strategy

Each of these three uses of “strategy” incorporates only one element necessary in a well-developed strategy—identifying the change one hopes to bring about, clarifying internal values and strengths, and ascertaining external needs. But it is only by undertaking all three simultaneously, that a fully formed strategy, capable of evaluation, can be achieved.

A fully developed strategy enables a foundation to determine where it can make its greatest contribution by creating value above and beyond the purchasing power of its grant dollars. It means making a unique set of internally consistent and mutually reinforcing choices that zeroes in on where and how each foundation can make its greatest impact. To be effective, such a strategy must accurately assess both the foundation’s internal capabilities and the external opportunities for impact in the field. Only by accurately and honestly acknowledging both internal and external constraints can a foundation develop goals that are realistic enough to be measurable.

Rather than asking, “What is the most important problem?,” a true strategy must answer, “Which of the many important problems is the one that our foundation can make the greatest contribution toward solving?”

Such a strategy helps answer the question of why one “theory of change” is better suited to a foundation’s situation than another, of the extent to which broad goals in a mission statement can be achieved, and of which “unmet needs” a foundation should address. Moreover, a strategy carries implications about how the foundation should operate, so that every activity is designed to further the overall strategy and focus on synergies rather than silos.

As Roger A. Hughes points out in his article on branding (see “Branded”), a foundation must have a clear sense of its own identity that transcends all of its program areas. For the St. Luke’s Health Initiatives, that identity was initially developed to clarify external perceptions, but the process ended up revolutionizing the foundation’s own internal operations. As the board discovered, grantmaking is only one aspect of the foundation’s role in the community, and in many ways, one of its least powerful tools for effecting social change.

Making Tough Choices

Following a strategy means saying no to many tempting projects, however worthwhile, merely because they don’t serve the strategy well. In a field motivated by compassion, that’s a hard discipline for any foundation to enforce.

Sooner or later, as more money is poured into evaulation, foundations will find that strategy and evaluation are on a collision course. But the problems perceived in evaluation are in fact not about evaluation at all—they are the direct result of problems in strategy development and goal definition. Strategy cannot be “reverse engineered” by investing heavily in after-the-fact evaluation, just as a recipe cannot be derived from the chemical analysis of a meal.

Until the field turns its attention away from measuring results at the back end, and devotes its ample resources to researching and determining more specific and realistic objectives at the front end, the “evaluation problem” will remain as intractable as ever, and “strategy” itself will mean anything at all.

Illustration by Theo Rudnak