Many see any investment in the "infrastructure" of nonprofit organizations as overheadthe connotation being that these are deadweight costs that take money away from program beneficiaries. We've got to stop thinking like this.
Organizational capacity has been so narrowly interpreted that the idea of it appeals only to management enthusiasts and technical specialists.
But going beyond the essential basics of financial control and project managementwhere nonprofits tend to draw the boundary of organizational capacitythere's a set of broader, deeper, vital organizational capacities that drive performance. Understanding these capacities can fundamentally reshape how individual nonprofits succeed in delivering on their missions and how the sector approaches the challenge of supporting large-scale social impact.
In other words, to understand how organizational performance can drive program outcomes, and how the nonprofit sector can support better performance, we must look anew at the issue of organizational capacity.
In the most prevalent strategies for sustaining large-scale impact (also known as "going-to-scale"), programs are the center of the universe. They are considered the real generators of valuethe things that workand the starting point for all strategies to improve effectiveness.
One useful analysis of these strategies comes out of international development, where practitioners and academics have generated a small but illuminating literature on the issue. Michael Edwards and David Hulme, in their book "Making a Difference," have identified three types of scaling-up strategies, which describe fairly well the thinking and strategies of U.S. nonprofit stakeholders:
In various combinations, these strategies can significantly enhance the prospects for large-scale social impact. Yet the search for scale is still on: These strategies have not yielded as much impact as program proponents have hoped.
The problem with program-centered strategies is that they limit discourse and problem-solving to one dimensionprogram design and expansion. They undervalue the vital role of organizational performance.
As every practitioner knows at some level, there is more to effective outcomes than a program design. What we praise as "innovative programs" are often just "well-implemented" programs. It is performance, not program design alone, that makes the difference. But lacking the interest in or vocabulary to describe organizational performance, much of the nonprofit sector continues to look to programs as the key determinant of good outcomes.
In a study of innovation in the public and nonprofit sectors, Paul Light illuminates another aspect of this dynamic. The social sector, he argues, focuses too much on innovation and not enough on innovativenessthe capacity to innovate repeatedly. For example, he observes that the Ford Foundation-Kennedy School Innovations Award program focuses on innovative programstheir design and technology. Publicizing the winning innovations may lead to replication in other places, and may encourage other organizations to risk innovation. However, it provides less insight into the process by which the organization created its program, how it could be sustained, and how future innovations will be nurtured. In contrast, the private-sector Malcolm Baldridge Quality Award focuses not only on a quality product, but also on the capacity of the organization to create and sustain quality in all its work.
It's not only the nonprofit sector that faces the challenge of linking organizational performance and program design. Says New York schools chancellor Rudy Crew, on efforts to reform the city's school system: "The challenge for urban educators isn't building more pilot programs, but finding a way to replicateor in education parlance, to "scale up"select reforms to create an entire system that works."
So, focusing on program design and expansion alone (or on policy reform to support better, bigger programs) will not create widespread social impact. Social impact rests, just as critically, on the difficult processes of creating and sustaining high performance in the organizations that implement the beautifully designed programs. It's the organization's ability to perform that is decisive.
How do nonprofits build their capacity for performance? Depending on their goals and sophistication, effective nonprofit organizations rely on the following three types of organizational capacity:
As many nonprofit stakeholders point out, the nonprofit sector's raison d'être is not purely service delivery. Nonprofits also foster social benefits that are vital to a democratic societybut that seem to have little to do with organizational performance.
First, the nonprofit sector gives citizens a venue for self-expression, allowing individuals to act on deeply held beliefs and address pressing concerns. Second, the nonprofit sector is our arena for advocacythrough which citizens can highlight weaknesses in society and promote solutions, often bringing provocative and unsettling voices to the fore. Third, the nonprofit sector is home to citizen associationsthrough which people band together to work on common social goals. For some organizations, the "knitting together" from this associative activity, or the powerful changes in attitudes that can result, provides sufficient justification for their existence.
So why should nonprofits that are pursuing those goals worry about organizational performance?
Even worse, if they do become focused on organizational capacity, won't they compromise distinctive nonprofit values? Would focusing on organizational capacity stifle innovation? Would "professionalization" both change the culture of organizations substantially, and have a dramatic effect on the way the sector is viewed? Would a focus on building organizational capacity lead to a preoccupation with market share and fundraising, at the expense of mission?
The hazard raised in these questions are the very reason organizations should develop their capacity for performance. Whether delivering programs or acting as advocates, virtually every nonprofit obligates itself to three groups of stakeholders: clients, employees and funders. And organizational capacityespecially the adaptive capacity that links mission and outcomesis a critical resource for doing right by these constituencies and honoring a nonprofit's values.
Adaptive capacity enables organizations to create value for the clients or communities they serve. The processes of adaptive capacitythat is, for learning, innovating, measuring and improving performanceare all about creating value for stakeholders.
Our inquiry into organizational capacity in the nonprofit sector has a larger agenda. We are looking at what individual organizations can accomplish. We're also looking at expanding attention to performance in the nonprofit sector as a whole.
Our goal is to stimulate discussionand workon a more effective nonprofit sector, not merely a more efficient one. To create that kind of sector, nonprofit organizations and stakeholders must build organizational capacity together, and not just leave individual managers and boards struggling in isolation.
The first step is to shift the thinking about what a nonprofit really needs to deliver on its mission. Current attitudes about organizational capacity are far too narrow to support investment in organizational performance.
Most frequently, nonprofit funders tend to see any investment in organizations as overheaddeadweight costs that take money away from program beneficiaries. (This is the pervasive attitude that leads to annual-report pie charts proudly depicting the smallest possible share of expenditures for overhead or administration.)
Slightly more positive is the attitude that modest support for basic organizational systemsespecially financial controlsis the necessary cost of efficiency and accountability. We need support for the proposition that organizational capacity, especially the adaptive capacity needed to deliver on a mission, is a much more vital resource for the nonprofit sector.
Our current limited vision should concern not just nonprofit managers. All of usespecially the people served by nonprofitswill benefit from making organizational capacity a new priority for the nonprofit sector.