Guidestar has just released the results of a survey entitled "The Effect of the Economy on the Nonprofit Sector: A June 2010 Survey.”

Chuck McLean and Carol Brouwer wrote the report, the purposes of which were “to explore how charitable organizations fared during the first five months of 2010 and to try to gauge the effect of the downturn in the economy on the American nonprofit sector.”

Among the findings, some issues stand out among public charities and grantmaker subsectors.

On the Charity Side

Public charities were asked if total contributions to their organization increased, decreased, or stayed about the same between January 1, 2010, and May 31, 2010, compared to the same period a year earlier. Thirty percent experienced an increase in contributions, while 28 percent remained the same. Forty percent reported a net decrease. McLean and Brouwer then asked, “What factors caused total contributions to decrease?” Forty percent said private foundation grants were smaller and 22 percent said that private foundation grants were discontinued. This in the face of 63 percent of the respondents stating that demand for their organization’s services increased!

Takeaway: charitable organizations faced smaller or discontinued grants from foundations in a climate where demand for their services is up.

On the Grantmaking Side

Now let’s look for a moment at the grantmaking side of the house. Eleven hundred of the 6,508 respondents indicated their organization awards grants, with 580 identifying themselves as private foundation/grantmakers (thus, in the mix of grantmakers we probably have a mix of charitable re-granting organizations in addition to private foundations). Among these 1,100 organizations indicating they give grants, 68 percent indicated that their giving remained the same or increased in the five-month period of January-May 2010 compared to last year. Further, 65 percent indicated that they made no major changes in their grantmaking. A much smaller proportions reporting they either cut back on programs (12 percent) or cut back on payments (8 percent).

Takeaway: Grantmaking, from the perch of the grantmaker, has remained the same. Few grantmakers have cut back on programs or payments. This is interesting in light of the above finding that charities report significant declines in grant funding.

What are the implications of this? There are several, I’m sure. For the purposes of this post I’ll constrain my thoughts to issues of impact and evaluation.

What Could Be Going On?

If I’m leading a charity, I might think the following to myself. “If my grant funding is down, yet trends suggest that grant givers have not changed their overall behavior, who is getting funded, and why?”

Since I’m a strategy and impact guy, my mind tends to turn to thoughts of monitoring and evaluation. It may be the case that funders are paying more attention to charities that understand how to evaluate their day-to-day work in ways that demonstrate true impacts.

We see from the Guidestar report that demand for services is up among charities. This implies that organizations are going to have to be very savvy at bringing their services to scale while not diluting impact. This is challenging if an organization doesn’t know its place in the charity ecosystem, doesn’t have clear outcomes delineated that should result from their services, and lacks a systematic way to track successes and failures. This could explain some of the variance in why foundations and grantmakers don’t report a general dilution in their funding. Perhaps there’s been a shift in giving to organizations they trust to create promised, sought-after impacts.

It’s also possible that funding is shifting within intact programs from charities that are working on the ground to those that are further from the “shop floor” – such as charity service providers, think-tanks, and other capacity building organizations.

What else could be at play here?

A little over four years ago we started to ask people what some of the root causes were to better organizational effectiveness in the foundation and nonprofit sectors within the United States. We talked with personnel at large and small nonprofits, and program staff from small family foundations to large private ones . We also consulted the literature on organizational effectiveness in the nonprofit world. Over time we captured what we heard into a poster size (3 feet x 2 feet) root cause “map” with over 65 boxes containing discrete assertions about the challenges foundations and nonprofits face in attaining organizational effectiveness. The diagram also contains scores of arrows that conceptually connect the assertions.

Early versions of the map were shown to our initial interview respondents from the foundation and nonprofit world (and to just about anyone who would look at it!). Over time we confirmed, disconfirmed, and refuted many issues, ever refining the map. It’s not perfect, but it does reveal an honesty and candor that underscores the passion of the people working in the third sector.

Because the concepts are ever evolving, our aim is to make transparent what we've learned and start a conversation on

• where the most viable opportunities for improvement are, and
• what we should address as a field.

In a series of posts we’ll report on what we’ve learned and ask for your reaction. Part One is about foundations. In Part Two we'll look at nonprofit organizations. We'll also publish the map in an upcoming post so anyone can have a copy of it and see the ecology of effectiveness, as we've captured it, for the sector.

Part One: Foundation Effectiveness

We began this thought experiment with the following assertion:

“We, as a social change community, not as effective as we could be.”

We then asked stakeholders in the field why that’s the case, particularly in foundations.

Four major clusters of root causes evolved from the above assertion. One cluster of reasons focused on the way in which the input from consultants, on which many foundations rely, doesn’t always translate into better overall effectiveness. Another cluster focused on how proposal vetting is not as effective as it could be. A third looked at how program evaluation is not leveraged in the best ways possible. And the fourth cluster, which I’ll discuss more in depth below, notes that foundations are not as strategic as they could be.

Why Aren’t Foundations As Strategic As They Could Be?

Three major areas developed in our analysis as to why foundations are not as strategic as they could be.

The first is no surprise. It's hard to stick to a strategy.

• With the passage of time, leadership and staff attain new knowledge that influences how they view the future.
• The stakes for not sticking to a strategy are not readily evident in the day to day work of foundation staff.
• It's hard to make strategy visible and operational in every step of an organization's day.
• It's hard to deliberately re-focus a strategy.
• Board members may have personal interests that can influence grantmaking.
• The needs of a community change over time.

Another second reason why foundations are not as strategic as they could be is that program portfolios can become populated with projects that may not be mission-related. This can occur when foundations have vague, unattainable or unrealistic goals. There are several reasons why foundations would hold such goals:

• It can be more appealing for a foundation to make small contributions to a big problem rather than completely solving a delimited one
• Foundations and grantees are not necessarily centered on a culture of measurement. After all, with measurement comes responsibility; what one doesn't see one doesn't need to fix.
• Foundations want to leave their options open.
• A foundation's strategy may be illusive and confusing. The contributors to this include
  • An inherent ambivalence about power and control over grantees. Foundations can be reluctant to tell grantees what to do because
    
    • they wish to be detached and objective and not involved in funded projects
    • they don't have staff or resources to support funded projects
    • they have respect for the independence of grantees
  • A lack of a market that drives foundations to be more effective and outcome oriented.
  • A tendency to prefer being detached and objective and not involved in funded projects

A third area that contributes to foundations' difficulty in sticking to strategy is a lack of emphasis on results that lead to a change or impact. A reason offered for this is that the quality of grantee operations may be based on foundation's perception of a grantee's organizational efficiency rather than a grantee's social results.

Next Time: Evaluation, Proposal Vetting, and Consultants and Their Relationship to Foundation Effectiveness

In November we teamed up with Kairos Learning to deliver two online hour-long courses, Building Accountability Into Your Team and Activating Your Program's Strategy and Evaluation.

Below you'll find the recording of the second virtual class,  Activating Your Program's Strategy and Evaluation, which presents an approachable perspective on setting strategy for achieving goals in education, nonprofit and community programs. 

Watch the video to learn:

• A simple yet effective technique for setting strategy and goals for your work
• How to effectively answer the question "Is my project reaching its goals?"
• How to confidently demonstrate to funding sources that your programs are effective

Let us hear your comments on this webinar -- what do you think of this topic? What else should we be covering?

[By the way, the chat window in the recording is not very readable. But this won't prevent you from enjoying the slides and the synchronized audio. If a higher resolution video becomes available, we'll post it.]

In November we teamed up with Kairos Learning to deliver two online hour-long courses, Building Accountability Into Your Team and Activating Your Program's Strategy and Evaluation.

Below you'll find the recording of Kathleen Sexton's interactive virtual class,  Building Accountability Into Your Team, which is directed towards managers and directors in nonprofit organizations who would like to learn strategies for increasing accountability amongst their team members.  

Watch this video to learn:

• How to manage by results
• Create a shared vision
• Role clarification for team members; and
• Team member personal accountability

Let us hear your comments on this webinar -- what do you think of this topic? What else should we be covering?

[By the way, the chat window in the recording is not very readable. But this won't prevent you from enjoying the slides and the synchronized audio. If a higher resolution video becomes available, we'll post it.]

I appreciated Madeline Smith’s remarks (may require login) at TCI 2009, wherein she outlined her thoughts on how regional clusters can become learning clusters. Clusters, she noted, are complex animals wherein you have “good companies, strong research universities and supportive policy makers, and you sort of mix them all together and magically economic growth pops out the other end.” Ultimately clusters are relationship-based entities, and they are susceptible to the pitfalls that strike most socio-economic initiatives. This includes, as Madeline noted in her talk, changes in the external environment, changing customer expectations, demands to learn to adapt and evolve, and a need for internal systems that allow for incorporation of formative feedback. One can see why it’s a challenge for clusters to achieve the Holy Grail of organizational effectiveness: status as a learning organization.

In addition to the challenges outlined by Madeline, I would argue that a necessary component to becoming a learning cluster is judicious and systematic use of strategy and evaluation. But one takeaway I have from my hallway conversations in Jyväskylä is that neither is happening as well as it should within the cluster community.

What’s keeping clusters from rushing headlong into strategy and evaluation? I’d like to leverage something that Madeline brought up in her talk. In discussing barriers to learning, Madeline talked about how “our current world view restricts our ability to learn” and that everyone brings a cognitive bias and their own cognitive frameworks to a project.

I’d like to suggest that a good deal of the variance in why clusters don’t engage in strategic planning and program evaluation is explained by the world view of cluster stakeholders, or to be more specific, the competing world views of the stakeholders.

It’s quite easy to imagine how this might be the case. The concept of strategic planning and the ideas behind program evaluation, depending on one’s disciplinary background, are defined, applied, and conducted in different ways. Thus the cognitive biases and frameworks of those from business, government, education, and the social sector tacitly and explicitly collide in ways that can lead to inaction, adherence to status quo, and lackluster results in the face of rich resources.

For instance, as Allison and Kay have noted, strategic planning is a term that is often used interchangeably with “long-range planning,” “business planning,” and “operational planning.” In the case of evaluation, its not uncommon to have the term “program evaluation” be confused with “monitoring” or “surveillance,” or “reporting,” all terms which are antonyms to the beneficial, learning-focused nature of quality program evaluation. As Mari Jose Aranguren and her colleagues noted in their presentation (may require login), there are severe difficulties in evaluating clusters due to their implicit characteristics: a mixture of tangible and intangible objectives; the complexity of determining cause-effect relationships. (By the way, I think the application of participatory evaluation frameworks, which Mari and her colleagues are doing, could have great promise in advancing program evaluation within clusters.)

I’d be curious to hear from others who are in the throes of bringing robust strategy and evaluation techniques to clusters. What has been challenging? What seems to be working?

In this inspiring talk, Katherine Fulton talks about the future of philanthropy – a future where innovation is a key to success. For Fulton, the democratization of philanthropy is allowing citizens to be more empowered than ever act as social innovators of change. She suggests that individuals and organizations can work across and through organizations adn disciplines to find solutions to challenges heretofore unsolved.  Through a democratization of philanthropy, it’s possible for social innovation to occur even when money is scarce.

Katherine’s presentation makes me think how new trends in philanthropy could affect the structure and methods of nonprofit organizations. If innovation increasingly becomes a necessary driver for impact, then nonprofits will need to continually test ideas with their communities in the mode of searcher, as William Easterly puts it.  Moving to searcher mode means that foundations and nonprofits alike will step away from inflexible, long term action plans that focus on outputs and move toward entrepreneurial testbeds that evolve, iterate, and scale. And I'd love to see that.

Clay Shirky, in the documentary Us Now, notes that social media “tools have lowered the cost of doing things for free to the point where our desire to engage with one another is enough to get things now to happen at a very large social scale, rather than just is a smaller family and friends scale.”  Innovation in philanthropy is beginning to mean that people, connected by a common cause, not a large fund, are getting together to create impact in ways never before possible.  Never before has the opportunity to break the silo mentality of philanthropy and nonprofits been greater.  

I believe Katherine is right about social innovation:  that new methods and tools to are needed to help us become more skilled at creating social change.

What are your thoughts and experiences regarding this? What kinds of collaborations should be forged within our sector to support this paradigm shift?