February 24, 2014

Unlike For-Profits, Nonprofits Succeed by Sharing the Work and the Glory

In recent years, foundation and charity leaders have paid increasing attention to questions of performance. The focus on impact, outcomes, and assessment, while not new, has certainly intensified among both foundation and charity leaders.

This is a positive development, but too often performance is defined in a way that can undermine the effectiveness of the nonprofit sector as a whole.

The analog seems always to be business, where the focus is on competition among institutions—a zero-sum perspective in which organizations strive to best each other.

This conflation of performance in philanthropy and institutional competition has its roots in two influential 1990s Harvard Business Review articles.

The first, by the Harvard scholars Christine Letts, William Ryan, and Allen Grossman, urged foundations to act more like venture capitalists.

The second, by Michael Porter and Mark Kramer, urged foundations to focus on “unique positioning” and “unique activities” and to choose the “best” grantees in the manner of “investment advisers in the business world.”

“Only by doing things differently from others, in a way that is linked tightly to what the foundation seeks to accomplish, can it achieve greater impact with the same grant dollars or enable its grantees to be more successful,” wrote Mr. Porter and Mr. Kramer, who founded the consulting firm FSG, which advises many nonprofits and foundations.

But this kind of emphasis on uniqueness and supporting only the best makes much more sense in business than in philanthropy.

The fact is, focusing competitively and narrowly on individual institutional performance isn’t necessarily consistent with maximizing impact. It has led many large foundations to develop and put in place their strategies alone. But in philanthropy, unlike in business, that is a recipe for failure.

A similar dynamic plays out among charities that worry more about besting their “competitors” than achieving shared goals.

Over the past century, almost all the compelling examples of philanthropic impact involve multiple grant makers, nonprofits, and other organizations working together toward common goals. Think of the campaign against tuberculosis a century ago involving foundations, nonprofits, and insurance companies. Or think of the work by so many on gay rights in recent decades.

Big progress against tough challenges requires a lot of effective organizations working together.

This fact, which seems to have been lost in a deluge of market-based solutions and business analogies, is now even recognized by the folks at FSG. (Disclosure: FSG’s founders, Mr. Porter and Mr. Kramer, also served as founding board members of the organization where I serve as chief executive, although they left our board in 2004.)

Mr. Kramer and a colleague, John Kania, writing in Stanford Social Innovation Review, now suggest that “large-scale social change” comes from coordinated efforts “rather than from the isolated intervention of individual organizations.”

The fact that some in philanthropy ever lost sight of this fact is a puzzle. How is it possible that so many in the sector have punted away what distinguishes us, which is that we are to focus on the mission, not profit or parochial institutional concerns?

Perhaps it’s partly the influence of those who pushed grant makers and charities to focus on their uniqueness and the accompanying emphasis on brand.

But more self-critically, I wonder whether even those of us who never drank the “business is best” Kool-Aid have inadvertently contributed to too much of a focus on claiming institutional credit for particular successes.

Foundation leaders are indeed more likely to see their institutions as doing well than they are to see overall progress.

At the Center for Effective Philanthropy, we recently issued a report titled “How Far Have We Come?” about a survey we conducted showing that foundation CEOs tend to feel their foundations have made meaningful progress against their goals, but that over all, progress against those goals has been only modest. And they also were much more likely to see opportunities for improvement among foundations in general than at their own institutions.

It’s easy to chortle at these findings; one possible conclusion is that these CEOs live in a bubble of what the psychologists call “positive illusions.”

However, it’s also possible that there is more good work being done by foundations than is understood even by other foundation leaders. Perhaps some foundations do not communicate about their contributions in part because they know that their work requires many organizations to collaborate—and therefore worry about drawing undue attention to themselves.

In a recent discussion with a longstanding president of a major foundation, I was struck by his stories about his foundation stepping off the stage, even handing credit to those who perhaps did less than his foundation did. His examples mirrored what I have observed at foundations and charities whose work I most admire.

The leaders of these institutions know that shared goals are more likely to be achieved if the spotlight is shared, or sometimes cast on others altogether.

To be sure, they focus intensely on their own institutions’ performance, benchmarking against others whenever possible. But assessment is always in service of achieving goals and with an awareness of the larger constellation of actors.

Some even believe that sometimes the best way to make the most impact is to follow others. They recognize what Barbara Kellerman of Harvard’s John F. Kennedy School of Government has argued: that we have, in a range of contexts, overemphasized “leadership.”

“Followers matter,” she writes in her excellent book, The End of Leadership. “They have always mattered, and they matter more now than before. … Just as we encourage learning to lead, we should encourage learning how to follow—how to engage, how to collaborate and compromise, how to serve and support good leaders, how to challenge and even take on bad leaders.”

Ms. Kellerman writes of individual leaders, but her argument applies to institutions, too.

Is it in our collective interest for every foundation and major nonprofit to have a strong “brand identity” and reputation as a “leader”—or do we in fact need actors playing various roles, including that of follower, to achieve our goals?

Might not a solid strategy for a foundation or operating nonprofit involve copying what someone else is doing well? Shouldn’t assessment efforts be coordinated more often across organizations working toward the same goal?

Few of us are immune to competitive instincts, and as the leader of a nonprofit, I confess that I have at times overemphasized how our organization has fared relative to others.

I have also undervalued opportunities for collaboration in pursuit of shared goals. But all of us need to guard against these impulses. We need to keep our focus on vital concepts like strategy and performance assessment in a manner that is firmly rooted in the larger missions of our organizations.

Boards play a role in reminding nonprofit leaders that it’s not about them, it’s not about the staff, and it’s not about organizational reputation or preservation.

All of these things matter, but only in the context of the goals we are pursuing—whether those goals are to alleviate poverty, help young people have more promising futures, or improve the environment.

The pursuit and achievement of those goals is what it’s about.

Phil Buchanan is president of the Center for Effective Philanthropy and a regular columnist for The Chronicle.