In my first post on the topic of High Performance vs. High Impact, I stated that Impact was the holy grail of philanthropy. It was something to journey towards and High Performance organizations were the best way to get there.
But to get to High Impact, we need to know not just that we have a robust, high performance vehicle to travel in, but that we’re headed in the right direction. Unfortunately, High Impact is not a single destination that all organizations are driving towards. And there’s no fully featured map to get there. But some issue areas have better maps than others and some approaches are known to work or not.
How then do we know if a high performance organization is on the right (or best known) track?
A high performance nonprofit must constantly evaluate whether its efforts are resulting in positive outcomes. This is critical. In Paul Brest’s presentations about his book Money Well Spent, he talks about King Ferdinand and Queen Isabella as being “strategic philanthropists” in their funding of Columbus. My argument to Paul has been that the best thing to do is not study how to get to India (but actually end up in America) and then set out on that exact path with the exact tools needed according to your theory, but instead to build the most robust seafaring fleet possible. A high performance exploring team that is geared up to face the uncertain journey.
But if that “robust seafaring fleet” does not bother to evaluate if it is on track and make adjustments as needed, it dissolves into a Monty Python skit of a navy rowing (very efficiently!) in circles or even off the ends of the earth.
I should have made this point more clearly in my originally posts. But on the other hand, this point is so blindingly obvious that explicitly pointing it out seems superfluous.
But on examination, the need for pointing this attribute out reveals a fundamental difference between for-profit and non-profit organizations. Not one that needs to be fixed, but one that needs to be overcome because it is here to stay.
Note that in Warren Buffett’s set of criteria for a high performance for-profit he never says something like, “Companies must constantly evaluate whether their business activities are resulting in revenue and profits.” He doesn’t have to say this because there is a self-reinforcing mechanism at work. For-profit firms whose business models work (result in revenue and profits) make money and are able to grow. Companies whose activities don’t work (even those that are High Performing) do not generate enough revenue and profits to stay in business and they shut down.
This link doesn’t exist in the nonprofit world.
A nonprofit can be a high performance organization that implements a weak intervention. Its programs can be total failures, but implementing them does not directly affect the nonprofits revenue or ability to attract capital.
So in the nonprofit sector, we can’t just assume that any high performance nonprofit organization will result in impact. We must demand (and the nonprofit must demand of itself) that a constant focus is put on whether the organization’s efforts are turning into positive outcomes.
This focus isn’t a definitional aspect of a high performance organization. But it is the critical link between high performance and high impact.
Side note: Interestingly, for-profit companies sometimes forget about this critical link between high performance efforts and high impact (in their case, profits). In the late 1990’s, many dot-com companies ignored this link completely, believing that if they just attracted enough attention, the profit would take care of itself. That of course didn’t work out very well.
We’ve seen the link break down recently when mortgage companies began responding to very short term profits, while ignoring the fact that long term liabilities were piling up on their balance sheets. That of course didn’t work out very well either.
So ignoring this link, not tracking whether efforts are resulting in outcomes, is an attribute of both for-profit and nonprofit companies. But in the for-profit market, it cannot be ignored for long until the consequences become dire. But this short circuiting mechanism doesn’t exist for nonprofits. That makes their job all the more difficult. The only solution is for funders to put the mechanism in place themselves. Give more to high performance organizations who measure the results of their efforts and give less to other nonprofits.
Doing so will transform the social sector into a robust, high performance, high impact creator of social good.
5 Comments
Sean! Great post and you’ve nailed the first layer of resistance. I’ll add another few dimensions and share why financial, for-profit seeking tactics and strategies often do not translate to not-for-profit initiatives extremely well.
1. Third party payers displace the natural operating focus of management (those steering the ship) from charting a domain of achievable client outcomes. Instead we focus on funders as the not-for-profit paying customer and because funders often have no clue or simply refuse to articulate exactly what they want to buy in terms of ultimate client outcomes the ship of client outcomes continues to remain fogged in under the protocol of developing and improving “mission” or “capacity building”.
1a. Because of #1 above, and because not-for-profits do have bright people that expend energy and talent in becoming exceptionally good at designing and delivering products to those buying them, we find that there are many “high-performing” organizations from a pure management point of view, but of course this is high performance in delivering “primary funder products” in abundance and often underperforming in the array of secondary products that deliver better impacts for people in need and society at large.
2. The labels and lexicon of not-for-profits further erode our collective ability to converse and share a sustained strategic focus on client outcomes, e.g. imagine taking your personal identity from an IRS tax code designation posited as a “NOT”. What do you do? I avoid profits. Oh. Our language should be realigned on defining what we want to make more of or to make better that is tangible, measurable and verifiable (i.e. the tighter definition of an outcome) that people in need freely want and will choose. Outcomes of and in themselves do not get us there. (And do not let those who have not achieved or demonstrated an ability to define, measure and verify any type of client outcome tell you that you cannot do so–you certainly can; they simply cannot).
3. Going Concern vs Going Concerned. The last dynamic that must be made explicit and honestly understood is that if the majority of not-for-profits were successful they would put themselves out of business. The faster they do so, the more successful they are, in truth, because they have not simply addressed a symptom, but eliminated the underlying cause of managed to evolve us to the next level whereby it is no longer relevant. I see few people in cars using buggy whips; unfortunately buggy whips are still being passed around in philanthropy. Alas.
Great work Sean, keep it up.
Best,
Rob Hanna
Rob, thanks for extending my analogy so creatively. I completely agree with points 1-2.
I wonder about point 3 though. You’re not the only one to put this idea forward and maybe you’re right. If an org is successful because they have a high impact program and they eradicate problem, they they should go out of business.
But what if an org is a High Performer? Shouldn’t they be able to change products and services to confront the relevant issues? Procter & Gamble for instance constantly shifts products to keep relevant with consumer demands.
Shouldn’t a high performing human service organization (for instance) be able to deploy its organizational performance in service of a new set of outcomes if needed?
Great insight, Sean. Let’s please forgive the lengthy exploration; my comments appear under your thoughts I’ve numbered and set in quotes below:
4. “If an org is successful because they have a high impact program and they eradicate problem, they should go out of business.”
Ok, allow me a general clarification to this sentiment as presented above.
a. Given the current reality of US not-for-profit industry performance and growth trends we simply gain by more not-for-profits going out of business sooner, period.
We can cite any number of reasons why this is a good idea, such as too many organizations limp along sucking up talent and chugging down dollars without focus, too many non-perform where they have focus, etc. Until we achieve greater transparency of results by which to allocate capital to high performers we will forever dwell in the expanding “fog of good intentions” (by the way, I had lunch with Peter Frumkin not long ago and he averred that most philanthropists are perfectly comfortable engaging their giving into “a fog of good intentions”, his coinage. Unfortunately this means the majority of capital available is allocated to equitably spread dissatisfaction, not results.)
[An even more dubious and pernicious trend is the emerging fact that so-called for-profit companies in the financial sector are behaving more like not-for-profits as regards to justifying non-performance, creating opaqueness of results and demanding entitlements on the basis of “mission”, acting as supplicants to the federal government for succor…alas, what a wholly different but entirely related story of human organizational behavior; we can certainly explore this another time]
b. My recommendation to eliminate not-for-profits based on their non-performance must certainly be balanced by observing how meaningful a percentage of the national employment statistics they are (about 10% and growing, or roughly 15 million people, last I checked); and, my tempering this blanket position would be by the IRS getting serious about handing out 501 organizational charters qualifying tax free status. The IRS could simply require that, absent a clear charter that intends verifiable results (being greater client outcomes) such tax free seeking organizations must otherwise employ blue collar (or underemployed) workers in economically depressed zip codes and then stream such workers into white collar sustaining wage jobs (hat tip to economist Tom Vass for not-for-profits as a generalized workforce development platform). Thenceforth let a million not-for-profits bloom as a way to employ universal liberal arts majors et al.
c. Organizations highly successful in eliminating a problem would not face a peril of extinction and joblessness if such success was produced by factors intrinsic to their core expertise and what their talented staff could deliver: high-performing individuals achieve often despite organizational structure, not because of it, and they are quickly hired away into other settings needing higher performance once their organization is done. And this is not guaranteeing work for deadwood staff and ineffective leadership, as we are excluding them from any definition of driving high performance, hopefully.
5. “But what if an org is a High Performer? Shouldn’t they be able to change products and services to confront the relevant issues? Procter & Gamble for instance constantly shifts products to keep relevant with consumer demands.”
You are absolutely spot on and correct, up to a point.
a. Organizations can and do continue if they are highly successful with a product line approach in a single market, and while that market is getting fully matured (i.e. problems solved), they often expand their product line and/or tailor it to work with similar customer demographics in different geographic markets.
Unfortunately this is the second threshold of competencies where most organizations fail to scale (first level competency failure is simply not achieving verifiable success in their current market). An entire organization or a very small, highly talented team within an organization can take such proven approaches, products, services and programs “on the road” and certainly be successful in other settings (I’ve even done this myself). The concern we must make explicit and quickly get over is: who cares if we go out of this business in our home market? This goes beyond defining where is our exit strategy to something more fundamentally important–where is our finish line of intended success?
b. The reason we never even get to ask such a question is that most all organizations and their funders are lacking such strategic vision and clarity to intend, anticipate and plan for such determined outcomes and the implications of such growth in results. And I unabashedly ask them, well… ahem… what business are you in then?
6. “Shouldn’t a high performing human service organization (for instance) be able to deploy its organizational performance in service of a new set of outcomes if needed?”
a. I represent, from a practical standpoint of what consistently works, that this conceit is a proven false assumption for most all organizations in both for-profit and not-for-profit worlds–EXCEPT for a very few REALLY high performing and outstanding groups, of which there are only visible examples in the for-profit world simply because they are the very few that succeeded of the very many that didn’t. Thus as a general principle this insight does not practically translate as an operational ambition to not-for-profits in general, nor would I also represent does it exist widely in for profit land either. OK, why? Let’s shift our analogy to wealth management and the financial sector in order to reveal the limiting human factor involved:
How hard is it to create private wealth for clients (or even ones own account), or in financial terms, to demonstrate true Alpha consistently?
Let’s just say it’s quite hard and agree on that. If so,
b. We can quickly observe that truly high performing wealth managers, though they may grow their business product offerings to serve a wider variety of client needs, are in fact highly successful because they are deeply competent in one or two explicit disciplines and the implicit execution of them. Very, very rarely do we find the wide ranging genius long lived enough such that the person can pick up any asset class and consistently prevail in creating wealth throughout all market conditions. This is simply a human constraint and the aborted pace of failing faster forward that our culture disallows and will not support anymore.
My direct experiences and ranging research reveals this to be as similar constraint in philanthropy regarding social wealth creation as it is in private wealth management: individuals and groups have limited expertise, capacities and readiness to perform competently at high levels consistently over time. Specifically, the chances of a high performing group succeeding in advancing scholastic achievement and then moving on to nutritional improvements for the same clients is slight to none, especially regarding outperforming a similar group already succeeding in delivering such gain. Yet we tolerate and encourage such conceits all the time because “mission” delivers a paternalistic slant of client “ownership” instead of customer service. Our not-for-profit challenge remains simply building core expertise by attracting competent talent capable of delivering client results above a baseline, or even a zero baseline: you simply wouldn’t invest your money in a wealth manager that only reports their compliance with SEC filings or FINRA registrations and otherwise hides or distracts from reporting the gain or loss of ROI in your account, now would you?
c. Isn’t it also true that we vigorously vet entrepreneurs and then invest in them not because they can do anything in the world, but because they can do one thing in the world that is highly demanded and do it better than anybody else? We call that high-performance at the start-up level, and we also know that when such companies mature those very same entrepreneurs might be out of a job because they cannot competently provide the depth of skills to sustain and grow their companies at scale. And we weep no crocodile tears for them… however, many of them move on to start their next venture while their previous company continues to grow… high performance mission accomplished.
In continuance:
Not-for-profits can and have added significant value through higher performance: creating significant gains for individuals, distributing social wealth at scale and radically compressing the innovation cycle in achieving extrinsic improvements sustained in the world. However, few have done it all that often and even fewer still have evolved into a capacity and readiness culture of operating their business like that every day.
But, in order to achieve this liberation of latent, high performing talent for better we really must change the way the game is played by philanthropists and funders FIRST. Investors must be willing to set out for and achieve higher performance as client outcomes and not as operational gains intrinsic to the organization they fund. This shift is necessary for us to win. Of course it is more subtle than simply helping the wealthy large givers grow from being values-based exhibitionists into highly capable social investors pursuing an explicit intention. It is maturing a depth of intention to improve any specific outcome of human gain to a point of significance. At the very least, such an endeavor should be a common asset class focus of their giving game portfolio. It doesn’t mean they have to stop being check writers, or giving from the heart and doing what they love–those expressions mutually come along for the ride and even more so, as there is nothing more intoxicating than success.
There are two seminal truths we must face in order to achieve such high performance philanthropy with the wealthy:
The first is recognizing the future of higher performance in not-for-profits is utterly dependent upon the future of higher performance seeking investments arising from philanthropists themselves as the most strategic investors.
The second is recognition that most not-for-profit leadership and staff already get high performance concepts and deeply desire to implement them–they often quickly get how to translate unbounded ambitions into achieving significant results at scale. Unfortunately this creativity is stifled by a confounding investment landscape whereby their immediate success leads to near immediate disinvestment (Look, initial results shows evidence of capacity having been developed, great! Let’s go equitably spread dissatisfaction to other low performers…). High performance in organizations is not an end point but a starting point to significant results. Until such results are highly correlated to strategic incentives offered from philanthropists by aligning interim rewards for achieving them in real time they will never grow to significance over time. Whither “Cut your losses and let your profits ride” has been commonly spoken among amateur investors since the dawn of financial markets, and as rarely found. Just because it a discipline that works doesn’t mean it’s a discipline in fashion.
Such is one enduring opportunity for us both as professionals to deliver Alpha in almost any industry…
Hope these follow up thoughts are helpful to you and your clients,
Kind regards,
Rob
Thanks for all the time you put into these comments Rob. A lot to chew on and a lot I agree with.
Hah! no time at all: I’m on vacation in Idaho. I can handle only so much nature bliss all at once…
Plus it’s my ongoing pleasure to chew the fat with you–I always learn something useful.
Drop me a line sometime:
rhanna@socialwealthpartners.org