Here comes another piece that oversimplifies the nonprofit sector and sees improving it as a matter of simply importing the “dynamics” of for-profits. This one, by Harvard Business School’s Robert S. Kaplan and Allen S. Grossman, is yet another in a long list of examples of this kind of thinking, which I have written about over the past two years (including here, here, and here).
Kaplan and Grossman open with a lament that the nonprofit sector lacks the “cycle of creative destruction famously described by the economist Joseph Schumpeter.”
Right! That’s precisely the point.
Nonprofits take on issues that other actors in our society cannot or will not — the challenges markets haven’t solved. If market forces could solve everything, we would not need a nonprofit sector.
As Bill and Melinda Gates point out frequently (including on this recent 60 Minutes segment), if we left if to the markets to decide what diseases to do research on, we would pay attention only to the diseases affecting those with an ability to pay (even more so than we already do). Kaplan and Grossman seem not to understand — or perhaps choose not to acknowledge — that the ability to operate outside of traditional market dynamics is at the root of why the nonprofit sector matters!
The Gates Foundation’s work on Global Health, predicated on the simple belief that every life has equal value, is designed to bring resources to bear to help eradicate diseases that disproportionately affect the poorest people on earth. It’s a great example of why philanthropy matters: the Gates Foundation is addressing market failures.
Kaplan and Grossman’s piece, which appears in the October issue of Harvard Business Review and is titled The Emerging Capital Markets for Nonprofits, surprised me for its lack of nuance or demonstrated understanding of the role, accomplishments, or history of the nonprofit sector. The sector is rich with examples of innovation that never would have been funded by for-profits, because of the lack of an obvious near-term return. Many of these innovations have fundamentally changed our society for the better — often in ways that also redound to the benefit of business. The examples run the gamut (as I have noted in previous posts) from cures to diseases to the Internet — which was developed based largely on work conducted at nonprofit, endowed universities.
Kaplan and Grossman are absolutely right to call for a greater emphasis on performance assessment, and to note that there remains a need for a stronger intermediary infrastructure (although there has been progress on this front in the last decade), but they are wrong to make it about adopting for-profit approaches. They cite important examples of funders pushing to understand their impact, from the Edna McConnell Clark Foundation to New Profit to the Gates Foundation. But they do a disservice to readers when they write that the Gates Foundation “dedicates an entire department to assessing the performance of its grants” as if this is a new concept.
Are they unaware of the efforts of many other large foundations to assess performance, perhaps most notably the Robert Wood Johnson Foundation, which has done so with a dedicated team of evaluators for decades?
Are they unaware of the emphasis on measurement during institutional philanthropy’s earliest days? Bill Schambra, of the Hudson Institute, has pointed out that the “mania to measure” goes back to the “first days” of the Rockefeller Foundation. Schambra, of course, sees the focus on measurement as a negative. I, like Kaplan and Grossman, would like to see more — and more thoughtful — assessment of performance in philanthropy.
But that won’t happen unless we root the discussion in facts and in an appreciation for the complexity of the challenge.
By failing to really educate readers about the role of nonprofits and about the genuine complexity of measurement in a sector with no universal measure — no analog to profit — I worry that the authors actually undermine the effort to get foundations, nonprofits, and individual donors to focus more energy on assessing results.
Disclosure: The Bill & Melinda Gates Foundation, Edna McConnell Clark Foundation, and Robert Wood Johnson Foundation provide grant support to CEP. All three, as well as New Profit, have also used CEP’s assessment tools.
| Posted in | Assessing Performance |
| Tags | nonprofit sector |
Regrettably, your lament that our article oversimplifies the sector is in itself an oversimplification of what we are espousing. Can anyone claim that the current philanthropic system has made meaningful progress in ameliorating social issues? The glacial speed of change in the foundation community is reason enough to call for forces, whether market-like or others, to drive change. Clearly, current forces have done little to shift institutional donors away from relationship-based grant-making to a system based on performance and merit.
I find it interesting that you basically defend the status quo. Can you name any other aspect of our economy that has so little accountability for results? I question whether the beneficiaries of the sector are receiving enough value from the $300 billion of annual U.S. philanthropy. Is it simplistic to expect and demand from foundations and nonprofits that they provide meaningful and objective data that their efforts are optimally effective?
The foundations we cite as models provide evidence, albeit imperfect, that their money is well spent. They are striving to improve how they measure their own performance and the performance of their grantees. Why is it that these innovative organizations, which in many cases have been around for a decade, represent a tiny fraction of institutional grant-making? Is it is unreasonable to call for others to provide similar evidence of effectiveness?
I understand that your organization relies on the goodwill of foundations to survive and flourish. However, it was your organization’s research that discovered that the 163 largest foundations gave grants that were restricted, short-term and with a median size of $50,000. I would relish seeing some evidence beyond the tired rhetoric that this type of grant-making, which has gone on for decades, has served the best interest of society or the ultimate clients who foundations and nonprofit organizations are committed to serve.
Allen,
Thanks for commenting. I am not defending the status quo and I don’t know what could conceivably lead you to that conclusion, since I point out in my post that I very much share the view that we need more — and better — performance assessment in philanthropy. Indeed, our raison d’etre as an organization is to increase the number of foundations that exemplify the characteristics we believe are required to maximize impact: clear goals, coherent strategies, disciplined implementation, and relevant performance indicators. As I have written in many places, including this blog post of last week, the numbers of those really committed to good assessment “remain too few, the gap between rhetorical embrace and practice too wide.”
But over-simplifying either the problem or the solution is not helpful. Your article seems not to recognize that philanthropy’s existence outside of market forces is crucial to its ability to achieve impact (for more on this see this blog post). Nor does it sufficiently acknowledge that assessment is far more complex in the nonprofit sector than it is in business. Nor does it reflect the reality that, although surely too rare, there are many good examples of effective foundation philanthropy leading to measurable results over the past century (for more on this, see this post). Just looking at the present day, there is much to learn from efforts like the Stuart Foundation’s work on child welfare, the Flinn Foundation’s work to spur economic development in Arizona, and the Wilburforce Foundation’s conservation efforts.
So, yes, in answer to your question, if you really look at some of these, I think you can absolutely claim that progress has been made in ameliorating social issues. In his annual letter and this TED talk, Bill Gates helpfully reminds us of how dramatically conditions have improved on our planet as a way to inspire us to push for even more dramatic progress in the future.
The work of philanthropy is tough stuff: much, much tougher than getting good results in business — as those from Andrew Carnegie (“I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution”) to Warren Buffett (“In business, you look for the easy things to do. In philanthropy, you take on important problems and it is a tougher game”) have noted. Over-simplifying and painting with a very broad brush might make for a good article but isn’t, finally, helpful in driving real change.
One more point in response to your comment: of the $300 billion in total charitable giving, only about 13 percent is foundation giving. The rest is individual contributions, much of which goes to churches, hospitals, and colleges and universities — such as Harvard.
Again, I appreciate your taking the time to comment.
Phil
I appreciate the rebuttal from Alan Grossman, especially since it helps set the broader philanthropic landscape in the US into relief. However, I think that much of the measurement of performance outcomes and the accountability of such large foundations are too often simply judged along purely quantitative lines.
Insofar as the endeavor of the nonprofit sector–and social entrepreneurship in general–is to reap benefits from promoting and sustaining social change and social welfare, many positive nonprofit outcomes are difficult to judge quantitatively or qualitatively in an objective, meaningful way. The majority of for-profit business and investment ventures are simply focused on profits and returns alone; however, the task of the nonprofit sector is more difficult because it must maintain a nonprofit ethos while implementing for-profit strategies so that the social returns are worth the investment put into them through foundational funding. Though the conversion from foundational funding to social good is not so easy, the nonprofit sector’s social outcomes must still be painstakingly quantified (through econometrics and regressions) in order to assess their philanthropic value. Many of these hard-to-measure outcomes could be: improved education, literacy, or mental health, or the benefits of a long-term watershed conservation project.
I believe that the macroeconomic perspective of this article is the best way to address philanthropic performance strategy and optimization, however realizing that many outcomes are inherently unquantifiable or difficult to quantify is something worth noting.
James Mister
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