This is the fourth in a series of six blog posts.
Related to the emphasis on boundary-blurring and the frequent dissing of the term “nonprofit” that I have discussed in my last several posts is an equation of “business thinking” with effectiveness. You would think, after what we have witnessed in the past several years, that the word “business” would not be used as a synonym for “effective.”
But it is. And an increasing number of people, including those who should know better, seem to be falling into this trap.
Among the biggest cheerleaders for the mindset that equates business with effectiveness are Matthew Bishop and Michael Green, authors of the 2008 Philanthrocapitalism: How the Rich Can Save the World. They argue that a new breed of “philanthrocapitalists” are working to “apply the secrets behind their money-making success to their giving.” (As if this idea never occurred to Carnegie and Rockefeller.) They write:
“While some are skeptical about the invasion of the M.B.A.-enabled executives in suits into the Birkenstock world of charity, many philanthrocapitalists believe that the world of giving could benefit at least as much as business from a bigger role for professional intermediaries and advisors, and from the sort of transparency and accountability that exists in financial markets.”
Oops.
While they have tempered their cheering somewhat (in an apparent attempt not to be utterly tone deaf, the paperback version of their book is subtitled How Giving Can Save the World), they and a legion of others continue to suggest that companies have some kind of unique claim on concepts such as strategy and rigorous performance assessment. Those espousing this view typically give short shrift to how much tougher strategy and assessment are in the nonprofit sector, which, after all, addresses the most difficult, stubborn, and systemic problems.
Yet, despite these challenges, examples of nonprofits that operate in a strategic and data-driven way abound. (I’d be the first to concede that examples of nonprofits that do not operate so effectively abound, too – both observations are true.) As Wharton Professor Peter Fader, who is Co-Director of the Wharton Customer Analytics Initiative, has observed, nonprofits often excel in using “their data to better understand their ‘customer base.’ In this area, big companies with lots of resources really can learn from their cash-strapped non-profit cousins.”
Similarly, the late Peter Drucker, who Bishop and Green have attempted to posthumously claim was the “high priest of philanthrocapitalism” – a label I am guessing he would have rejected – argued in 1989 that corporations had much to learn from nonprofits when it comes to questions of strategy and governance. That piece was titled, “What Business Can Learn from Nonprofits.”
But, today, even those inside the world of nonprofits and philanthropy have internalized the idea that operating “like business” means operating effectively – never asking, which business?
Lehman Brothers?
Sears? (In its heyday or now?)
Or Apple? (Now or when it was struggling in the 1980s?)
In a Wall Street Journal op-ed, Charles Bronfman and Jeffrey Solomon argue “that to have a sustained and strategic impact, philanthropy must be conducted like business – with discipline, strategy, and a strong focus on outcomes.” But since when is strategy – the word has its origins in the military, and is derived from the Greek word for army – the sole province of business? (Bronfman and Solomon’s assertion also raises the question of what they mean by “outcomes?” Is profit the outcome they refer to, or are they arguing that business has been focused on larger and much more difficult to measure societal outcomes? It isn’t entirely clear.)
Yet just as Bronfman and Solomon are wrong to equate effectiveness and business, those on the other side of the debate, such as former Ford Foundation executive Michael Edwards, are also wrong, in my view, when they seem to diminish the role of sound strategy and planning. Edwards, who has offered an eloquent counter to “philanthrocapitalism,” argues, “Martin Luther King had a dream, not a business plan.” That may be true, but King sure had a strategy – and it was both well-conceived and well-implemented. [Note: I changed a sentence in this paragraph in response to a comment from Michael Edwards suggesting that I had not accurately represented his perspective.]
The point is this: Being strategic and effective are sector-crossing concepts – though what good strategy looks like and how to implement it is of course different in each context.
This seems so simple, so straightforward, so obvious. Yet the equation of “business” and “effective” has become a mantra.
It is now seemingly everywhere. Writing on the Forbes website, Gregg Fairbrothers and Catalina Gorla declare, “Of course we believe that successful nonprofits should think like for-profits and strategically position themselves for growth and scale; however, this mindset comes few and far between.” Similarly drunk on the Kool-Aid of business superiority, Alexis Ohanian writes on the Wired website, “Let’s be real: The nonprofit model is broken. The 20th-century way of guilting people into giving to an opaque, inefficient organization with massive overhead is no longer a viable model. The good news is that a better way of unleashing the charitable spirit in us all is being pioneered by” – you guessed it – him. He cites as evidence of the superiority of his model the fact that his organization, Breadpig, has raised $190,000.
No, I did not forget a zero. He has raised $190,000 and thinks this means he has found the formula to fix the “broken” nonprofit sector. Let’s be real, indeed.
Thankfully, there are some in business who are keeping it real: who seek to carefully study and learn about the nonprofit sector before generalizing about it – like Jim Collins. In a much-quoted line from his Good to Great in the Social Sectors that seems unfortunately not to have been internalized by those either in the nonprofit sector or outside it, he makes the point as well as anyone has: “We must reject the idea — well-intentioned, but dead wrong — that the primary path to greatness in the social sectors is to become ‘more like a business.’”
He observes something I know all too well from my days working as a strategy consultant in the corporate world (and that most of us can relate to simply by recalling our last interaction with an airline or cable company), but that too often goes unacknowledged: “Most businesses — like most of anything else in life — fall somewhere between mediocre and good. … So, then, why would we want to import the practices of mediocrity to the social sector?”
Good question.
Phil Buchanan is President of CEP. You can follow him on Twitter at @pbuchanan_CEP.
Author’s note and acknowledgment: The views expressed here are mine. Healthy debate on these issues occurs within the walls of CEP and in our board room. I am grateful to the many people, including CEP board members and staff, as well as colleagues and friends outside CEP, who gave me feedback on earlier drafts of these posts, much of which I incorporated. Some of what appears in this post, and in the previous several, draws on other pieces I have written for other publications.
Please read on to see the rest of this series:
Part One – Our Starry-Eyed Idealization of Markets
Part Two – The Need for Clear Boundaries
Part Three – Wearing It Proudly: Clarity on Being Nonprofit
Part Five – Companies to the Rescue
Part Six – The Risks Posed by a Sector’s Silence: Toward a Forceful and Positive Articulation of the Nonprofit Sector
hmm, good post Phil, but I don’t think I’ve ever argued that “social change occurs without sound strategy,” only that sound strategy is only one component of social change, along with passion, courage, flexibility and so on – that’s the correct lesson to learn from MLK.
Michael, Thanks for your comment. I have changed the text of my post and added a notation that I have done so. My original characterization of your views was based in part on our exchanges during and after our 2009 conference but it appears I misunderstood and mischaracterized your view. I apologize. Phil
Thanks for another thoughtful post, Phil. I think the emphasis on the discussion is as you touch upon in the final paragraph. More often than not the term ‘business’ is interpreted (or assumed as) ‘good business’. In fact, all business’ effectiveness is based on a set of evaluation criteria for that industry – regardless of whether it is nonprofit or for. Our nonprofit organizations should strive to be better than ‘most businesses’. Effectiveness and GOOD business might be more aligned than just business. Regardless, I think the onus is on the nonprofit sector to not let others co-opt terms like these, rather we need to insert ourselves into the dialogue as often and effectively as possible.
Jeff, Thank you for this: “I think the onus is on the nonprofit sector to not let others co-opt terms like these, rather we need to insert ourselves into the dialogue as often and effectively as possible.” We should be trumpeting examples of effectiveness like the Institute for Healthcare Improvement, Nurse Family Partnerships, the work of the Gill Foundation and its grantees on gay rights, the efforts of the Stuart Foundation and its grantees to improve life outcomes for foster kids, and the list goes on and on. Is the list long enough? Of course not. But we have shining examples of effectiveness among us. Let’s embrace them, champion them, and learn from them.
Phil, this is a really nice piece! I often use business terminology to help our Trustees understand the sophistication and intentionality of strategy and practice employed by our nonprofit partners and the Skillman Foundation. Sometimes the blending/translation of language can help promote business leaders understanding of the hard work and complex context that nonprofits and the social sector face. In most cases the nonprofit sector has to be bi-lingual in its approach with the business sector. However, what is interesting is that we never ask the business sector to be bilingual or to adopt practices from the nonprofit sector. For example, there are some great practices and approaches in the social sector that the business sector ought to adopt like how to do more with less, how to engage people’s passions and skills, etc.
I am always appreciative of a discussion about the business of nonprofits and thank you for this blog that spurs even more discussion. However, I concur with your thought that this discussion often times lead into an assumption that business is effective and nonprofits are not. It allows business leaders to make disturbing comments like “inefficient organization with massive overhead.” I know very few nonprofits with massive overhead and does massive overhead mean having a back office operation? Is this business leader actually advocating that nonprofits should not focus on the analytics and data of finance, strategy and impact? Would he ever advocate that a business not have the appropriate infrastructure to conduct its business? Probably not, and his comments are likely taken with a nod of the head, and never any thoughts about the context of the social sector (such as undercapitalization) or the impact of the organization
(return on investment to society through saved government spending and increased tax base).
thanks for the thoughtful piece.
Tonya,
Thanks so much for weighing in. You identify one of the most destructive mindsets affecting philanthropy — a focus on “efficiency” or low overhead that inhibits effectiveness. I am reading Caroline Fiennes excellent book (“It Ain’t What You Give, It’s the Way You Give It”), and I have not seen a better deconstruction of this mindset than her’s. We need to look at what is achieved – and it is often the case that spending on what gets labeled “overhead” (e.g., staff development, training) is what allows an organization to get better results.
Using administrative cost data as a performance metric absent information on an organization’s effectiveness is utterly foolish. That said, sometimes the focus goes to administrative expense because organizations are not doing what they need to do to gather and share data on their effectiveness. That, of course, needs to change. More on that soon in the form of a new CEP research report on grantees’ attitudes and practices with respect to performance management – and what they are looking for from funders.
Thanks, Tonya.
Very interesting perspective. If nonprofits adopted pure ‘business thinking’, the first thing they would do is shed all of their unprofitable lines and replace them with those that reward shareholders. As you know, nonprofits are in it for the mission–not the money. Many nonprofits share with us that they cannot afford the talent in the business arena and that results in a drag on their ability to produce vital community programs. The Patterson Foundation focuses (through independent facilitators) conversations between nonprofits around ‘business practices’ that will drive their mission.
Pam,
Thanks for your comment. You make the point about the implications of “business thinking” very well. Makes me think of all the talk of “exit strategies” by funders which seems often to deny the reality that most nonprofits will need philanthropic support as long as they are operating. There is no analog to the IPO. Yes, we can point to some examples of government taking programs that were birthed with philanthropic support to adulthood, but this path looks less promising than ever in the current fiscal climate. I think of where my wife worked a number of years ago, in a residential facility for children removed from their homes because of abuse or neglect. As much as we should focus on the “root causes” of abuse and neglect, the sad fact is that the organization where she worked — which was founded as an orphanage in 1799 — will always be needed. And it will always need philanthropic support to supplement the (insufficient) revenue it receives from government actors.
My only quibble would be to suggest that the Patterson Foundation should focus simply on the “practices” that will drive organizations’ mission rather than using the term “business practices” which I think adds to the confusion.
Thanks, again, for commenting,
Phil
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Excellent discussion. I think it’s interesting that there is such heightened pressure for nonprofits to embrace business practices when the private sector, especially but not exclusively financial markets, is experiencing a historic low in transparency, income equality, and even public opinion. While of course there are many techniques and strategies from the business world that benefit the nonprofit sector, it’s important not to lose sight of the fact that we do not serve “customers”. The relationship we have with clients, constituents, members, etc is very different from that of producer-consumer. That distinction is something that many who promote the wide embrace of business practices seem to overlook.
Mary, I completely agree. It’s amazing how people fail to understand or acknowledge the very fundamental differences between nonprofits and businesses. As Caroline Fiennes points out in her excellent new book: “Most companies are basically about a swap. I give you cake: you give me money. … Charities have to deal with both donors and beneficiaries. Put crudely, their job is moving resources from one to the other.” This distinction, as well as the greater difficulty of assessing performance, have huge implications for management and leadership. No one is served by glossing over the differences between running a business and running a nonprofit, and yet it happens all the time. Thanks for commenting. Phil
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