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The Most Important Topic We Never Talk About: Exit Strategies

Friday, May 6th, 2011

Philanthropy is about beginnings – new ideas, new projects, new awards, and new initiatives.  Foundation program staff are attracted to philanthropic jobs because of the opportunity to start projects that will make a difference in people’s lives.  To the extent the public thinks about foundations, it is as grantmakers. 

But for every new grant, program, or initiative, sooner or later there is an exit. Too often, these exits are neglected. 

A session at the upcoming Center for Effective Philanthropy (CEP) conference Better Philanthropy: From Data to Impact (May 10-11, 2011) will tackle the vital topic of exit strategies. I’m excited that CEP is taking on this often overlooked topic in philanthropy.

The neglect occurs despite the fact that foundations know that sound exit strategies are necessary to achieve sustained impact. We know that the absence of thoughtful exit strategies harms grantees, foundations, and the legacy of good work done together. 

In my experience as a grantmaker and a consultant, I’ve seen foundations exit a grantmaking program for a variety of reasons.  Among them: 

  • A foundation board changes priorities
  • New foundation leadership adds new goals and drops others
  • An economic downturn leads to fewer dollars to award
  • An initiative achieves its goals or financial sustainability
  • Grantee performance is unsatisfactory
  • New funders enter an area and existing funders pull back
  • A foundation “spends down” or closes

In other words, there are many explanations for foundation exits, most of which have little to do with the performance of the grantee.  But the diversity of reasons for exits does not explain why exits are often problematic or awkward. 

One source of awkwardness is that too often the funding size and duration (and thus the timing of the exit) is more often determined by funder constraints that do not fit the problem or need the project intends to address. This can result in grantees accepting support that is insufficient to meet the aims of the project. Another potential source is that expectations between funders and grantees are rarely discussed. When the relationship approaches the end, divergent expectations that haven’t been voiced can lead to problems.

The Wednesday, May 11th CEP panel on exit strategies will examine this rarely discussed topic. It will be moderated by Debra Jacobs of the Patterson Foundation and kicked off by remarks from Kevin Walker from the Northwest Area Foundation, Mayur Patel from the John S. and James L. Knight Foundation, and Ann Monroe from the Community Health Foundation of Western & Central New York. The panel will include ample time for discussion among panelists and attendees to share their ideas. 

As I anticipate participating in this session, some of the questions that I hope panelists and attendees will discuss are: 

  • Does it matter why foundations exit a grantmaking area? That is, do the reasons for the exit influence the approach to an exit strategy?
  • When does it make sense to begin a discussion of exit strategies in a foundation?
  • When does it make sense to begin talking about exit strategies with grantees?
  • Have foundations found effective exit strategies in working with their board, their program staff, and their grantees?
  • What hasn’t worked in exit strategies?
  • How can foundations best anticipate various exits and prepare for them in a responsible manner?

I’m looking forward to a lively and interactive discussion at the CEP panel.

Robert Hughes is a consultant and Learning Lens Manager for The Patterson Foundation.

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Posted in Funder/Grantee Relationships, Managing Operations, Programming and Communications | 2 Comments »

Public Expectations: An Obstacle to Foundation Effectiveness?

Tuesday, April 6th, 2010

Most Americans know little about foundations and how they work. Yet even those familiar with philanthropy expect things from it that don’t mesh with reality.

The findings of a report from the Philanthropy Awareness Initiative (PAI) have put a spotlight on the need for foundations to better communicate their work and strategies to address the public’s lack of knowledge.  For example, Jane Wales points out that many foundations will need to change their cultures to be more open about their own operations and decisions if the public is to understand their unique role in society.  Joel Orosz, in a recent CEP post, called the PAI report a wake-up call for foundations to share their accomplishments, failures, and lessons much more aggressively.

Both Wales and Orosz rightly indicate what foundations themselves can do to improve public understanding of their work and accomplishments.  But these steps won’t address another important issue mentioned in the report that has gotten less attention:  the need to change the public’s expectations of what foundations should do, and how difficult that will be.

The report notes that changing the public’s expectations of foundations is especially important when the current expectations are inaccurate.  For example, almost half of the respondents believe that foundations have enough money to fix problems that government cannot afford to.

Some public expectations seem to make sense even though they may be misleading. These will be especially hard to influence.  At the heart of the public’s expectations for foundations is that it views philanthropy in general through the lens of individual giving.  That makes sense.  Individual giving constitutes the vast majority of philanthropy, and it is the form of philanthropy that is closest to the public’s experience.

Individual giving is overwhelmingly about charity, and giving as an expressive act that reflects values, not a desire for specific social change or to accomplish a strategic purpose.  Further, the recipients of the charity are often expected to be organizations that provide needed services and benefits to society.

In this context, it is reasonable for the public to expect foundations to be the organizational equivalent of individual charitable giving.  This view is consistent with the PAI report findings that foundations should respond to the economic crisis, or, one would imagine, the most recent natural disaster.

The challenge in this perspective and its expectations for foundations is that it runs counter to some of the core elements foundations need to be strategically effective.  Choosing a clear goal, developing a strategy to reach that goal, being disciplined in aligning resources to carry out the strategy, and measuring performance are not on the radar screen of this public perspective.

To the extent the public’s primary view of foundation effectiveness continues to be seen as acting in the “charitable banker” role as described in CEP’s strategy research, those expectations will make it more difficult for foundations to act independently and strategically.

The challenge of communicating the potential strategic role of foundations in society arguably goes beyond presenting the stories and being accountable; it requires changes in the fundamental way the public views foundations as philanthropy.

Among other actions, this will take a sustained, effective communications campaign; PAI is a much needed start.

Bob Hughes is an independent consultant on strategy and organizational learning in health and philanthropy.

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Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Posted in Managing Operations | 3 Comments »

Can Foundations Be Learning Organizations?

Tuesday, January 19th, 2010

Nobody dislikes learning, at least in the abstract.  It ranks right up there with apple pie, baseball, and foundation partnerships – almost everyone is in favor of it.  But in reality learning is difficult (come to think of it, so are foundation partnerships).  Organizations, like people, tend to avoid learning when possible.  It is usually easier to go with the way things are than it is to change them.  Think of your recent New Year’s Resolution.  Or the challenges of refining a foundation’s program agenda.

It is somewhat ironic that foundations, given their role as social change generators, face more challenges in changing than other organizations.  They are insulated from market pressures on the one hand and tight public accountability on the other.  In both the way they operate and the program agendas they adopt, foundations, compared to other types of organizations, enjoy greater autonomy.

That independence is the source of both great potential and significant risk.  The risk, in the felicitous phrase of Susan Wolf Ditkoff and Susan Colby in their recent Harvard Business Review article, “Galvanizing Philanthropy,” is not enough “truth tellers.”

Being a learning organization is one possible way to mitigate this risk. A learning organization is committed to improving through structured attention to its performance relative to its environments and its goals.  The key to being a learning organization for foundations is being oriented to the external environment, not to internal structures and processes.

In this respect, foundations are similar to other nonprofits, where “greatness has more to do with how nonprofits work outside the boundaries of their organization than with how they manage their own internal operations” (Heather McLeod Grant and Leslie R. Crutchfield, “Creating High Impact Nonprofits,” Stanford Social Innovation Review, Fall 2007).

An external orientation focuses foundation attention on basic questions like:

  • What are the environments in which we operate?
  • How do we analyze our environment?
  • How do we look at risk?
  • How do we think about our role relative to other actors in the environment?
  • Where do our program ideas come from?
  • How do we expect program activities to be sustained in future environments?

Wrestling with these questions is a critical (and constant) activity to determine what a foundation can and cannot do effectively, and to navigate the task of establishing and nurturing relationships with others.

Although it is important to ultimate effectiveness, being a learning organization is not easy for foundations.  One reason is that, quite simply, they don’t have to.  Because of their relative freedom and unencumbered resources, the external pressures on foundations are significantly weaker than those on businesses or public agencies (foundation “customers” are almost always polite, at least in earshot of foundation staff, regardless of a foundation’s actions).  This means the impetus for change, for embracing learning in a meaningful way, must come from foundation leadership.

In addition, a learning organization entails being receptive to (even encouraging) differing perspectives.  The impetus for  a climate for give and take of ideas must originate inside the foundation and be genuinely acted upon in interactions with external actors; otherwise critical voices outside foundations will not speak up.

So to return to the question we started with – can foundations be learning organizations? – the answer is yes.  But it does not come naturally or easily.

Bob Hughes is an independent consultant on strategy and organizational learning in health and philanthropy.

Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Posted in Assessing Performance, Developing Strategy, Managing Operations | 5 Comments »

What Are the Limits of Quantitative Performance Measurement?

Wednesday, January 13th, 2010

CEP’s Essentials of Foundation Strategy concludes, “Assessment of results against strategies remains a significant challenge for foundations: staff struggle to determine the right data to collect and how to collect it.”

This is an important finding, and explanations are well worth exploring.  The report suggests several possible reasons – technical challenges, inadequate resources and support, and lack of grantee capacity and skill.  I’d like to explore another possibility: The undue attraction to quantitative analysis.

The recipe for foundations is simple and well known:  assess the environment, choose a goal, align resources, implement programs, measure performance, adjust. Repeat as needed until goal is achieved.

Indeed, every foundation’s recipe will have a different mix of ingredients, but maybe we need to think about the limits of quantitative measurement. As much as I value quantitative data to assess results, the proliferation of such work and its unintended consequences suggest we consider (to extend the recipe analogy) if the basic philanthropic ingredients contain a dash too much fascination with numbers.

It might seem impolite to raise this question on CEP’s blog, given that the heading on this new Web site begins with “better data . . .”!  But I know CEP is committed to being a learning organization, which includes fostering a supportive environment for raising different points of view.  So – what better place to ask about the seemingly unending efforts to quantify performance at every level to assess impact than on the Web site of an organization devoted to empirical analysis?

What are the possible downsides of quantitative performance measurement?  One is that doing this work has its own costs, so spending resources on this ingredient has to be done as effectively as possible, and weighed against spending for other ingredients in the philanthropic recipe.  Another is the mistaken belief that quantitative measurement is the only type of measurement.

Even when qualitative measurement is considered, it is often viewed as inferior to quantitative analysis.  Yet the heart of measurement is comparative assessment, and this doesn’t require quantitative analyses.  Think of the meaning of “taking the measure of a person” or “to speak in measured terms.” These phrases denote the sense of measurement as judgment or comparison.

A related risk is the lack of fit between the measure of performance and what is being measured.  What is the nature of philanthropic practice that we want to measure?  Are foundations measuring their own performance (i.e., strategy, selection of goals) or their grantees’ performance (project results, program impact)?  One conception of philanthropy is that it is craft.  How amenable to quantitative measurement is the craft of philanthropic practice?  At what levels?

Thinking about the limits of quantitative performance measurement suggests several things that might help foundations improve assessing their impact.  One is to take into account the costs and benefits to everyone involved when undertaking this work, and what is most important to learn to accomplish strategic goals.

For example, it is probably more valuable to put performance assessment resources to broader levels of performance (e.g., is an overall strategy working?) than to discrete grantee projects.  Focusing on individual projects inhibits an understanding of how projects fit together over time and relate to the environment in which they operate.  In turn, this reinforces a focus on a project’s internal risk – implementation – and away from strategic and design risks.

Note that the failure of implementation puts the spotlight on grantees; failure of strategy and, to some extent, design, puts the spotlight on foundations.  An excellent example of a higher-level, strategic assessment is the qualitative assessment that Patti Patrizi and colleagues did on RWJF’s end-of-life grant-making from 1996-2005.

In preparing for performance assessment, thinking carefully about design, the limitations of the data to be produced, and how the data produced will be used before committing resources may also minimize an overreliance on quantitative assessment.

In undertaking performance assessment, it is useful to think of the kinds of comparisons (quantitative or qualitative) that fit with the goals.  Case studies, like the one CEP published on the Stuart Foundation, are excellent ways of using a comparative framework – in this case to a model of bringing about social change – to assess and learn about performance.

Assessing performance rigorously is a critical ingredient in strategic philanthropy.   Questioning the limits of quantitative performance assessment should not be used as a reason not to do performance assessment – just the opposite. The field needs more resources devoted to this ingredient, but they need to be used as wisely as possible.

The challenge is getting the right mixture of ingredients, including types of measurement, for each foundation.  And as long as we keep in mind that all data are not numeric, CEP’s banner that begins with “better data . . .” is the start of a good recipe for philanthropic chefs.

Bob Hughes is an independent consultant on strategy and organizational learning in health and philanthropy.

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Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Posted in Assessing Performance, Developing Strategy | 4 Comments »

Can Failure Be the Key to Foundation Effectiveness?

Monday, January 11th, 2010

Philanthropic failure – when there is clear evidence that a project, a program, a strategy or any combination of foundation investments designed to achieve a goal doesn’t work –  is beginning to gain a critical mass of attention.  From Annie E. Casey’s New Futures program to more recent examples from Irvine, Hewlett, and Gates, foundations are sharing what they have learned about things that didn’t work.

Scholarly books – by Joel Fleishman, Paul Brest and Hal Harvey, and Peter Frumkin comment on the value of failure.  Indeed, Fleishman devotes an entire chapter to how foundations fail and why it is so important to make sure the public knows about the failures.

Bloggers, notably Sean Stannard-Stockton on Tactical Philanthropy, have been keeping the drumbeat going about the importance of failure to philanthropy.  And my own foundation, Robert Wood Johnson, recently expanded the number of examples by publishing four chapters about numerous failures in its latest Anthology (Full disclosure – I authored one of those chapters and have drawn on that work in this series of CEP posts).

Review of the many RWJF programs that failed in one way or another produced four broad categories of failure:

  • Difficult environment
  • Strategy or design flaws
  • Faulty execution
  • Inability to adapt in a timely fashion

Why is failure valuable?  A principle reason is that it promotes organizational learning.  Foundations can get better at achieving their goals by understanding what happened when they tried and didn’t achieve their goals.  Like “after-action reviews” in the Army, carefully looking at past performance improves future performance.

Another value is that failures produce important learning for the field.  Almost no foundation is alone in its aims; others can take lessons and build on the mistakes.  To do that, reports of failures must go beyond noting that an initiative failed to explain why it failed.

Gates, for example, has laudably commented in several venues about the disappointing results from their investments in small schools.  Further information that explicated the logic for investing in small schools in the first place, and what they have learned from their investments relative to that logic, would go a long way to promoting more refined investments in school improvements – perhaps, under certain circumstances, even in certain types of small schools.

In a broader framework, sharing failures can also build trust for foundations – with grantees, stakeholders, and the public.  A foundation that is honest about things that don’t work establishes a basis for receptivity to honest communications about successes.

Given the benefits of openly sharing failures, it is reasonable to ask why reports of foundation failures have been infrequent.  One possibility is that foundations are ashamed or embarrassed by their failures.

Brest and Harvey in their book Money Well Spent note it may be not that foundations want to hide their failures so much as foundations don’t spend enough on evaluation, so they don’t know if they have failed.  Neglecting to invest in evaluation coupled with a lack of clear goals (mentioned in a previous post) to use as yardsticks for performance in the first place make failure, or success, impossible to judge.  In this view, the paucity of reports of foundation failure arises from the absence of an organized way to know much about performance at all, beyond impressions and examples.

By focusing on failure, a foundation is forced to have the goals and the measurement needed to assess performance, whether it is failure, success, or – much more often the case – something in between that can form the basis of learning.  When failures are able to be detected, there are other reasons they are difficult to publicize.  Failures involve people, institutions, and reputations that may be harmed through full disclosure.  Failures have the risk of jeopardizing future funding.

And failures can puncture deeply held beliefs about what works and why in bringing about social change.  They can generate conflict and disagreement among people with common aims and values.  So failure can be beneficial, but the learning and benefits to be garnered by focusing on failure are not without risks and potential hardships.

Failure is in one sense an indication that the strategic work that many foundations espouse to is very different in character from charity.  The term philanthropy is an umbrella that covers the full range of giving.  Perhaps one way to distinguish the two, and thus be able to judge effectiveness, is to ask if the philanthropic giving could fail.  If it is not possible to fail, it is not possible to judge effectiveness.

Bob Hughes is an independent consultant on strategy and organizational learning in health and philanthropy.

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Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.

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Posted in Assessing Performance | 8 Comments »

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