A Business Guru's Helpful Advice

By Phil Buchanan

Working in the nonprofit world, I have developed a little maxim: Beware of those in business who proffer frameworks promising easy answers to complex challenges. Like the first model of a new car, these frameworks often seem better at first glance than they do when the rubber meets the road and the defects become all too apparent.

Even though my own background includes experience in business, I have become wary of many of those who proselytize to nonprofit groups on the basis of their experience in business. That's because, all too often, the proselytizers get it wrong in both style and substance.

The style is often one of condescension. And the substance often fails, in the search for easy analogies, to respect the real differences in the purposes — and workings — of charities and businesses. As their flaws are discovered, the simplistic analogies and frameworks serve, of course, only to alienate those in nonprofit groups, contributing to a kind of war between for-profit experts and nonprofit officials, with both sides speaking past each other, each denied the real benefits of the contributions of the other.

Enter Jim Collins, the renowned author of the business best sellers Built to Last and Good to Great, who has proven that he may be a rare exception to the rule.

Mr. Collins has produced a 31-page monograph that is both humble and startlingly insightful. With the provocative words "Why Business Thinking Is Not the Answer" on the top of the booklet, Mr. Collins's piece, titled Good to Great and the Social Sectors, argues that the crucial distinction is not between nonprofit and for-profit organizations, but between good organizations and great ones.

Further, he recognizes the distinctive attributes of nonprofit groups and offers insightful thinking that reflects the nuances of those realities.

"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 says.

He observes something I know all too well from my days working as a strategy consultant in the corporate world, 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?"

Mr. Collins, who clearly posed some thoughtful questions and has listened well to the many leaders with whom he has spoken, squarely takes on one of the central management challenges of the nonprofit world: the lack of universal, quantifiable performance measures, like profitability or stock appreciation.

"It doesn't really matter whether you can quantify your results," he says. "What matters is that you rigorously assemble evidence — quantitative or qualitative — to track your progress. If the evidence is primarily qualitative, think like a trial lawyer assembling the combined body of evidence. If the evidence is primarily quantitative, then think of yourself as a laboratory scientist assembling and assessing the data."

This practical advice is badly needed. I have seen some large foundations push away practical tools to assess performance because they don't directly answer the question of what impact on society was made by the foundation, but instead serve only as indirect indicators of effectiveness. Never mind that these foundations have no alternative way to assess whether they are making a difference, and frequently make grants that are far too small for any definitive causal connection to be made between grants and impact.

The perfect becomes the paralyzing enemy of the good, and the result is a lack of any performance feedback whatsoever. Yet some foundations and charities have overcome this paralysis and embraced creative approaches to measure performance in ways that disciplined the organization — driving improvement and motivating employees. Mr. Collins points to examples such as the Cleveland Orchestra, which used as one measure the number of standing ovations it received.

Mr. Collins also notes the greater leadership challenges facing nonprofit chief executives, who must more frequently rely on what he calls "legislative" as opposed to "executive" power because of the "complex governance and diffuse power structures common to the social sectors."

"Social-sector organizations increasingly look to business for leadership models and talent," he writes, "yet I suspect we will find more true leadership in the social sectors than the business sector." This is the case, he argues, because "true leadership only exists if people follow when they have the freedom not to."

Mr. Collins describes the particular challenges facing nonprofit organizations in attracting the right people but also notes the advantage these organizations hold, namely that "people crave meaning in their lives."

He also points out the danger in obsessing only about the financial resources of nonprofit organizations. Financial resources tell us nothing about impact; and money is just one of several key resources that can help drive the work that leads to impact.

The monograph has its flaws. He credits the New York Police Department's performance-monitoring system and policing techniques for the significant decline in crime in New York during the 1990s, despite the fact that more recent analyses suggest that this connection may be spurious, and that other factors may be responsible for the drop in crime.

Another weakness in Mr. Collins's monograph is the assumption, made by many business executives, that nonprofit organizations need to find something they can be "best in the world at." But, while this may be right for some organizations, and useful as a way to motivate employees and volunteers, it is not at all clear that this is always the road to achieving progress.

It's easy to think of instances when a foundation's or charity's focus on finding something it can do better than anyone else might get in the way of its ability to focus on how it could most make a difference. If an approach developed by one nonprofit group appears to have achieved a major breakthrough, but that organization has a limited reach, why shouldn't other organizations seek to do exactly the same thing? Or, if a vaccine for AIDS were discovered, and the Bill & Melinda Gates Foundation spent its entire endowment but was only able to vaccinate a portion of the population, why shouldn't other foundations support the vaccine — even if they would not be the "best in the world" at doing so?

Mr. Collins doesn't deal with those questions. But, still, his piece is an excellent beginning, and the message is important both for nonprofit leaders and those in business who might be tempted to foist their frameworks onto nonprofit groups — or new donors and trustees struggling to understand the peculiar challenges of the nonprofit world.

Now, the challenge is to better answer the questions Mr. Collins has raised through the same kind of rigorous research that Mr. Collins conducted on businesses. This will take years, and significant resources, but it will be worth it to ensure that nonprofit leaders have the best chance to maximize the value of the precious charitable resources (financial and other types) with which they are entrusted. Mr. Collins has taken not just a good, but a great, initial step.

Phil Buchanan is executive director of the Center for Effective Philanthropy, a nonprofit organization in Cambridge, Mass., that helps provide foundations with data designed to improve their performance.

Reprinted with the permission of The Chronicle of Philanthropy, http://philanthropy.com.