It’s become trendy to talk about “scaling up” in the nonprofit world. Though I like the idea—after all, social change doesn’t really happen unless good ideas and methods go mainstream—I also get a little suspicious about trends, in general.  

Most nonprofits address big issues on a small scale. Multiple organizations can co-exist in the same space, addressing the same needs with similar activities. Common sense suggests this is inefficient, and possibly ineffective. But is this true?

The answer is a resounding “it depends.” Public Interest Management Group conducted a study of success factors for nonprofits, released earlier this year. (See the report here.) The underlying data suggest that larger organizations are generally more successful than smaller ones.

Why is that? We need more data to better ascertain the reasons behind the differential, but one plausible theory is that larger organizations can put in place more robust systems to deliver effective services. Another is that larger operations can specialize job functions more—specialization is widely considered to be one of the drivers of productivity gains in the U.S. economy over the past 60+ years. A third theory is that larger entities can reap economies of scale that elude smaller ones.  

The evidence suggests the first two theories—robust systems and specialized job functions—have legs. Factors such as data utilization, operational efficiency and job specification show high correlations to both organizational size and success.

I recently heard similar sentiments from an executive of a national nonprofit network in a discussion on the topic of scale and effectiveness. Informed by decades of observational data, they've found that a smaller number of relatively larger organizations tends to produce greater collective results than the inverse. In this manager’s opinion, it's a function of systems and specialization in technical skill sets. While appreciating the diversity in the sizes and shapes nonprofits can take, there are some clear trends cutting across many different fields of work.

So, scaling up nonprofits often brings benefits to the public, and we have viable hypotheses we can test to better understand how. But meantime, we should not take this generalization too far. Bigger is not always better.

For one thing, economies of scale can result from growth, but may not—and in fact the exact opposite can occur. One lesson I took from several experiences growing organizations over 5-10 year periods is that economies of scale take hold when careful attention is paid to the economies part of that equation; it’s easy to go off the rails, and when that happens the larger entity can look and feel bloated relative to its lean ancestor(s). Conversely, I’ve seen organizations improve cost-efficiency when downsizing. It all depends where you start and how you get to the destination. Intentionality and discipline are everything when it comes to cost-efficiency.

A second important point is that the study shows multiple examples of effective smaller nonprofits. They lack some of the advantages of the really big players, but nonetheless scored better than multiple larger organizations. These organizations share several characteristics: laser-like focus in service delivery (i.e., doing one thing, and doing it well), emphasis on measurable outcomes, and ample attention to cost containment. Very often these agencies are the only provider of a particular service in their geographic area.

If containing expenses was a skill competition, small nonprofits can trounce just about anyone else in the business, public or social sectors. It’s a good thing, too, because many niche nonprofits and rural community organizations deliver huge returns. They often exploit their size to be nimble, resourceful and responsive.

It’s also worth mentioning that many small nonprofits are adept at partnership. Linking efforts with other community-based organizations constitutes a separate path to solving problems. Nonprofits can benefit from more structured, more intentional approaches to partnership, and the effectiveness of this approach has plenty of supporting evidence. However, as is always true in “it depends” stories, there are cases where partnership isn’t the best approach, for example because of incompatibility of methods or organizational cultures.

E.F. Schumacher wrote a great book called Small is Beautiful, emphasizing the importance of incremental changes and local action at a human scale. Let’s not forget that. Bigger may sometimes be better, but we have a lot to learn from and appreciate in smaller nonprofits. One size doesn’t fit all.

 

Posted
AuthorScott Schaffer