Last fall I wrote about “the worst practice” in nonprofit management. Our research project has suggested that an over-engaged board is inversely associated with organizational success, which is rather at odds with a major strand of technical support provided to nonprofits.
On the other end of the spectrum, what’s the best practice?
We studied 43 nonprofits in Oregon, California and Washington from 2015 to 2017, and learned many things. (A summary discussion of findings will be released this year.) Perhaps the most dramatic are a set of findings regarding best practices in organizational strategy:
We found that nonprofits with formal strategies that include specific characteristics were much more successful – in achieving their mission, financial health and growth – than their counterparts who did not have strategies with these elements.
I’ll cut to the chase. Successful organizations in our study generally:
- Specified multi-year programmatic and financial goals
- Allocated resources to generating revenues
- Identified strategic partnerships as a priority
- Defined a clear theory of change and presented evidence of its validity.
That these factors are positively associated with performance was not shocking – more than a few business school textbooks predict this. The surprising parts were (a) how strong these correlations are, (b) the observation that strategy factors show higher correlations than operational factors we studied, and (c) how few nonprofits employ these practices.
Let’s talk about operations for a minute. When you think about it, nearly all of an organization’s work falls in the realm of day-to-day operations. By contrast, formulating strategy is a time-limited, occasional activity, usually consuming a small share of an organization’s time and resources. Our data suggests that if you take two nonprofits with equally strong operations, but different organizational strategies, the one with the well-defined strategy will likely be much more successful. However, the reverse is not true – if you look at two organizations with equally well-defined organizational strategies, one with highly efficient operations and the other with inconsistent operations, they’re both likely to be successful.
That’s counter-intuitive. And just to be clear, I’m not suggesting operations don’t matter, or that inefficient operations are acceptable. In fact, several operational factors we studied show positive correlations with success, and in the hypothetical example above the efficient nonprofit will likely be a better place to work or receive services. I am saying that, based on the evidence, a large share of an organization’s success may emanate from strategy, in and of itself.
So, if well-defined organizational strategy appears to be so closely associated with success, are lots of nonprofits doing this?
Of nonprofits participating in the study only 51% had a theory of change that was clear across different stakeholder groups. Just 12% had strategies that including well-defined programmatic and financial goals. Only 19% allocated at 3% or more of operating expenses to support revenue generation, and 35% engaged two or more types of external stakeholders as part of core strategies. Regarding process, 30% of participants engaged external stakeholders deeply in their strategy development process, another practice associated with success.
Seventy percent of study participants had a documented strategy, but just 40% of these strategies had substantial detail. Few of those nonprofits with vague or general strategies indicated that they were actively using their plans.
This suggests a big gap in the way strategic planning is done in the sector, and a great opportunity for boosting organizational performance.
Sometimes a worst practice is little more than not adopting a best practice. It’s ironic that the over-engaged boards I wrote about recently were generally not engaged in crafting effective organizational strategies – the area where they might have greatest impact. There are sins of commission and sins of omission. Both are prevalent. But there’s good news here: we have tangible evidence that specific changes in organizational behavior and focus can make a difference, and this set of changes is achievable for many organizations.
Here’s what I take away from these findings:
Sometimes the most important work is not the work that takes the most time or effort.
“Where are we going?” and “How are we going to get there?” may be the two most important questions nonprofit leaders can ask.
And the way those questions are answered really matters.
I was deeply impressed by the executive directors of nonprofits participating in our study – so many of them recognize these needs and desire to lead change in their organizations. Several have already made big improvements. Others are well on the way.
The PIMG study and its aftermath show a real openness to change and evolution among nonprofit leaders. This can only benefit their organizations and the people they serve.