Chairman’s Corner: March 2012

For Grantees to Take the Leap, Funders Must Step Up

by Mario Morino, Co-founder of VPP

“Just what we need—another funder with a luxury-skybox view looking down on us nonprofits and telling us what we need to do!”

This was one of the many possible criticisms we thought nonprofit leaders might launch through the blogosphere or Twittersphere after we released Leap of Reason last year.

I’m sure there are plenty of things that nonprofit executives didn’t like about the book, but we’ve not seen responses of this type. On the whole, nonprofit executives have seen in the book just what we hoped they would see: our tremendous respect for the hard, unheralded work they do day in and day out, and a clear acknowledgment that we funders do a lousy job of providing the kind of support they need in order to succeed in their missions.

A recent review of the book by the National Council of Nonprofits illustrates that our intentions came through loud and clear:

At times you can almost hear a chorus of nonprofits cheering in the background as Morino urges funders to rethink their allergies to funding overhead and reexamine expectations (or requirements) for grantees surrounding evaluation. Leap of Reason calls on funders to support nonprofits so they can manage smarter with solid information about performance and outcomes.

The National Council of Nonprofits got it exactly right! If nonprofits are to make the “leap of reason,” they simply can’t do it alone. They need funders who are bold and creative enough to think big with them—not just pester them for more information on results.

All Overhead is not Created Equal

Fortunately, we’re not alone in making this case to funders. Tom Tierney and his colleagues at the Bridgespan Group have done an outstanding job of pushing funders to change their traditional attitude toward “overhead.”

Last December, Tierney drew a clear distinction between good overhead and bad overhead in a Wall Street Journal interview. “Hiring quality executives,” he said, “might be an example of good overhead, which the organization needs to deliver results. Donors also need to let go of an arbitrary overhead figure of 10% to 15%, for example, and rather focus on what costs are necessary to get the job done.”

I fully agree. I have such a hard time seeing matters of effectiveness, improved quality, lower cost, and doing good for more people as matters of “overhead!” To lump these core investments in with what most people think of as general and administrative costs just illustrates the huge disconnect in the field in understanding how we can best help nonprofits have greater social impact.

Fortunately, some foundations are way ahead of the curve on these issues of “overhead.” The Edna McConnell Clark Foundation is, in my book, the ultimate exemplar of making long-term investments in nonprofit organizations, their leaders, and their systems for tracking and delivering results. Venture Philanthropy Partners is rooted in a core belief in “investing to help great leaders build stronger, more highly effective organizations to improve the lives of children and youth.” Saint Luke’s Foundation just launched a bold rethink of its approach to grantmaking, based on the knowledge that funding for organizational capacity building, outcomes assessment, and learning is essential for achieving the kind of impact they seek.

To expand the circle of funders who make it a core mission to support institution-building, I believe we need big, bold conversations to happen across the funding community. But there are some things that funders can do right here, right now to help nonprofit and public-sector leaders build and strengthen their organizations.

Getting the Right People on the Bus

First and foremost, we funders can join with nonprofits to build the talent pipeline.

I’m convinced that nonprofits that are working the hardest to deepen their impact have one common constraint more limiting than money: a lack of access to the kind of talent they need to rise to the next level of effectiveness. As management guru Jim Collins has noted, organizations have the best chance of rising from “good to great” by getting the right people on the bus, in the right seats, at the right time. Best practices, good models, and strategic plans are wonderful resources, but they only really work as promised when they are in hands of those with the right perspectives, values, and skills.

My experience throughout my entire career, first in the commercial world and for the past 19 years in the nonprofit world, confirms one thing: You need great people, who care immensely, and who are unrelenting in their quest to keep getting better. And you need to hire up, for it is an opportunity to help develop all of your team and “raise all boats.” Every time my colleagues and I failed to live up to these guiding principles, we paid a price that transferred right on to those we served.

At the end of the day, high performance doesn’t happen without inspired, passionate leaders who are also highly competent managerially and/or have the good sense to build this competency in their teams. They recruit and develop talent that aligns with their organization’s guiding principles and fits well into its culture. They bring a keen judgment that allows them to use the information they collect to stay focused, course correct, and keep on improving. They have high emotional intelligence that allows them to understand the sensitivities and navigate the complex ecosystems in which they are working. They believe in the power of collective leadership, whether at the team, organization, community, or field levels. (It’s easy to pay lip service to collective leadership, but few admit the difficulty and complexity involved in creating effective collaborations).

So please don’t be afraid to bring in new talent aligned with where your organization is headed. Just be sure to consciously recruit beyond your normal networks and sources—something that took me too long to learn. This is critical for finding talented individuals who reflect the diversity of your stakeholder demographics and allow your team to relate directly to those you serve.

I also believe it’s essential to support the learning and development of good leaders on your staff who could become great ones. Do more to test and develop them—not by sending them to seminars or classes but by putting them into new situations that give them the chance to develop their abilities and demonstrate their potential.

How Funders Can Invest in Talent

So funders, I urge you to give nonprofit leaders and their organizations the inspiration and support to go after and cultivate the talent they need. And then dig deep to provide the financial support for them to do so. Here are some simple ideas for you to consider:

1. Help grantees recruit the right talent. Hire or empower a senior staff member to help your grantees raise the bar on the talent they should recruit, to advise them on the recruitment process, and to source great candidates. At some of the top venture capital and growth equity firms, a senior resource is dedicated to helping companies in their investment portfolio recruit key leaders—CEOs, CFOs, board members, heads of sales, chief technology officers, etc. At Venture Philanthropy Partners, COO Eleanor Rutland plays a similar role working with the VPP team to coordinate the sourcing of board and management talent for its investment partners. Through this targeted work, VPP has helped identify more than 100 individuals who joined boards and took senior roles with investment partners. And when needed, VPP has also helped identify appropriate executive search firms and then funded their work with our investment partners.
2. Provide fellowships for nonprofit and public-sector leaders to spend time in other organizations known for their management effectiveness and high performance. This idea comes from a great story that the widely respected philanthropic leader Bill Dietel shared during the Urban Institute’s “Tough Times, Creative Measures” symposium in October:I was a schoolmaster. I ran a girls’ school, a girls’ boarding school. I realized that while I was a pretty good teacher and I handled faculty pretty well, I was an ignoramus when it came to organizing and running an organization. Nothing in my Ph.D. training prepared me for this.Fortunately, I had a trustee who, when I confessed to my problem, called her brother, who was the CEO of the Cummins Diesel Engine Company in Columbus, Indiana, and said, ‘Irwin, we have got to help this young man. His instincts are good, he wants to do right, but he does not know anything about running a school.’ They flew me to Indiana. They gathered people from the Cum¬mins Diesel Engine Company, from the family philanthropies, from the family business office, an investment office.
3. Create immersive week-long learning experiences where nonprofit and public-sector leaders come together for highly focused programs on clarity of focus, theory of change, and managing to outcomes. When I was in the commercial world, I was fortunate to be able to attend seven- and 14-day deep-dive workshops on topics from systems design to operating systems. By allowing me a singular focus for a whole week or more, they had a huge impact on my learning and growth.
4. Establish executive-in-residence fellowships for seasoned executives—business leaders and government administrators who are changing sectors, retiring, or coming out of retirement—to share their talents with nonprofits and municipal agencies. Those with line- operating experience who have done talent development and built organizations can infuse their experience into nonprofit and public-sector organizations and gain a valuable entrée to the social sector in the process. Back in 1987, when I was a CEO struggling to adapt to managing a fast-growing organization, I benefited from the insights of Tom Thomas, a very talented executive-in-residence made available by General Atlantic, LLC (an investor in our firm). I learned so much about myself and management from him.
5. Establish regional talent-development centers. The Michigan Manufacturing Technology Center (MMTC) helps the state’s small- and medium-sized manufacturing businesses compete and grow. It provides help to businesses on quality-management systems, Six Sigma, and other systems and processes that manufacturers need to master on the road to high performance. I see the MMTC as a possible model for a Regional High-Performance Center that would provide pro bono and fee-based services—in the form of advice, reviews, etc.—to nonprofit and public-sector leaders. This center would help them assess and strengthen the evidence base underlying their strategies; the rigor and fidelity of their theories of change; their intended outcomes and methods of evaluation; their performance-management systems; and other aspects of building high-performance organizations.
6. Encourage and support the development of common outcomes frameworks. Identify leaders focused on delivering a comprehensive set of related services, and then encourage and support an effort for them to agree on a common set of outcomes. Support those willing to work collaboratively to achieve those shared outcomes and to learn from the process and each other. VPP’s youthConnect initiative, supported by the Social Innovation Fund, is doing this today. Early reports indicate that the collaboration is creating opportunities for the organizations to achieve results collectively that would not be possible for any single organization to achieve on its own.

A number of the above ideas are relatively low cost, while some may take some investment to get underway. Regardless, they only scratch the surface of what is possible for those who embrace the need for building the talent pipeline.

How Funders Can Support Managing to Outcomes

In addition to supporting talent development, funders should also consider investing directly in helping their grantees progress up the performance ladder.

As readers of Leap of Reason learned, I’m a worrier. Since the book launched, one of my greatest worries is that our messages would cause unintended negative consequences. For instance, I feared that the book might motivate organizations that hadn’t previously thought about program quality and effectiveness to implement performance-management systems before taking a hard look at their programs. In other words, organizations might start worrying about measuring what they do before examining whether they are doing the right things in the first place. I witnessed that disaster in the making far too many times in my corporate life!

Similarly, would the book cause a surge in “capacity-building grants” by foundations with program officers well versed in their domain expertise (e.g., early childhood development) but lacking the requisite managerial skills and experience to support real organizational development? Would funders provide $5,000 to $10,000 grants that are far too small to be helpful in building a high-performance organization? And, at the opposite end of the financial spectrum, would they respond by providing larger grants, say $100,000 to $250,000, to organizations to implement a performance-management system without first having ensured the essential mission focus, program quality, managerial talent, and information-handling understanding were in place?

I don’t know if any of those unintended consequences have come to pass. But here’s an idea for reducing the likelihood that that they do. I suggest funders establish a grantmaking framework that would help grantees take steps toward a high-performance culture in a structured, modular way. I am basing the concept on an approach to planning and management I took over several years, in a slightly less formal way, with an organization in my hometown of Cleveland.

The grantmaking approach would involve funders and grantees coming together to define a sequential series of organizational-development activities, with each activity having a clear, singular purpose and explicit criteria for successful completion. The criteria would provide guidance for the grantee’s efforts and the basis for the funder to judge if the activity has been successfully completed.

To make the activities more concrete, here’s an illustration. The first activity could be to fund the grantee to undertake a leadership assessment. This assessment, which could be as brief as several days or as long as several weeks, would focus on determining if key leaders within the organization and on the board have bought into moving to a high-performance culture and the use of outcomes assessment and performance reporting. Among other things, it would look for clear evidence of the leaders’ predisposition to collect and use information to inform decision making.

If the assessment indicates that the organization has the leadership conviction and buy-in to go forward, the funder would encourage and support the grantee to proceed to the next activity. If the assessment shows that the organization is not ready, the funder would provide candid, constructive feedback on what is missing. If the grantee wants to stay in the process, the leadership would need to determine whether they had the heart, head, and stomach for making hard, necessary adjustments.

Below is a framework of activities that are organized around creating the organizational foundation for high performance and then building on that foundation to implement a performance-management system. The list of activities is certainly not exhaustive, and funders and their grantees should refine and improve them as they see fit.

Building a Foundation for High Performance

• Assess the leadership’s readiness.
• Clarify the organization’s mission, goals, and guiding principles.
• Define and staff the requisite roles (e.g., director, quality assurance; manager, performance management; coordinator, data analysis and evaluation; etc.). The funder can play a pivotal role by paying for recruitment and salary expenses for at least the first year, if not two.
• Describe programs and intended outcomes and validate them by way of a rigorous examination of the organization’s theory of change.
• Using the theory-of-change insights from the previous activity, integrate, prune, improve, and/or correct programs to increase their impact.

Implementing a Performance-Management System

• Recast intended outcomes and define the metrics by which to determine whether one is on track to achieve these outcomes.
• Identify relevant sources of data for the metrics, and scope the data collection, storage, and reporting needs.
• Review the performance-management and outcomes-reporting products offered by different vendors and determine whether to make or buy one.
• Implement vendor product or develop in-house system to handle data collection and basic reporting.
• Drive staff adoption of the system by providing staff training.
• Develop formal performance dashboards for key management/staff.
• Assess the organization’s integration of the performance-management system and how it has fueled learning and improvement.

This list of activities is applicable to large and small organizations; it’s just a matter of degree. It’s equally important to note that metrics (i.e., numbers) don’t enter the picture until about halfway through the process and that these steps are focused on helping the nonprofit define what it needs to create high performance—not what they need to satisfy compliance mandates from funders.

To further clarify the concept, here are some suggestions for how funders could administer this process:

• Focus this effort on only a few of your current grantees that are best suited to absorb this type of organizational-development process and that are poised to produce greater social impact. I could see a funder doing it with its most promising grantee as a pilot undertaking.
• To lead this effort, line up an individual with managerial, organization-building, and performance-management experience. It could be someone on your existing team, a senior fellow, a consultant, or some hybrid of these.
• Give the initiative’s leader the time to flesh out the grantmaking framework.
• Make it clear that the leader is not only there to administer the grants, but also to provide advice to help the grantee organization successfully complete the activities.
• Bring together a small advisory group of leaders with deep experience in management, outcomes, and performance-management systems to assess whether the phased activities have been completed and to provide constructive feedback.

The Iron is Hot

We’d love to hear from public and private funders about the suggestions above.

Are there steps you are taking right here, right now to help build and nurture high-performance, mission-driven nonprofit and public-sector institutions?

Does the grantmaking framework above have appeal for you? Might you want to apply a version of it?

What might help shift funders’ mindset so that they see talent development and other core support for nonprofit leaders as a critical strategy for anyone who truly wants to help solve—rather than just salve—big social challenges?

The proverb “strike while the iron’s hot” fits our current moment. The iron is red hot, as a result of our nation’s frightening budget realities colliding with enormous social and demographic changes. Many nonprofit and municipal leaders are feeling the heat—and therefore feeling highly motivated to forge a different future for their organizations. It’s time for funders to step up to tap the potential of, encourage, and support the leaders who have the courage to be relentless in pursuit of high performance for greater social impact.