Insight | May 16, 2016

Beyond Scale: Operational Due Diligence to Support Nonprofit Success

By Vanessa Tribastone , Willis Zhu and Lena Backe

Nonprofit organizations play a valuable role in our society. They fill a critical need, and use of their services continues to grow, as evidenced by the 30 percent increase in nonprofit sector revenues from 2003 to 20131. Censeo has had the privilege of speaking with various nonprofit leaders to understand the challenges they face, and to support them in serving their constituents more effectively.

Time and again, we have heard leaders across nonprofits of various sizes and operational complexity ask, “How can I scale up my organization?” The application of scaling to the nonprofit sector is not new—in 2010, Lucy Bernholz recognized “scale” as one of the major philanthropy buzzwords of the prior decade2—and the discussion around scale has progressed over time. Traditional thinking in the nonprofit space has tended to conflate scaling up with growing in size. More specifically, discussions often focused on how nonprofit leaders can identify revenue sources to fuel growth. The conversation about scale has evolved, though, with more focus on what it means to scale, and exploring the options for achieving scale.

A recent article by the Global Development Incubator3 typifies this shift, arguing that nonprofit leaders should consider six potential “endgames”—meaning, the nonprofit’s intended role in impacting a specific issue or challenge—with traditional scaling up as just one of the options. Other endgame options include developing and promoting a new idea, encouraging broader usage of a specific product or model (e.g., franchising), building a proof of concept to encourage public sector adoption, demonstrating the commercial feasibility of a service to encourage private sector adoption, and focusing completely on a tightly-defined, achievable goal (such as the eradication of a specific disease).

Each of these endgames in turn has different implications in terms of budget needs and organizational priorities. For example, organizations choosing the government adoption endgame will need to invest in developing strong relationships with relevant government stakeholders. Thus, the article recommends defining one’s endgame early, as part of a (implied) strategic planning exercise.

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This more nuanced discussion of the meaning of scale is important to nonprofit leaders who are thinking about how to define organizational success. However, it falls short of providing nonprofit leaders the guidance necessary to lead their organizations beyond the initial exercise of defining success. Based on our experiences working with nonprofit leaders, we see three key due diligence questions that must be answered in practice to successfully move from defining success to actually achieving success:

What is our plan for success?

Strategic planning does not end with defining programmatic goals as described by the various endgame options. It is just as important to define how one intends to meet these goals and what is necessary to successfully do so. For example, if the goal is indeed to grow, how is the organization defining growth? Does the growth ambition entail increasing the number of people served, or the number of communities, or the types of services provided? More broadly speaking, it is also important to identify and clearly define operational objectives, or goals for how the organization will function. For example, what types of and how much talent will the organization need to achieve its goals, and how will its leaders know when the organization has successfully identified and incorporated that talent?

This is often overlooked in the strategic planning process. These objectives focus on internal indicators of organizational performance, rather than programmatic outcomes. They tend to be less visible to staff and external stakeholders. Nevertheless, operational objectives are what connect a nonprofit’s strategic vision to the nuts and bolts of actually achieving it, and so defining these parameters is a crucial first step on the path to achieving organizational success.

Do we have the necessary capabilities to execute our plan?

The successful execution of a strategic plan will require well-developed organizational capabilities. A thorough strategic planning exercise should provide nonprofit leaders with a detailed outline of the specific components of organizational capacity—examples of which include talent, business processes, technology, and data management—most essential to execution. Some of these components may already be in place, while others will need further development. Nonprofit leaders must conduct a complete self-assessment against that outline to identify core strengths and prioritize areas for improvement.

This is especially important given the nonprofit sector’s tendency to prioritize building programs over building organizational capacity.4 We often hear from nonprofit leaders that, with limited financial and human resources, overhead should be minimized relative to programs resulting either in “bootstrapping” or swings in costs. In this environment with little room for error, it is important for nonprofit leaders to assess their organization’s capacity relative to its strategic plan, and to be steadfast in identifying and prioritizing the components that will be necessary to execute its mission and goals.

Are we prepared to sell funders on our plan?

Even the best strategic plans will fail to be implemented without proper funding, and nonprofit leaders must make the case for the funding necessary to their plan for success. Of course, answering our first two questions—how to define success, and which organizational components need the most investment in order to achieve success—will help in developing a case for funding. However, the environment of funding scarcity and uncertainty limits availability to the types of funding needed to sustain these plans. As a result, nonprofit leaders need to be creative and persuasive in how they build a case for funding that relies on the strategic planning and assessment results.

These are difficult questions and exercises that require nonprofit leaders to grapple with hard truths and limitations. However, these questions represent the due diligence needed for nonprofit leaders to move beyond an academic exercise in defining success to a practicable way forward for achieving it. They represent a deeper, more thoughtful commitment than the status quo, a commitment that will pay huge dividends down the road.

1 http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000497-The-Nonprofit-Sector-in-Brief-2015-Public-Charities-Giving-and-Volunteering.pdf
2 http://ssir.org/articles/entry/ten_for_ten_philanthropy_from_2010-2020
3 http://ssir.org/articles/entry/whats_your_endgame
4 http://nccsdataweb.urban.org/kbfiles/311/brief%203.pdf