News & Views

By Michael Hickey, Independent Community Development Consultant - Ask anybody, and I mean anybody, about evaluating the effectiveness of nonprofit service providers and you will be greeted by winces, whines, shrugs, groans, gnashing of teeth, sighs, and the burying of faces in flattened palms. And by anybody I don't just mean any nonprofit service provider - I mean as well our beloved philanthropic leaders and public sector partners. After all, we're talking about an industry that in 2009 paid 9% of all wages, contributed 5.4% of GDP, reported revenues of $1.4 trillion, and held some $2.56 trillion in assets. Why can't we find a way to tell how effective this industry is with our money (both public and private dollars)? How hard can it be?

And yet, after spending 10 years in the philanthropic sector myself, then another 4 years running a major nonprofit, I can tell you that overall evaluation strategies remain fragmented and gap-toothed at best, contradictory and bureaucratic at worst. In spite of our many admonitions that the nonprofit sector should better emulate its much more handsome and accomplished for-profit sibling - by being more entrepreneurial, more data-driven, more outcome-focused, more scalable, more leveraged, more replicable - the nonprofit sector continues to behave as if it were, well, more folksy, more grass-rootsy, more (you know) messy. Don't get me wrong: the past 20 years have seen the emergence of many talented and innovative nonprofit leaders, as well as many highly effective and complex nonprofit service providers that have given for-profit competitors in their niche a real run for the money. But if you were to step back and look at the nonprofit industry in toto and ask yourself the dreaded "but for" question, could you really prove that nonprofit service providers are making a difference - or at least the differences that they claim in their annual newsletters? Shouldn't we have hard facts?

Follow the Money
Here's how capitalism works: the parts of the market that generate more market activity get more market resources. That's the point, right? Those folks who can provide a clever solution to a defined need at a good price are rewarded with venture capitalists, IPOs, and highly compensated executive managers. By comparison, most nonprofit providers seem highly inefficient: they are labor- and cost-intensive, and tangible results (higher literacy, reduced obesity, better job-preparedness) are difficult to observe and measure. This is especially true in terms of return on investment: how do you monetize the value of improved attendance in high school, better self-esteem, less street crime?

And here we come to the crux of the matter: most nonprofits do not reward capitalism. Put another way, the goods and services that nonprofits provide make very little money, or cost more than they generate in tangible profits. We make the mistake, therefore, of attempting to apply market driven measurements and evaluative tools to businesses (and nonprofits are businesses) that operate on the margins of capitalism. Any by the margins I mean the parts of capitalism where resources are scarce, fragmented, episodic, or plainly NOT driven by an expectation of direct financial return.

Nonprofits choose to operate at the margins of capitalism. While this should be an obvious fact, I'm impressed by the number of times it seems to go unobserved. Nonprofits tend to define their very role as working with those most vulnerable, needy, forlorn and forgotten by the market’s drive for revenue growth and capital concentration.

Look, I know I'm sounding pretty old school socialist here. Well, too bad. It's the truth. And what's more, in our collective desire for capital efficiency, and in our general distrust for those who are vulnerable, needy, forlorn and forgotten, we fall into the trap of conflating the scale of the nonprofit industry with any other type of profit-motivated industry. Which it is not.

Why Evaluation Stinks
While there are those who make claims to evaluation models that reduce complex inputs to measurable economic impacts, I've seen deep inside those models and (let me tell you) while they are very creative, they are hardly, well, rocket science. There's great talk about counterfactuals and weighted variables, but when it comes right down to it you're still ultimately stuck with making your best guess. There is some value in this, to be sure, but to claim these ultimately define success through apples-to-apples comparison just ain't so.

And here's why: if we were to round up all the nonprofit service providers who, say, assist the poor in accessing public benefits, we would wind up with a list of groups that are all trying to do one thing, but who accomplish that task in widely different ways. Some would focus on grass-roots strategies to engage their service population, while others would access clients through referrals from public agencies, while still others would "cross-market" these supports to clients being served by other programs it operates. Some would combine several of these strategies, along with three or four others I haven't been clever enough to think of. All of them would have multiple funding streams from public and private sources supporting this work (e.g., government contracts from city, state or federal providers; grants from private foundations and wealthy individuals; fundraising events; revenues thrown off by real estate development or building management for housing organizations). Finally, all of them would be working in different communities with tremendous variety in social support networks, economic challenges, and a myriad of other factors.

In short, they would all look wildly different.

The goal may be the same (e.g., to help an eligible low-income person sign up for food stamps), but the capacities for delivering these supports are radically shaped by the supports received to deliver the services. Get it? By operating on the margins of capitalism, nonprofit providers voluntarily submit themselves to the same (cumbersome, inefficient, fragmented, mercurial) process of seeking resources as the very people they are trying to serve.

Michael Hickey is an independent community development consultant serving nonprofit, foundation, public sector and corporate partners in project development, strategic planning, and organizational change. Learn more at about.me/mhickey.