This is the traditional time to reflect on trends observedduring the past year. One major trend I have Leap of Reason observed is performance management of nonprofit organizations. Actually, this is an accelerating trend that got its impetus from Peter Drucker decades ago. Nonprofits are becoming more and more focused on what McKinsey & Company calls “managing to outcomes”.  

I know, you thought all organizations managed to outcomes. Not so, particularly in the social sector. Nonprofits have been more like manage-to-what-makes-you-feel-good or manage-to-spend-the-money. It has been less about results and more about the process of doing the work and providing services. Now a shift is occurring towards greater recognition of the importance of measuring outcomes and using that information for learning. That is, learning how to be a more effective organization and how to increase impact of programs and services.

If your organization is involved in philanthropic activity, if you serve on the board of a nonprofit organization (or NGO), or if you work for a nonprofit or a philanthropic foundation, or if you donate to nonprofits, then you should pay special attention to this trend. It will affect what you do and how your money is spent.

This intensified focus on outcomes and learning is a result of a confluence of factors in the growing and increasingly important U.S. nonprofit sector (According to the Foundation Center, “In 2010, nonprofits contributed $804.8 billion to the gross domestic product (GDP); this equates to 5.5 percent of GDP… the nonprofit sector employed 13.7 million people.”). The factors that are contributing to the change include:

  • Increasing demand for services for the poor, the disadvantaged, the elderly, and the marginalized
  • Less public money for social programs (Mario Morino calls this the “Age of Scarcity”.)
  • More people, and a wider spectrum of people, interested in “doing good”
  • Greater demand by social investors for evidence of impact
  • Greater demand from policy-makers for evidence of impact
  • More leaders on nonprofit and foundation boards who want to see results
  • Increasing professionalization of the sector (e.g., MBAs leading large nonprofits)

So the need for services is growing while resources are dwindling and, at the same time, funders and boards of directors want more accountability and more impact from their investment. Because of all of these factors, there is pressure on the sector to develop more efficient and effective organizations. These are organizations that embrace a culture of measurement and performance improvement. Mary Winkler of the Urban Institute emphasized this point when she said:

…organizational culture and a predisposition to measurement and managing toward results is perhaps the single most important ingredient to success. A culture of continuous improvement needs to be evidenced at the top. Equally important, however, is the extent to which the culture of continuous improvement is integrated at every level of the organization. 

That means having leaders who are willing to learn from what they do and apply that learning to improving organizations, as well as their programs and services. This is not an easy transition for many of these leaders who have been accountable for only process and output in the past. They will need the support of funders, staff, constituents, consultants, and the public at large, to make this change.

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