Effective Capacity Building in Nonprofit Organizations Prepared for Venture Philanthropy Partners by McKinsey & Company
Effective Capaci Capacity ty Bu il ilding ding in N onprof it O rg rganiza anizations tions Copyright 2001 by Venture Philanthropy Partners. All rights reserved.
CONTENTS
Preface
5
Acknowledgements
9
Executive Summary
13
Introduction
19
Parable: From Crisis to Opportunity at Samaritan Inns
21
Why Capacity Building Matters – and Why Nonprofits Ignore It
27
The Capacity Framework
33
Aspirations
r e u t l u C
Human resources
The Seven Elements of Nonprofit Capacity
Strategies
Systems and infrastructure
37
Organ struct
Aspirations: The Nature Conservancy
37
Strategy: Take Stock in Children
41
Organizational Skills: The Vera Institute of Justice and CDF-NY
44
Human Resources: Citizen Schools, Schools, Pow owerful erful Schools, Schools, and Rubicon Rubicon Prog Programs rams
49
Systems and Infrastructure: Systems Rubicon Programs and Carrera Program
54
Organizational Structure: America' s Second Harvest Harvest
59
Culture: City Year and Citizen Schools
63
Key Success Factors and Lessons Learned
69
Conclusion
75
Appendix: Capacity Assessment Grid
77
PREFACE
“W hile much of th e focus focus on ve ventu ntu re philanthro py is on ‘capaci ‘capacity ty building,’ this term has not been defined by either the new venture philanthropists or the nonprofits who represent the potential investment recipients, and may well mean something different to each eac h of th em” says our pu blis blished hed report, 200 1 Ventu re Phila Philannthropy: Th e Changing Changing L andsca andscape pe. Since capacity building is
embraced embrace d a nd practice practiced d b y most p eople involve involved d in ve ventur ntur e philanthropy and many in traditional philanthropy as well, a broader understand ing of the concept concept is warranted. Investing in the people and systems that make products and services better is well established in the for-profit sector. Consider the millions spent on staff and warehouse facilities before Amazon.com everr went o n line. Similarly eve imilarly,, the th ree business leaders who founded Venture Venture Philanth Philanth ropy Part ners with 27 other investors investors
“ Wh While ile much of the focus on venture philanthropy is on ‘capacity building,’ this term has not been defined by either the new venture philanthropists or the non- profits who represent the potential investment recip- ients, and ma may y well well mean something different to each of them” — 2001 Venture Philanthropy: The Changing Landscape
have been involved in substantial capacity building investments in the business business world for years. years. They asked asked why organizations created to eradicate poverty and solve the complex social problems of our soci society ety are often often n ot financed in a wa y that allows them to develop deve lop or maintain th ei eirr infrastructure. Those investors investors created created VPP VP P to speak to tha t disparity. disparity. They deci decided ded to p ool their resources to make some substantial capacity building investments in programs serving children from low-income families and use the know le ledge dge gained gained fro m t hose investments investments to enc encoura oura ge others to do the same. same. Their purpose was not to impo se their personal personal agendas, age ndas, but rath er to br ing funds funds an d expertise to strengthen nonp rofits with d emonstrated suc succe cess ss so so those organizations could do ev even en more to improve the lives lives and op port unities of children. children.
Preface
As VPP began planning its fund, it seemed clear that we needed to better un derstand how to make success successful ful investments investments in organizational capacity capacity.. Sev everal eral found found ations, suppor t organizations and thin k tank s have begun begun to explor e capacity building. As Eli Elizabeth zabeth T. Boris, Boris, director director of the Center on N onpr ofits and Phil Philanth anth rop y at The Urban Institute, noted in th ei eirr recent recent r eport, “ Capacity building for non profit or ganiz ganizations ations is finally finally drawing the at tention it deserves deserves ...ad h oc lessons lessons culled culled fro m personal p ersonal exp erience are givi gi ving ng way to more sys systematic tematic appr oaches oaches.” .” O ur goal is to contribute to this growing body of kn owledge as well well as learn learn from it. We are fortunat e to be working in the Washington, Washington, DC region region where a signifi significant cant am ount of this wor k is und erway erway.. We also realized that agreeing on a definition was not nearly as important as understanding the characteristics of successful capacity building investments. investments. We asked M cK cKinsey insey & Com Compan pan y, one of our strategic advisors, to identify examples of successful capacity building exp experience eriencess at no np nprofits rofits across the count ry ry.. We wanted t o learn from those experience experiencess in order t o refine our own investment inve stment mod el and share tho se insig insights hts with oth ers ers.. The findings of the McKinsey team are not altogether surprising. They confirm what many in the social sector recognized - that capacity capaci ty building building is bot h important an d diffi difficult. cult. This report builds on tha t kn owledge by clarify clarifying ing and br oadening the definition of capacity building. The find findings ings of this repor t represent a collective body of information that we believe will be useful to the social, public and private sectors. In addition to the study, McKinsey developed a capacity assessme asse ssment nt too t ooll for for n onp ro rofits. fits. We belie believe ve th this is to tool ol will help nonp rofit leaders leaders and staff gauge gauge where they are in th ei eirr o rganiz rganizaational lives and identify for themselves their capacity building needs.
Preface
We hope this report will benefit several important communities. For foun dations a nd indiv individual idual investors, investors, we hop e these fi findings ndings will bring greater clarity and understanding of the value of capacity building and its essential role in allowing nonprofits to achieve their miss mission. ion. For organizations organizations that wan t to improve the breadth and depth of their work , this report offe offers rs practical les lessons sons from others as well as tools and guidance on self-evaluation that can help pr prepare epare them to receive receive capacity bu building ilding supp suppor ort. t. We share the expectation with these commun commun itie itiess that together we can help good ideas become great programs that will bring significant social gain an d will w ill impr impr ove the lives lives of man y. Mario M ori orino no Chairm Chair m an of th e Board Board
Gar y F. F. Jona s M anaging Partner Partner
Venture Philanthropy Partners, Inc.
ACKNOWLEDGEMENTS
We would n ot h ave been been able undertake this effort effort witho ut t he involveme involv ement nt of many o rganizations and indiv individuals, iduals, whom we thank for th ei eirr support. The willingness of the organizations profiled in this report to share their capacity building experiences was absolutely critical. Individuals at each organization dedicated time, energy, and tho ughtfulnes ughtfulnesss to t he effort, effort, and we are grateful grateful for th e opp ortu nity to learn learn from them. Al Altho tho ugh we spoke with with many people, peop le, we especiall especially y thank th ank M art ha Pic Pickett kett (Ame (America’ rica’ss Sec Secon ond d Harvest), Winston Burton (Building Opportunities for SelfSufficiency), Dr. Michael Carrera (Children’s Aid Society), Donna Lawrence and Maureen Cogan (Children’s Defense Fund – New York ), Ned Rimer an d Eric Schwar Schwar z (Citizen (Citizen Scho Schools), ols), Michael Brown, Alan Khazei, and John Kalafatas (City Year), Michael Coda and David Willi Williamson amson (The N atur e Conservancy) Conservancy),, Greg Tuke (Powerful Schoo Schools) ls),, Rick Aubr y (Rubicon Progra Programs, ms, Inc.), David Erickson (Samaritan Inns), Don Pemberton (Take Stock in Childr en), Chr is Sto Stone ne (Vera (Vera Institu te of Justice), Justice), and an d Patti Pat ti Skelton Skelton (You (Y outh th Eastside Services). Services). We are also grateful to th ose fund fund ing organizations that helpe helped d us identify identif y and contact no npr ofit organizations in in t heir portfolios, specif spec ific ically ally the Robin H ood Founda tion, N ew Profit, Profit, Inc., Roberts Enterprise Development Fund, Social Venture Partners, and the Edna McConnell Clark Foundation. In addition, we benefite benefited d from the tho ughtful insights insights and feedback fe edback of a numb er of individuals individuals dur ing the development development o f this th is report , including Bill Bill Shor Shor e (Commu nity Wealth Ventur Ventur es) es),, Michael Bailin (Edna McConnell Clark Foundation), Professor Allen All en Grossman Gr ossman (H arvar d Business Business School), School), Dr. Christine Letts (Kenn (Ke nnedy edy Scho School ol o f Government), Go vernment), Lis Lisaa Sullivan (LISTEN (LISTEN,, Inc.),
Acknowledgements
Kelly Ke lly Fitzsi Fitzsimmo mmons ns an d Vanessa Vanessa Kirsch Kirsch (N ew Profit, Inc.), M eli elind ndaa Tuan and Jed Emerson (Roberts Enterprise Development Fund), Carrie Abramson, David Saltzman Saltzman and Li Lisa sa Smith Smith (Robin H ood Foundat ion), Jacqueline Jacqueline N ovogratz (Rockefel (Rockefelle lerr Founda tion), Paul Sho hoemaker emaker and Azania Andr ews (S (Social ocial Ventur Ventur e Partn ers), and Dr. Gregory Dees (S (Stan ford Unive University) rsity) We condu cted this pr project oject in part nership with Ventu Venture re PhilanPhilanthropy Partners (VPP), and we would like to thank VPP’s Mario M orino, Ga ry Jonas and Sandra Gr eg egg g for their valuable valuable contribution s and suppo rt. The McKinse McKinsey y team team members who conducted th e research research and deve developed loped th e capacity capacity framework and findings in th is report were Les Les Silv Silverman erman,, Lynn Lynn Taliento, H einer Bauman n, Da vi vid d Salinas, Salinas, Rebecc Rebeccaa M cCabe, and M ariano Baños. We are especially appreciative of the organizations that send us phot ographs of th ei eirr wor k and the people they serve serve to h el elp p illustrate il lustrate this report .
EXECUTIVE SUMMARY
As nonpro fi fitt o rganizati rganizations ons play increasingl increasingly y importan t r oles in in o ur society socie ty,, it becomes even even more m ore critical for t hem to t o perform p erform effec ef fectivel tively y. In respo response, nse, no nonp nprofit rofit man agers have demonstr ated a growing interest in management practices and principles that will help them b uild high-performing high-performing organizations, rather than just strong programs. Traditional foundat ions and ventu ventu re philanthro pists have also also pro fe fess ssed ed a n ew commitment to inve investing sting in in t he organizational capacity capacity of the nonp rofits that th ey fund. Despite Des pite this new emphasis emphasis on t he importan ce of nonpro fi fitt “capacity building,” the sector lacks a widely shared definition of the term. There is is also also precious little little information ab out w hat work s and wh at do es not in building organizational organizational capacity in in non pr profits. ofits. This is largely due to th e se sector ctor’’s histo historic ric inat inattentio tentio n to capacity capaci ty building, which which h as not been adequately supp supp orted b y funders and ha s been been of seconda seconda ry importan ce to n onp rofit managers trying to deliver programs and services to people who need nee d them. This situation situation is changing, changing, and more funders are dedicating dedic ating attention an d financial financial support t o organizational capacity.. A growin g commu nity of individua ls nat ionally and in capacity the Washington Washington D.C. region region are committed to capaci capacity ty bu il ilding ding and are engaged engaged in an exc exciting iting dialogue dialogue aroun d th e topic. In par tnership with Venture Philanthro py Partn ers (VPP (VPP)) and in collabor coll abor ation w ith several several other ph il ilanth anth rop ic organizations organizations and sector se ctor experts, M cK cKinse insey y & Compa ny launched a p rojec rojectt to contribute to t his dialogue. dialogue. We se sett out to develop develop a d ef efinition inition of nonp rofit organizational “ capaci capacity” ty” as well well as an easy-to-use easy-to-use tool for assessing assessing it. it. We also sought t o captu re valuable lessons lessons from from organizations that have engaged in successful capacity building.
Execut ive Summary Summary
To these ends, we conducted case studies of 13 nonprofit organizations that have engaged in capacity building efforts within the past decade. These grou groups ps span th e spectrum of size size and miss m ission ion from Th e Nat ure Con se servancy rvancy ($780 ($780 mill million ion in revenues, revenues, 3,000 employees) to the school improvement organization Powerful Schoo chools ls ($70 ($700,0 0,000 00 bu dget, 14 staff). staff). In keeping keeping with Ventur Ventur e Philanth Phil anth ropy Part ner’ ner’ss focus, focus, abo ut half of the o rganiz rganizations ations studied were involved in youth services or education. Each Eac h or ganiz ganization ation h ad a ls lso o completed or wa s in the pro ce cess ss of completing a substantial capacity building exercise, and these exercises were driven by a range of capacity builders, from venture philanthro pists to consultants to t he organizations organizations themselv themselves es.. It is important to note that this group of organizations does not represent repres ent a “ top 1 0” li list st of organizations, organizations, nor d oes the report attempt to desc describe ribe the best efforts efforts at capaci capacity ty bu il ilding ding from across the sector. Similarly, the report does not compare or evaluate different funding models or provide a step-by-step recipe for building nonprofit capacity. The report does, however, present a clear framework for defining capacity (see exhibit on page 36) as well as a tool for measuring an organ ization’ ization’ss capacity level level (se (seee Appendix). We belie believe ve that th thee framework and capaci capacity ty assess assessment ment grid will provide nonpr ofit managers with with a p ractic ractical al and useful useful way to und erstand and track their own organization’s capacity, and then develop plans to improve it. The report als also o shares the less lessons ons learned from no npro fi fits ts that have engaged in success successful ful capacity building effor efforts. ts. Finally Finally,, the report captures three general general less lessons ons ab out capaci capacity ty bu il ilding ding that we learned by looking across the 13 case study organizations.
Execut ive Summ ummary ary
The first lesson is that the act of resetting aspirations and strategy is often the first step in dramatically improving an organization’s capacity. The nonprofits in this study that experienced the greatest gains in in capacity were those that underto ok a r eas easse sess ssment ment o f their aspirations – their visi vision on o f what the or ganiz ganization ation w as attempting to acc accomplish omplish in the n ext ph ase of its deve development lopment – an d t heir strategy.. It is impor strategy impor tant to emph asi asize ze that a new aspiration o r strategy can only be transformative if it is then used to align the other ot her aspects aspects of orga organization nization al capa capa city city.. If do done ne thor ou oughly ghly,, this alignment alig nment proces processs provides a tight institutional focus and a ro ad map for the organization to use with both internal and external audiences, audience s, which which h el elp p k ee eep p everyone everyone on track d uring th e long and difficult diffic ult pr proces ocesss of b uilding cap acity acity.. The second second le less sson on is the importan ce of good good management. N onp rofits need need p eople in in senior positions who a re committed to taking th e initiative initiative to m ake capacity capacity building happen a nd are willing to “own” it and drive it down through the organization. Progress in effec effectivel tively y resett resetting ing aspirat ions an d str ategy ategy,, institut ionalizing sound management processes, and improving systems to work at scale requires managerial ability as well as good leadership. Wha t organ izations facing facing th thes esee circ circumsta umsta nces often need is a chief operating officer – a trained professional manager who can ensure that the or ganiz ganization ation functions effi effici ciently ently and effectively. Thee thir Th third d lesson lesson is is tha t you must have patience. Almost everything everything abou t b uildi uilding ng capacity in in n onpr ofits (and (and in for-profit for-profit compan ie ies) s) takes longer longer an d is more complicated complicated th an o ne would expec expect. t. Building cap acity can fee feell like a never never-ending -ending p rocess because improvements improveme nts in o ne area o r p ractic racticee have a way o f placing placing unexpected new demands on ot her areas, which which in tu rn t rigg rigger er new needs. There are few few quick fixes when it comes to building b uilding capacity capaci ty,, and bo th no npr ofit managers and t hose suppo suppo rting them need to acknowledge this up front and set expectations accordingly.
Execut ive Summary Summary
Where do t hese les lessons sons leave us? While the benefits of capacity may be compelling, the actual effort of building capacity can seem daun ting indeed. indeed. It can can be hard for the non profit manager to fund, hard t o launch, and hard to implement. implement. It takes a long time time and the need is not always apparent to staff, volunteers, volunteers, board members,, or do nor s. It is therefore criti members critical cal that in our r oles as nonp rofit funders, board m embers embers,, staff and advis advisors, ors, we supp supp ort nonp rofit man agers in in t heir efforts efforts to build or ganiz ganizational ational capa ci city ty.. For their part , non profit mana ge gers rs need need to take on the diffic difficult ult and often painful task of assessing their own capacity and identifying the gaps that need to be fill filled. ed. The sooner we begin begin to collabor collabor ate on the challenging task of capacity building, the better off nonprofits – and society as a whole – will be.
