Grant Craft: The Case for Implementation Support

on June 18, 2013
in Blog

Philanthropic practice seems to have evolved a bifurcated focus at the beginning (grant approval) and the end (outcome metrics) of a grant. My question is what about the middle, or grant implementation, where philanthropic support is most likely to help a grant succeed? Is philanthropic intervention during the implementation process just meddling, or an opening to providing more useful support because of increased requirements now imposed at the front and back end of a grant?

Donor focus at the beginning of a grant, on its approval and processing, has evolved over the decades and increased in sophistication along with institutional philanthropy. New financial rules to foster transparency account for some of the additional complications. However, many philanthropic institutions don’t simply fund a grantee’s program anymore. Instead, they create a set of gate keeping parameters which amount to developing their own program criteria grantees must satisfy to be eligible for funding. This is somewhat ironic when the grantor typically only resources the effort, while the grantees are responsible for actually satisfying demand. The latter is assumed to be in a better position to understand what is required on the ground. Nevertheless with over 1.5 million charitable organizations competing for resources in the US alone, its understandable why philanthropies have evolved their giving over the decades into developing sophisticated gate keeping criteria in order not to be overwhelmed. This is not something that will change any time soon even if it’s real effect is creating two different demands that are often not completely aligned — Donor funding criteria and the local demand a nonprofit must satisfy.

The increased focus at the end of the grant and outcome metrics is a relatively new trend over the last decade and a half. It is a result of new donors with technology and venture capital backgrounds infusing their ethos into the field of philanthropy in addition to the general societal trend over the last three decades to commoditize most things from education to health. Of course there were grant evaluations in decades past and every so often a “measurement movement”. However grant evaluations were often pretty loose and often thought of as self-serving, confirming the foundations reasoning for providing a grant in the first place. Technology and the Internet have contributed to our evolution into a networked, “dashboard-friendly” society seeking easy measurements to help us quantify success — quickly. So I think this movement in philanthropy is here to stay as well. The problem of course is that in business, we base outcome metrics on the immediate straightforward business transaction, like buying a house or a car. In philanthropy however, the actual transaction is often secondary to the long term societal benefits being sought, and they often occur long after a grant expires. For example, providing housing for the homeless in order to enable someone to have an address and to find a job; bring up a stable family in a safe environment; have children connected to a school district; etc… The result is that these short term outcome based evaluations serve some purpose in better measuring the success of the immediate philanthropic transactions during the life of the grant (e.g. a homeless person receives a home), but are often no better than the earlier evaluations in measuring long term successes that might happen years later and that the grantor is often not around to evaluate. The majority of grants given have 1-3 year life spans.

Somewhere between the traditional foundation evaluation and these new outcome-based approaches is a happy medium, but we have not found it yet. Part of the reason I think is the failure of many philanthropic institutions to get involved in the grant implementation process. One of the ironies of metric or outcome-based grant making is that it does not provide what its private sector equivalent often does, intervention during execution. Venture capitalists don’t just number crunch and measure the projects they invest in. They incubate them, provide them advice as well as resources, help them network, etc. to assist them in their success during implementation, especially in their early stages. Many foundation grants are also involved in supporting innovative pilot solutions where this help is needed, and drawing upon a foundation’s network of other more mature grantees and its expertise would be useful.

Unfortunately, the traditional approach and ethos in philanthropy has been “hands off” during the implementation process, because donor etiquette suggests that doing so is overly interfering in a grantees work. The result is a rather odd situation of the grantee having to modify its program to satisfy initial philanthropic criteria to get the grant. Once the grant is received, the grantee is often in the position of additionally satisfying donor outcome metrics with limited administrative resources because the grant often caps administrative capacity needed to do a good job at it. The net result is a different kind of interference that materially impacts a grantee’s work. So why not additionally support the grantee with advice, networking, etc. during the implementation process when a donor can actually make a difference in helping a grant stay on track while satisfying all the extra requirements it imposes on its grantees.

I fully appreciate many grantees also look at philanthropic intervention during the implementation process as an intrusion – and it is understandable in the current philanthropic environment. After all, most grantors and grantees understand that the sausage making that goes into translating a donor’s grant criteria into the actual program needs followed by the additional sausage making to translate what�s really happened on the ground into satisfying donor metric requirements is often a process that neither wishes to evaluate too closely. In the traditional relationship between program officer and grantee both parties understand the realities of what must be done to overcome underfunded capacity and criteria that doesn’t necessarily match need. However, this is precisely why intervention during implementation is so important, because often the grantee’s job is made more difficult at the outset trying to satisfy both the donor’s criteria and real demand.

To intervene in the implementation process requires a different relationship between grantor and grantee. One of trust and equality were the donor understands its role as resourcer and its dependence on the grantee as implementer, in the same way the grantee understands the donor’s important role as resourcer. If both the resourcer and implementer work in concert during the implementation process there is a far better chance of a successful grant not only in meeting its early transactional outcomes but its longer term goals as well. After all, how many venture investors pour money into projects based on specific funding requirements they have defined only to disappear — and then reemerge at the end asking if their outcome metrics have been satisfied?

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How to Incentivize Measuring Outcome and Supporting Nonprofit Capacity at the Same Time

on October 14, 2012
in Blog

I’ve been pondering a solution to the problem of incentivizing two behaviors in the nonprofit-donor relationship that each want from the other. Donors need program outcome measurements from nonprofits and nonprofits need capacity support from donors. Unfortunately, current sector dynamics don’t incentivize these behaviors and often do the opposite of de-incentivizing them. The real trick is to find a solution that works within the current system of donor-nonprofit support that is easy to implement and not too disruptive. Otherwise, it could not easily be adopted by the approximately 120,000 donors and the 1.5 million charitable organizations in the US alone.

The Problem

Related to the capacity issue, most donors prefer funding program objectives and have clear limitations as to how much nonprofit overhead capacity they will fund, often in the form of percentage ceilings in their grants. In our current system it�s also not in the donor�s interest to support a nonprofit�s organizational capacity over the many years it may need to develop when that nonprofit may only be a grantee for a couple of years. Thousands of new nonprofits literally sprout up each year to meet similar challenges and as a donor�s program criteria changes so do the nonprofits it supports to facilitate its objectives.

Related to the measurement issue, as the number of donors who�ve made their money from metrics-based endeavors like finance and technology has increased, nonprofits have come under increasing pressure to demonstrate measured outcomes and value for the investment made in them. Nonprofits have also been encouraged to manage themselves more like businesses. This is somewhat ironic because unlike businesses that can invest product and service revenue back into their own operations to grow and in turn better measure their progress, nonprofit mission support and back office operational investment are not so well aligned. That�s because nonprofit donors are first and foremost interested in the nonprofit�s ability to meet their funding criteria, not necessarily supporting the operational capacity that nonprofits rely on them for as well. It�s no wonder then, that many nonprofits see this focus on objective metrics as a donor-driven exercise and an increased and underfunded mandate on them. After all, the ability to measure impact is also related to an organization�s internal capacity to do so. If it relies on multiple donors for support a nonprofit potentially has the added burden of tracking and analyzing multiple and disparate measures based on individual donor need.

The Simple Solution

What if the standard grant was modified so that extra support (above and beyond the agreed upon program and operating budget) came at the end of a grant as long as a nonprofit produced credible outcome metrics that it had agreed upon with the donor? The metrics would not have to be positive in terms of program outcome, just honest, to receive the support. And this extra support would be for a nonprofit�s general operating expenses.

The donor could still decide to limit the extra support to a percentage of the grant. However, if all the donors a nonprofit relied upon provided this bonus support in return for these objective metrics, any percentage limitation would be less of a problem in aggregate. Overall the nonprofit�s capacity support might double if it received its standard operating support in a grant and produced credible metrics to meet the bonus funding requirements of each of its donors as well. This would incentivize the nonprofit to internalize metric reporting in order to increase its capacity support while also providing an incentive for the donor to increase capacity support in order to get the metrics it required � a win-win situation.

The nonprofit with increased capacity support would also be in a better position organizationally to provide these metrics — and much more. Another result of this �bonus� capacity funding support in return for broader nonprofit metric reporting might be a natural reduction in the overall funding pool available because of the extra funds provided. However with about 45K new nonprofits coming online each year and competing for limited resources in an already crowded field of 1.5 million would that be such a bad thing? Fewer nonprofits with the ability to provide accurate metrics would be more highly rewarded with an increase in their capacity support, while those nonprofits that could not provide such measurements would see their support diminish.

The result would be more objective reporting from healthier nonprofit institutions, more satisfied donors and potentially fewer nonprofits that were unable to report on their outcomes. And all this could be accomplished within the framework of current institutional giving practices by better aligning the incentives without significantly modifying the grant giving workflow process.

Jonathan Peizer is the Principal of Internaut Consulting supporting foundations, nonprofits, governments and socially responsible private sector initiatives. He is the former CIO/CTO and Director of the Open Society Institute’s Global Internet Program.

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New Online Nonprofit Capacity Resource: Now Available

on November 15, 2006
in Blog

Capaciteria is a FREE service designed to help nonprofits find the best resources to build their institutional capacity. Nonprofit capacity support is a critical issue, and like all mission-based issues nonprofits deal with, resolving the problem has two major components. One involves tangible resourcing. The other involves useful information to help nonprofits make better decisions just as they assist their own constituencies. Capaciteria addresses the information component of the nonprofit capacity support issue by providing useful resources.

Significant effort has been made in collecting the resources that are often most desirable and sought after: nonprofit jobs, donation and in-kind resources, philanthropy resources, advocacy resources, and volunteer resources in addition to the categories like financial management and accounting, evaluation, telecommunications, human resources and a variety of other categories of resources that were added.

You can find this resource here

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Nonprofit Capacity and Sustainability : Old Problems, New Solutions

on September 11, 2006
in Blog

Despite many in the philanthropic sector promoting the need for nonprofits to function more professionally in terms of organization, management and accountability, few address the capacity issue strategically and in ways that help nonprofits upgrade their skills in these areas. The private sector appreciates that investing in organizational infrastructure and administrative expertise is fundamental to achieving bottom line objectives. A clear cycle of benefit exists as well. Organizational efficiencies are created, which reduce expenses and assist in generating more profit a percentage of which are recycled into further capacity investment and productivity gains. Unfortunately, this clear association of benefit to investment does not translate well in the co-dependent grantor-grantee relationship.

A philanthropy investing in its own organizational capacity will not necessarily affect grant outcomes of its nonprofit implementing partners. On the other hand, investing in the long term capacity of its nonprofit partners may not be in keeping with philanthropy’s mission objectives either when the mission focus is tackling various issue area needs it defines with short term (1-5 year) interventions working with multiple nonprofit partners. Completely separate from the philanthropic mission objective, the nonprofit implementer is focused on its constituent’s need and sustaining its operations with missions typically far broader than the narrow parameters of any individual donor grant.

In no area of the grantor-grantee relationship are the objectives more divergent, and the needs more urgent. How can a nonprofit ever hope to achieve its mission objectives effectively and efficiently without proper institutional investment What’s more, chronic underinvestment in nonprofit organizational capacity directly affects outcomes and insures that a certain percentage of philanthropic investment is wasted on inefficiency. Yet, the sheer number of nonprofits vying for support and the tens of thousands of new ones created each year all but insures this situation will not improve using traditional philanthropic approaches.

Why chronic underinvestment is is nonprofit capacity allowed to continue when it’s clear to all that it is required and that impedes operational efficiency?

The short answer is that the institutional dynamics of philanthropy are already geared to throwing money at problems to fix them rather than exercising more traditional and methodical organizational management approaches to avoid them. External factors and responsibility to constituents, and stakeholders that pressure other sectors to adhere to more orthodox and methodical approaches to organizational management don’t apply in the same way to philanthropies. They are not responsible to their grantee constituents in the same way the private sector answers to their stockholders and nonprofits to is stakeholders. A company that does poor customer service sees a bottom line impact. A foundation that doesn’t answers its proposers and grantee requests suffers very few consequences. The result is less pressure to employ orthodox operating principles to avoid problems both internally and externally, and both an institutional culture and more resources available to fix problems after they occur.

Underinvestment in nonprofit capacity is therefore allowed to continue because foundations can afford the inefficiency. It’s still cheaper to have 20%-25% of a grant invested in a nonprofit implementing partner lost to inefficiency than it is to support its capacity investment requirements over a five to ten year period. Such an investment does not typically meet the philanthropy’s short term issue area objectives, and if opens it up to the same type of support requests from its multiple nonprofit implementing partners.
The other important point to consider is that chronic underinvestment in capacity often impacts nonprofit efficiency far more than is does efficacy. Many nonprofits are quite effective at meeting mission objectives for themselves and their philanthropic partners while operating inefficiently. Why? Nonprofit dynamics explain this dichotomy. They are often staffed with dedicated, mission-oriented folks that will work by candlelight with pencil and paper if no electricity and a computer exist to get the same job done. In the absence of capital businesses go bankrupt, but nonprofits often linger on with the most tenuous of resources because of the sheer will of individuals to continue the mission. Nonprofits are not based on the premise of generating financial resources to survive, and as a result, lack of them doesn’t necessarily stop them from operating. it just stops them from operating efficiently. Thus philanthropies can still report “mission complete” in the annual report working with their less than efficient, under-resourced nonprofit partners who may still be effective at their work. If efficacy was affected by said under-resourcing in the same way efficiency is, chronic nonprofit capacity issues would have been addressed long ago. Ironically however, like the chronically drunken employee who can still operate effectively enough to keep his job, the ability of capacity-poor nonprofits to still produce results while covering up their operating inefficiencies allows the problem to continue without having to address it strategically sector-wide.

This problem is even further exacerbated by the drive for nonprofits to demonstrate how low their overhead expenditures are as a percentage of program execution. The irony is that nonprofits are never invested in at the outset to the degree they need to hire expertise and implement the organizational management techniques and methodologies that would make them more efficient. Rather, operating in their inefficient forms they are asked to reduce their administrative costs as a percentage of program execution even further to demonstrate their efficiency!

To be fair, there are nonprofits that manage themselves well and take great care in developing appropriate infrastructure. There are also grant-makers that focus on supporting individual organizational capacity. However, this doesn’t change the fact that the institutional funding paradigm on the macro-level is not designed to efficiently handle capacity support to the vast majority of NGOs that need it. Capacity Support must somehow be delivered in the same way it is set up to effectively to support program activities.

The Revenue Solution

The private sector avoids chronic capacity underfunding by generating revenue to invest in its own capacity and grow its business. Nonprofits can do the same, within limits. Specifically, revenue generation is limited to generating related income to support nontaxable activities if a nonprofit wishes to legally maintain its nonprofit designation. This is a problem to a lesser or greater extent depending on the nonprofit and the issue area it is addressing. A nonprofit involved in health and education for example, has many opportunities, and a rich tradition of examples to draw upon to develop fee-based goods and services that fit its mission. Constituents are also used to paying for these services delivered by nonprofit hospitals, clinics, student exchanges, etc.. On the other hand, a human rights organization with a mission to disseminate information as broadly as possible might have a more difficult time monetizing its information if selling it undermined its mission by creating a roadblock of cost.

The human rights organization example touches upon an important philosophical point that some nonprofits use as an excuse to limit their opportunities for generating income. Just because some revenue-generating opportunities potentially compromise mission, doesn’t mean all do. Opportunities must be explored in the new reality that we live in. Depending on donations to cover 100% of operations may have worked historically. However, it’s getting more difficult in this new economy with so many more institutions competing for funder dollars, and greater pressure for nonprofits to show they operate both effectively and efficiently. I advise nonprofits to develop revenue solutions that cover as much of their overhead costs as possible so they can begin investing in themselves. Overhead is what individual and institutional donors alike typically don’t like to fund. Programmatic support is far easier to get, especially if a nonprofit can show it is viable even without the donor’s support over the long term – another benefit of self-generated revenue.

The current philanthropic-nonprofit grant relationship with nonprofits often needing to meet donor grant criteria to receive funding already operates like a subcontracting relationship in many cases. Nonprofits should analyze if some of the expertise they offer to philanthropies to implement programs might well be better packaged as legitimately sub-contracted services for a fee.

New Models of External Capacity Support

Aside from nonprofits generating their own revenue to invest in themselves, the way in which nonprofit capacity support should be delivered and underwritten by donors must be fundamentally altered to make it more efficient. Defining the capacity support issue as a sector-wide problem, a few bold institutions and donors have addressed it using technology and other tools to meet the capacity needs of client nonprofits. Rather than supporting internal capacity of individual nonprofits, a model of external capacity support around aggregated demand has evolved. Nonprofits are buying into a high-quality capacity support service delivered at a reduced cost by other nonprofits.

The emergence in the last decade of Technology Capacity Support Organizations (TCSOs) has benefitted the sector and helped it better make use of technology and tools. These support NGOs are dedicated to providing a variety of ICT assistance specializations, from technical support to training to application development, hosting and sales of discounted software. NPower, TechSoup and Aspiration all fall into this category of NGO support organizations. These entities generally operate on sustainability paradigms that are a combination of revenue generation and donor subsidy. Overheads are kept low and deals are struck with for profit technology vendors so ICT services and products cost less to nonprofit recipients.

Support intermediaries for nonprofits are not limited to the technology discipline. Management Capacity Support Organizations (MCSOs) in fact predate them and have evolved to provide organizational, fiscal, evaluative and other necessary management and administrative support services to nonprofits. Innovation Network, Alliance for Non-Profit Governance, Bridgespan and Compasspoint fall into this category. NTAPs are therefore not simply a product the Internet revolution but rather an evolutionary trend that recognizes the traditional capacity support funding paradigm, technical or otherwise, is simply less effective than it used to be.

A third set of intermediary Advocacy Capacity Support Organizations (ACSOs) has evolved more recently. Organizations such as Media Rights, Greenmedia Toolshed and the Media Action Center all provide nonprofits with advocacy and promotional expertise to better craft and distribute their messages. These activities are often part of a mission driven program to affect a particular social ill so they suffer less from lack of administrative overhead support. Rather, lack of expertise in this area is often the result of nonprofits general cognitive dissonance to promoting and marketing their activities. In a sector where the currency of choice is the trusted source relationship, nonprofits rely on their work and not what they advertise about it to enhance their standing with peer organizations and grant-makers. As a result, promotional and advocacy skills are often underdeveloped, and become capacity issues.

The fact that all these nonprofit capacity service agents exist and have evolved over the last couple of decades on their own with little strategic guidance prove the compelling nature of the external NGO capacity support model.

Intermediary Capacity Support Organizations (ICSOs)

I classify the range of organizations operating to deliver these services as Capacity Support Intermediaries (ICSOs). The benefits of ICSOs providing high-quality services to nonprofits are numerous:

  • ICSOs allow for the introduction of standards of service/support delivery and sharing of best practices across institutional clients. Nonprofit clients typically compete for funding and are often pressed for training time. They don’t necessarily learn from each other or from grant-makers without a trusted source intermediary providing support and delivering best practices.
  • ICSOs provide pragmatic service at a lower entry cost to nonprofits than most of their private sector counterparts. In a sector where the currency of choice is the trusted source relationship, the CSI providers share a basic set of mission principles with the nonprofits they serve.
  • ICSOs collect significant and invaluable metadata on a statistically relevant number of nonprofit clients. This data can be used to identify strengths and deficiencies on a sector-wide basis. Objective data polled from nonprofit clients allows for developing more effective support strategies for the entire sector.
  • ICSOs provide a more efficient way to insure that all the nonprofits a grant-maker uses to meet its objectives operate at peak efficiency. Most grant-makers fund initiatives by vertical issue area (health, education, etc.). However, capacity issues cut horizontally across the entire portfolio of supported nonprofits. Grant-makers can opt to employ intermediaries to fill in the capacity gaps of their entire portfolio rather than individual institutions.

  • ICSOs offer an opportunity to solicit grant-maker support for capacity using paradigms philanthropies are comfortable with. Grant-makers already support nonprofit programmatic goals. Supporting the programmatic mission of a nonprofit CSI delivering capacity services to other nonprofits is similar. Alternatively they can be subcontracted to service grantees.

  • ICSOs create a much cleaner cycle of benefit and reinvestment for all involved. After an initial donor investment, most CSIs are built on models of sustainability that cover their administrative costs through services rendered to the nonprofit community. Nonprofits buy into this more efficient capacity support at lower entry costs, improving their effectiveness and leaving money to spend on other necessary activities including self-investment.

  • ICSOs provide a far more cost effective model to solicit grant-maker support for a single institution whose mission is to service the capacity of a thousand nonprofits in a consistent manner than for one thousand institutions to solicit that same grant-maker for individual and different capacity needs.

Good, Better and Best Solutions

The natural evolution of ISOs to cover a variety of needs suggests that a revolution in nonprofit capacity support is taking place. This new paradigm however must be leveraged far more strategically by grant-makers and nonprofits. Issues that individual ICSOs address are all related, and reflect a problem suffered by NGOs globally. In defining the good, better and best of all possible worlds going forward:

Supporting discreet intermediary organizations for a particular sector, geography or problem area is good. The development of leading ICSOs to cover each area of capacity support is necessary and is happening. These models need to be adapted to different local circumstances (i.e., the developing world). International E-riding, which provides technology support to various sectors and geographies is an example of this.

Supporting a coalition of intermediary organizations dealing with capacity issues in a single problem area is better. The nonprofit Technology Enterprise Network (NTEN), a coalition of organizations focused on nonprofit technology support is an excellent example of this. Another more general example is Grant-maker’s for Effective Organizations (GEO) is a coalition of domestic US grant-makers focused on moving philanthropy forward and strengthening the capacity of supported grantee organizations.

Supporting ties between MCSOs, TCSOs and ACSOs is best. This is still a largely unaddressed strategic issue. The work of these entities is interrelated. Although developed external to NGOs and delivering services to them, they need to operate together more cooperatively.

This new model of capacity support will not help all nonprofits everywhere at once. However, it will assist far more nonprofits to address their capacity needs strategically than the current approach of funding bits and pieces of a single nonprofit’s capacity in shell game that allocates part of program grant to administrative overhead. As with most initiatives necessitating a paradigm shift, progressive grant-makers acting collaboratively will be necessary to underwrite the initial investments. However, this model of capacity support is built upon ICSO sustainability through aggregated demand over the long-term. There are already working models and empirical data that suggest this is a far more efficient approach than the traditional system of grant-maker support of capacity.

Jonathan Peizer is the Principal of Internaut Consulting supporting foundations, nonprofits, governments and socially responsible private sector initiatives. He is the former CIO/CTO and Director of the Open Society Institute’s Global Internet Program.

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