The following is a conversation with the co-authors of Engine of Impact, William Meehan and Kim Starkey Jonker, and Denver Frederick, Host of The Business of Giving on AM 970 The Answer in New York City.
Denver: We live in an era where there is no shortage of isolated pieces of advice and wisdom that can help you get better at almost anything — from golf to time management — at least for a little while. What is often lacking, however, is a serious, well-researched, and thoughtful source on how to make a real and lasting change. That blueprint has largely been missing for nonprofit organizations until now. It comes in the form of a new book entitled Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector. And with us tonight, we have its co-authors, William Meehan who lectures on Strategic Leadership at the Stanford University Graduate School of Business and Kim Starkey Jonker, President and CEO of King Philanthropies.
Good evening and welcome you both to The Business of Giving!
William and Kim: Thank you.
Denver: Kim, let me start with you. You and Bill have released this book at what you believe is just a pivotal time for nonprofits in America. Why do you think that we’re at such a critical juncture?
Kim: There’s a few reasons. We just completed some survey data, a far-reaching survey of 3,000 people representing a wide variety of nonprofits, and this data showed that in fact, most nonprofits are not measuring up or at least they struggle in one of the core elements of strategic leadership. And we think that there are some straightforward things that they can do to achieve more impact. So, there’s that.
And then on the other side, there is an enormous influx of resources to the sector — largest intergenerational transfer of wealth, lots of money coming in. And one of the premises of the book is that nonprofits need to earn the right to receive this additional funding, and there are things that they can do to make themselves more effective and to generate more impact so that they actually can rightfully receive this additional philanthropy.
Denver: So, great opportunities out there, but are they going to be able to step up and seize it is really the question. I know at the heart of this book, and after decades of research and working with nonprofit organizations, you identified seven elements of Strategic Leadership that are present in the most highly performing nonprofit organizations. Just list those for us, if you would.
Kim: We use the metaphor of an engine because we believe that these seven elements all need to function well at the same time in order for an organization to have a great deal of impact. So, the engine is comprised of mission first, strategy, impact evaluation, and fourth, these intangible qualities that we call insight and courage. Those four elements together form the engine. And then there’s fuel that’s needed, and there are three elements there: organization and talent, fundraising and funding, and board governance.
Nonprofits are mission-driven organizations, just like publicly traded corporations are shareholder value-driven. If you are a mission-driven organization, you need to have a clear and focused mission — frankly, whether you believe that to be fundamental or whether you believe that to be controversial.
Denver: A wonderful metaphor if I may say so myself. You’ve said, Bill, that the Engine of Impact might be considered as both fundamental and controversial. Why do you think that might be?
Bill: In the first place, let’s use clear and focused mission. If you get up in front of a bunch of nonprofit leaders and say, “A nonprofit should have a clear and focused mission,” they’ll say, “Duh, of course. How boring!” Maybe not even a fundamental. Many like a vapid, not interesting. Then if you’ve done as I’ve done many, many times with my class at Stanford, if you actually evaluate the mission, much less ask various stakeholders to the mission — board members or executives — you’ll discover probably three quarters of the time or more that the mission is vague; it’s broad. You can’t tell what the nonprofit actually does. It attempts to be inspirational by saying, “We solve global poverty one person at a time,” and it turns out to be a small food bank in a town in New Jersey. We’re very simple about this. Nonprofits are mission-driven organizations, just like publicly traded corporations are shareholder value-driven. If you are a mission-driven organization, you need to have a clear and focused mission — frankly, whether you believe that to be fundamental or whether you believe that to be controversial.
Denver: Interesting. One of the seven pillars that you discussed, and you just touched on that a bit there, Bill, was that of board governance. As a matter of fact, of all the ones where organizations said they were struggling, that came as number one more than 50% of the time. Speak to some of the major challenges here.
Bill: Well, I think nonprofit board governance is a little bit like failed diets or government deficits. We talk about it all the time. We’re always about to make a change, and it never seems to happen. When we’re talking publicly or in a class, we’ll ask people who come to hear us: what percentage of them are on nonprofit boards? And normally, we’ll get three quarters. Then we’ll ask how many find their nonprofit boards to be dysfunctional, and we’ll get virtually every hand. They suffer from many different viruses, starting from staff who don’t necessarily share everything with their board members as openly and transparently as they should. Common in nonprofit board meetings is to have very hard-wired agendas. We start with the finance report, then we go to the development report, then we go to the governance report, then we go to the marketing report, then we have the executive director speak, then we have the chairman of the board speak, then we have an executive session.
Denver: It sounds like the board meetings I went to.
Bill: Absolutely. And when I chair a board, I always have a principle I tell the board members: I have no problem with a good discussion breaking out in the middle of a board meeting. In fact, what I tell people who join nonprofit boards, they say: “What advice do you have? I’ve heard that this can be very challenging.” And I say very simply, which is to ask stupid questions until you figure out what the smart questions are, and ask the smart questions until you get good answers. And if after six months or a year, you’re not getting answers that make sense to you, find another nonprofit to be on the board of. A lot of people are spooked, or they’re not sure that their experience applies. In fact, most things that nonprofits do are accessible to bright, talented, generous people applying their common sense.
Denver: Yeah. And I think also, what happens is that there’s an under-sell with board members when you’re trying to get them on the board. You’re trying so hard to get a “yes.” You say there isn’t much to be done, and then what happens is when they live up to that low expectation, you’re like, “Why isn’t my board doing anything?”
Bill: No, no. They won’t tell you that they have many meetings a year. They expect you to attend. And the usual thing that they somehow skip over when they’re trying to recruit you to a board is: how much money you have to give, and how much money you have to raise. Because the last thing you want to do with a busy, talented potential board member is actually let them know the responsibilities they will have when they join the board.
Denver: You also talked in the book about the board’s responsibility of giving an annual review to the CEO. And I read a report recently that said that 61% of the CEOs in this country of nonprofit organizations are never reviewed by their board.
Bill: It’s another one of these things. I think most nonprofit boards are subject to the small/medium-sized group dynamics that we’ve all experienced in work. And when the nonprofit executive director is in command of all the facts, too often has been involved in recruiting the board member, very often, the dynamic does not inspire the chair of the board to simply say to the executive director, “You know we’re going to review you annually. We’re going to ask you to set goals at the end of the year. At the end of the next year, we’re going to ask you to assess how you performed relative to the goals. We’re going to ask other board members and other stakeholders whether you did, in fact, achieve those goals, and then we’re going to tie your compensation to it.”
This sounds very straightforward to anybody who has been involved in a business. What is not straightforward in nonprofit sector is the interpersonal dynamic very often does not encourage that kind of personal openness, particularly if you’re dealing with a founder or an inspiring social entrepreneur who has created a new way of thinking about poverty alleviation or dance or what have you to sit down with that social entrepreneur and tell them that in fact, they’re falling short in their leadership or in meeting their goals. It’s a very hard thing for board members. And it’s frankly very hard — even in businesses sometimes — just to get people to give and receive honest feedback.
Many nonprofits today have little or no evidence that their intervention actually works. They assume that it does. They aspire for it to work, but it’s not clear. And so, impact evaluation is what needs to be done.
Denver: It’s almost about the courage that you were talking about a second ago, Kim, it’s a polite society, and they let a lot of things go which they wouldn’t in their normal business life. The opening words of the introduction of the book, Kim, are “We are at the dawn of a new era — The Impact Era.” So it only stands to reason that one of the cornerstones of these highly-performing organizations would be measuring impact and evaluation. But again, many of them, about 50%, are having trouble. What is the struggle that they are having here?
Kim: Many nonprofits today have little or no evidence that their intervention actually works. They assume that it does. They aspire for it to work, but it’s not clear. And so, impact evaluation is what needs to be done. One of the big problems is that funders are reluctant to pay for impact evaluations. Some express enthusiasm for evaluation — not as many as we would like — but the bigger problem is that nonprofits are in a very difficult situation where they don’t have the funds to pay for the evaluations because most donors, they want to pay for the very sexy program work. Who wants to pay for some quantitative evaluation, right?
Denver: They just want it.
Kim: They just want it, but they don’t want to pay. And so, until that dynamic starts changing and we start seeing donors that are stepping up and writing the checks for the evaluations, it’s going to be continually difficult for nonprofits to do evaluation.
Bill: If I could just add two things. First of all, donors, even large, generous philanthropists — the available market research shows that less than 10% of them even refer to any evaluation or impact analysis when making their gift. And just like in any other capital market, if people writing large checks all of a sudden said, “My due diligence includes seeing your longitudinal impact analysis,” I assure you a lot more organizations in this sector would do that.
The other thing I will say is there are a lot of significant nonprofits raising a lot of money and have never done an impact evaluation. And I just think it’s human nature. If it’s working for you without it, well, why would you start? And in fact, we’ve seen in the recent impact measurement revolution built from J-PAL Poverty Lab at MIT around random control trials that every once in awhile, you’ll see a nonprofit that does a random control trial to evaluate its impact, but it hasn’t told anybody about it until they see the results.
Denver: You know, I’d be remiss if I didn’t let the listeners know that in your book, you really site some great examples of organizations. This is just not all theory. So, sticking with measurement and impact, give us an example of an organization that really does it well.
Kim: There’s many. Helen Keller International is one that we fund at King Philanthropies that places a great deal of emphasis on measurement. Same with Prothom, which works in India. I think they have done 11 or 12 randomized evaluations. And I want to make the point that not only large sophisticated organizations benefit from doing evaluations. That in the sector, there’s often a resistance to translate qualitative things into quantitative. And you know, they say, “Oh, well you can’t reduce our intervention to mere numbers.”
But we have an example in the book of Willow Creek Community Church, which we placed in the book because it’s this extreme example of an organization that their goal is something very touchy-feely and amorphous, and they did this quantitative evaluation in order to assess something as touchy-feely as spiritual growth. And in doing so, they learned something. They realized that their intervention wasn’t working as well as they thought and they just adjusted their strategy. That to us is an excellent example underscoring the notion that every organization can translate qualitative things into quantitative. And the process might not be perfect, but you can learn something from the effort of trying that will benefit your intervention.
Bill: One, I think, very exciting initiative that’s going on in the nonprofit sector is in and around extreme poverty alleviation in Africa, Latin America, Southeast Asia, other places. And you told me earlier you had Paul Niehaus on the program. I am on the board of GiveDirectly that is run by Paul and Michael Faye. And GiveDirectly focuses on cash transfers over mobile telephony, primarily now in Africa, to the extreme poor. And this whole approach is built around random control trials.
I was a McKinsey consultant starting in 1978, and coming out of business school then was really the beginning of the ability to measure financial performance and share value through things like net present value and internal rate of return. Well, companies were pretty resistant to that, too, when it didn’t show numbers. But what companies have found, and I think organizations like GiveDirectly have found, is if they fully embrace performance measurement, it actually changes the way they run the organization. It not only is something that you show to your donors. It’s something that changed the way you run the organization.
And so what it’s done for example in GiveDirectly is, even though they were originally focused on Africa, because of the catastrophes in Puerto Rico and Houston, they are now doing cash trials in the context of a natural disaster to see what happens when you give people affected by that cash as opposed to whatever the Red Cross or anybody else would give them. And I suspect that it’s going to be shown to be very good.
Denver: Yeah. It seems that way.
Bill: And the other thing I like about cash is that it sort of embraces the human spirit. Instead of saying like colonialism did, which is “We know what you need, and we’re going to deliver it to you,” instead it says, “We’re going to give you cash, and we bet that you’ll use it to help rise out of poverty.”
Denver: That’s a great example. I think that Paul even refers to it as you know as the Index Fund for the Social Sector. How does your organization compare to if we just gave people the money? And I’ve been over to their offices, and not only are they a data-driven culture, they’re incredibly transparent. So, when they are getting the results of their interventions, their staff gets it in real time along with their leaders, and their donors do as well. So, as you say, it really has transformed the organization.
Bill: They’re fearless. They’re really fearless and frankly, that fearlessness for transparency with leaders, with employees, with donors, even with clients, I think, would be a wonderful hallmark for the next era of nonprofits.
Denver: Absolutely. Another one of your several essential components, Bill, is talent and organization. And you link the two because as you say, an organization is not only as good as its people, but also how you organize and lead them. And I sense this to be a growing issue because more and more young people I talk to who want to do good in the world — nonprofits have lost their exclusivity, and so many of them are going to social good businesses and purpose-driven businesses. So, I think the focus on trying to hire and retain the very best people is critical. Tell me what some of these organizations are doing to do that, and what organizational models are emerging as a result
Bill: First of all, I live in Palo Alto, California. I teach at Stanford, and it might be the epicenter of the “Do well by doing good idea” which many people think is going to change the world, and I think is largely a myth.
Nonprofits, in general, not all of them, have a business model which loses money every time it does what it does. And the more impact it has, the more money it loses. That’s just kind of the way it is.
Denver: Why so?
Bill: Nonprofits, in general — not all of them — have a business model which loses money every time it does what it does. And the more impact it has, the more money it loses. That’s just kind of the way it is. Businesses who typically have healthy margins, healthy cash flow, at least will at some point. And so you fund that with capital, and businesses are structurally just a much more attractive model to grow. The social business, social enterprise idea asserts that there’s a whole series of things usefully done by organizations that fit in the middle. The trend and the ideas may be 10 or 15 years old. The millennials, in particular, are embracing it with great hope, and we’ll all find out together exactly how big an opportunity that is.
On the one hand, one of my favorite dinner party questions is to ask people what the biggest source of poverty alleviation is in the history of mankind, and nobody hardly ever gets it right. It’s capitalism in China. Number two is capitalism in India. It’s not aid to Africa. And so, I think we have a pretty narrow, maybe liberal view of what a social business is. Job creation, in general, should be viewed as social impact. So, I’ll leave it there.
You asked about organization and talent, we chose to feature in the book an evolving, emerging organizational model called Team of Teams. We featured Ashoka and Bill Drayton, who founded the movement called Social Entrepreneurship. We think, in fact, it’s a more pervasive model. And all I can say is: corporations, grocery stores, consulting firms, nonprofits, increasingly, we work as team of teams. Yes, we have a boss, but 90% or 100% of our work is done cross-organization, cross-functions. We put together project teams to do one thing. We often include outsiders as well. Because of the adaptability and flexibility needed by nonprofits, we really urge all nonprofits of any scale and any focus to consider adopting a team of teams model and move away from a functional model, which is largely a creature of the industrial revolution which is now 150-, 200 years ago.
Denver: Yeah. You’re so right. And I think young people, in particular, want to grow and they want to learn. And you learn on these different teams from different people doing different things and not being slotted into a certain spot because I believe that they really sense that they have to stack up their skills. Too much uncertainty in the world with artificial intelligence, and I just see this day in, day out. “I want to learn this. I want to learn that.” Organizations used to say, “Well, once I have somebody proficient in that spot, I don’t have to worry about it.” Well, you better worry about it because if they’re proficient and not growing, they’re going to leave. So, you better keep them learning.
In addition to these seven elements, Kim, you also address scale in this book, and I’m so glad you did because the concept of scaling can really get bantered around pretty carelessly. But you’ve examined it and given it some thought and rigor. In fact, you have created a readiness scale matrix. Describe that framework.
So, all of these seven components must be in place, and they all must be functioning at a high level. It’s not enough, for example, to have four or five or six even of the seven. You have to have all seven to be truly ready and able to scale.
Kim: We started out looking at these seven elements of strategic leadership. And we grouped them, as I said, first into the components that are the elements of the engine. So, mission, strategy, impact evaluation and insight and courage. So that is on one axis of the matrix. On the other, is finding the fuel. And there we put organization and talent, funding, and board governance. And we assert that, in order to truly scale an organization’s impact, it has to not only have a well-built engine, but it also has to have the fuel. So, all of these seven components must be in place, and they all must be functioning at a high level. It’s not enough, for example, to have four or five or six even of the seven. You have to have all seven to be truly ready and able to scale.
So then we wondered: how many organizations out there actually would be in the category of being ready and able to scale given these criteria? And we took the survey data that we collected through the Stanford survey that we launched. And what we found is that only 11% of organizations excelled at each of these seven elements and were truly ready and able to scale their impact. So, on the matrix, we grouped them into what we call the “promised land.” That’s the nonprofit promised land. It’s being excellent in all seven of these.
Denver: Yeah. I think more than 11% think they’re in that promised land, but they’re not.
Kim: Indeed. And it’s a widely discussed and talked about. Everyone is talking about scaling, but if you actually look at the landscape out there. . .
Denver: One out of 10.
Kim: Most organizations are tiny. They don’t reach very many people. And we assert that in order to truly scale your impact, you have to be excellent in all seven. So, we have these other quadrants on the matrix. At the other end of the spectrum, we have what we call “scale jail.” And that is organizations that they do not have a well-built engine, and they have not found the fuel. They are stuck in scale jail and probably shouldn’t scale anytime soon.
We do make the caveat that there are some organizations that are small and probably aspire to remain small, right? A soup kitchen in one community serving people, and we call them “small is beautiful” because we think that is admirable and that they are well-positioned to achieve impact in their community, and there is nothing wrong with staying small. We found that about 10% of organizations, we classify them in the “small is beautiful” category, whereas 37% were in scale jail. So, really quite a lot organizations.
And then, on the other hand, we have “field of dreams” which is another quadrant, and that is basically the engine is in place. It is intact. And what the organization needs is the fuel. So, we like organizations that are in field of dreams because they’ve got the fundamentals in place, and they’re poised and ready. They just need the fuel.
Denver: Right. If the social capital markets weren’t so broken, they’d probably have it. But it’s probably going to some people in scale jail.
Kim: Right. Exactly. But they have rightfully earned it.
Denver: They’ve got the potential.
Kim: They’ve got the potential, and they’ve rightfully earned it. And then we have another quadrant called “the waterfall.” And this is a play off of the Escher’s waterfall where it’s just this perpetual motion machine. And the notion here is that there’s lots of fuel, and there’s lots of money pouring in, but yet the engine — there’s a flaw in it… or many flaws. And so, they really shouldn’t be receiving so much funding. We found, when we looked at the survey data, that about 15% of organizations are there. And for those organizations, our recommendation is: go back and fix your engine before you start trying to fly. And donors, especially, when we’ve talked about the social capital market, this is where donors can be especially helpful, paying attention to what’s going on with the engine before they just write checks.
Denver: A very interesting analysis. I read a lot of literature. I have never seen one quite like that before. So, that’s a tremendous addition to the whole field.
Bill, let me ask you, If I could, to take a look and paint the big picture of all this in the context of what’s happening today. And you touched on a couple of these things, but we have this intergenerational transfer of wealth. We have other sources of potential income to nonprofit organizations, whether that be earned income or whether that would be governmental income. You have these philanthropic gaps that need to be filled. And because that context really provides and underscores the urgency of your message in this book. Speak to that a little bit.
Bill: We really do have quite an urgent and specific to today’s context “call to action.” We broke the history of US nonprofits into four eras if you will. It started with the “Industrialist Era” in the late 19th century, early 20th century when the titans of American’s industrial revolution — Carnegie and Rockefeller and Ford and others — really created the nonprofit sector in the US as we know it. Private foundations, community foundations, community organizations like the United Way all came out of that first era. It was then followed by the “Independents Era” when that was really the first time in history where the nonprofit sector was viewed as an independent sector — a third sector if you will. We then had the “Information sector,” which began in the late ’90s when GuideStar and others began to just offer basic data coming off the Form 990s that most nonprofits have to submit to the IRS so that you could begin to just look at the revenues and the costs and the expenses because, until then, you really couldn’t do any evaluation.
Today’s “Impact Era” really is the confluence of two major forces, almost supply and demand if you will. You referred to the largest intergenerational transfer of wealth. As I like to say: As we baby boomers begin to look at the great white light in the lessening distance and we begin to think about what we’re going to do with our money, are we going to pay taxes on it? Are we going to give it to the kids? Or are we going to give it to nonprofit organizations?
There really aren’t a thousand choices. There’s just a very few. This is a huge amount of money, and we can see with the giving pledge and others, many, many people are planning to give their money to nonprofits, and it’s going to be a huge amount. At the same time, on the nonprofit side, their need for philanthropy is only going to increase. We believe the earned revenue and sustainability has pretty much topped out.
Denver: They’re maxed out. Yeah.
Bill: Tuition increase is pretty hard. Ticket increase is pretty hard. Almost everything that we’ve been paying for from nonprofits, they’ve been pretty much maxed out, having been told for the last 15 years that they need to be more sustainable, which is to say: charge people more for things. Their other major sources is government, either grants or fees. And again, we’re just squarely on the category. Given what’s going on in the US and the world, the chances that they’re going to grow significantly in the future are really very small.
So, that leaves philanthropy. There’s plenty potentially out there with the baby boomers and our excitement about the millennials. And so the question is: will nonprofits earn the right to that philanthropy that they will need? And obviously, what we think, to earn the right, is to go back to our seven fundamentals and demonstrate to the potential donors and philanthropists that they’re actually having the impact that they aspire to have in their mission.
Denver: Well stated. Finally, Kim, tell us about your website, and I know you have a neat diagnostic tool there that is available to people who come visit.
Kim: Yes. We love our diagnostic tool. It enables anyone that works at a nonprofit or a nonprofit board member to spend about 10 minutes answering some questions about your organization, and then the computer gives you an analysis of where your strengths and weaknesses are on each of these seven elements. And then, the next step is that it will actually plot your organization on our matrix and tell you “Are you in the dreaded scale jail? Or actually have you reached the nonprofit promised land?” And we think it’s a particularly useful tool for groups of stakeholders at a certain organization.
So for example, you can have all of the board members take the diagnostic and then print out their results and bring those results and have a discussion, because it is likely that there will be differences of opinion about what is a strength and what is not. And that’s where the really rich, interesting conversations can happen.
Denver: And that website would be?
Denver: William Meehan and Kim Starkey Jonker, the co-authors of the just-released book from the Stanford University Press entitled Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector, thank you both for being here this evening. It’s one of those foundational books that only comes along every so often. It might even make a nice gift for someone.
It was a real pleasure, Bill and Kim, to have you on the program.
Bill: Thank you so much.
Kim: Thank you, Denver.
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