January 2009

Beyond “Business Thinking” as Panacea:
Articulating Our Vision of a Distinct,
High-Performing Nonprofit Sector

Phil Buchanan is president of the Cambridge, Massachusetts-based Center for Effective Philanthropy, a nonprofit organization helping funders better define, assess, and improve their effectiveness and impact. In this month's column, Phil argues against the notion that nonprofit organizations should import business concepts in order to maximize their effectiveness.

It is time for our nonprofit sector to step up and more forcefully articulate its distinctive value.

Too often, business school professors, corporate luminaries, and the media deride the nonprofit sector, arguing that the answer to improving the effectiveness of charities and foundations lies in having them become more like “business.” “Billions are wasted on ineffective philanthropy,” asserted Michael Porter of Harvard Business School in a 2006 Economist article. “Philanthropy is decades behind business in applying rigorous thinking to the use of money.”

But if the recent collapse and near-collapse of businesses from banks to auto makers remind us of anything, it's that “business” isn't always synonymous with “rigor” or “effectiveness.” This shouldn't be news; but it seems to be to some.

Jack and Suzy Welch, for example, writing in their BusinessWeek column in 2007, characterize the nonprofit sector as uninterested in performance. “In most nonprofit situations,” they write, “as long as you don't screw up, you're pretty much guaranteed lifetime employment.” They go on to liken the nonprofit and government sectors -- which they appear to believe are one in the same -- to “a foreign country” and encourage a reader working in government to come over to “the other side,” saying, “the change of scenery will do you good.”

In their compelling but misguided new book, Philanthrocapitalism: How the Rich Can Save the World, Matthew Bishop and Michael Green announce that the end to the ineffective philanthropy of old is at hand, thanks to the “new philanthrocapitalists” who seek to “apply the secrets behind their money-making success to their giving” -- as if this hadn't occurred to past generations of the wealthy. Among those “secrets”? “A bigger role for professional intermediaries and advisors, and … the sort of transparency and accountability that exists in financial markets.”

Lehman Brothers to the rescue?

These characterizations of the nonprofit sector as ineffectual -- and the assertion that the sole path to improving performance lies in “business” thinking -- aren't remotely accurate or helpful.

Now, I'll be the first to champion the argument that the nonprofit sector should step up its effectiveness. There needs to be more focus on the articulation of clear goals, the development and implementation of coherent strategies, and rigorous and relevant performance assessment -- all in service of greater positive impact. There are too many poor performing charities and foundations, to be sure. But the fact is, there are many that exemplify the kind of performance-orientation that Bishop and Green rightly praise -- and who don't attribute everything positive about what they do to business frameworks! (Indeed, that is true of some of the very examples the authors cite in their book and other writings, organizations that would not agree with the authors'characterization of them as “philanthrocapitalist.” I should know: the Center for Effective Philanthropy is one of them.)

We need to speak up for the value of institutions that work in service to something other than a profit. Sometimes, though, the nonprofit sector seems cowed into silence by its high-profile critics. Ironically, it is often other, thoughtful voices from the business world that have done the best job making the points about the distinctiveness of nonprofits and the need to resist the temptation to simply import business concepts.

In his Good to Great and the Social Sectors: Why Business Thinking Is Not the Answer, business guru Jim Collins puts it this way. “We must reject the idea -- well-intentioned, but dead wrong -- that the primary path to greatness in the social sectors is to become ‘more like a business.'” He goes on to point out that most businesses are somewhere between mediocre and good, asking, “Why would we want to import the practices of mediocrity into the social sectors?”

It is worth remembering, also, that the goals nonprofits pursue are inherently more challenging, as Warren Buffett noted shortly after he made his historic gift to the Bill & Melinda Gates Foundation. “In business, you look for the easy things to do,” he said. “In philanthropy, you take on important problems, and it is a tougher game.” After all, if businesses and government could successfully solve all our challenges, or meet all our needs for association and expression, we wouldn't need nonprofit organizations.

Those of us who have worked in corporations and nonprofit organizations know that there is greatness and mediocrity -- and all shades in between -- to be found in both business and nonprofits. We also understand how much more difficult it is to know what results you are achieving in the nonprofit world because of the nature of the goals. Nonprofit performance, after all, cannot be judged simply based on universal measures, like profit, found in financial statements.

The nonprofit sector has many challenges, but it is also a sector of which we should be proud. IS founding chairperson John Gardner, rightly described the sector as one of “enormous sweep and possibilities.” “It is a sector,” he said:

in which we are committed to alleviate misery and redress grievances, to give reign to the mind's curiosity and the soul's longing, to seek beauty and defend truth where we must, to honor the worthy and smite the rascals with everyone free to define worthiness and rascality, to find cures and to console the incurable, to deal with the ancient impulse to hate and fear the tribe in the next valley, to prepare for tomorrow's crisis and preserve yesterday's wisdom, and to pursue the questions others won't pursue because they are too busy or too lazy or too fearful or too jaded.

It's time for us to articulate the nonprofit sector's value more forcefully. Yes, we should tell the stories of our individual organizations' impact. But let's also tell the story of our sector, staking our own claim to a commitment to performance -- and to the distinctive role we play in building a better, more just and livable world.

What are we waiting for?

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