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'Givers' Must Become Social Investors

November 25, 2009

(Jeff Mason is vice president of Social Solutions, a leading provider of human and social service software, and serves as chair of the Alliance for Effective Social Investing, a network of more than thirty-five nonprofit leaders committed to driving more money to high-performing nonprofits by helping donors adopt sound social-investing practices. This is his first post for PhilanTopic.)

Performance-Management Giving is often influenced by "tug-at-the-heart string" stories from charismatic nonprofit executive directors able to persuade people to open their hearts and wallets. Which means the funds flowing into the nonprofit sector today tend to go to organizations that tell good stories, have the right relationships, and/or have a recognizable brand. Unfortunately, none of these characteristics provides any real indication of an organization's ability to perform and generate social value and, as a result, millions of dollars of charitable "giving" are wasted on ineffective organizations and programs.

Most of those who give have the best of intentions. But they tend to view their donations as a gift rather than as an investment and therefore don’t expect to get anything in return -- except for an emotional lift and perhaps a tax deduction. What big-hearted philanthropists need to understand is that there are consequences to their giving. Giving to ineffective organizations or programs tends to draw resources away from effective organizations that generate real social value. And in some cases these donors may actually be funding programs that do more harm than good.

Take, for instance, a Washington D.C.-based organization that launched a program to treat men and women involved with domestic violence. Shortly after the program began, the organization learned that the violent tendencies of the men enrolled in the program where actually increasing. That's right. The program was making the men enrolled in it more violent. Fortunately, the organization is a high-performer -- meaning it carefully manages its performance and has a clear understanding of the effectiveness of its efforts to achieve desired outcomes. With that knowledge, it was able to retool its domestic violence program to help those enrolled. What is scary, however, is that most organizations fail to manage their performance and as a result have no idea whether they are having an effect -- positive or negative -- on those they are trying to help.

While performance management isn't easy, it is essential. And it requires the right systems, processes, and organizational culture to have real impact. Absent making performance management a top priority, most nonprofits are in effect operating blindly and potentially creating more harm than good.

So why aren't organizations embracing performance management? Simply put, they get paid to tell heart-warming stories, develop relationships, and create memorable brands. Even more disturbing, many organizations get rewarded for keeping their overhead low. What we need to do instead is to start rewarding organizations with high-performing characteristics. And that will require donors to become social investors who look for meaningful indicators of an organization's ability to generate social value. In other words, donors need to expect something in return for their investment.

So how does a donor know he or she is investing in a high-performing organization? Social investors need to take the concept of "performance management" into account when making a philanthropic investment. That means asking the right questions and looking for organizations that meet certain criteria for success. Listed below are five questions that, if answered in the affirmative, greatly improve the chances that the organization you are investing in is high performing and likely to generate social value:

  • Does the organization have clear goals in line with existing resources?
  • Does it have a clear strategy for reaching its goals and objectives?
  • Does it have a method for monitoring progress?
  • Does it have the ability to make mid-course corrections?
  • Does it have the capacity to share results and outcomes?

From a nonprofit evaluation perspective, big changes are afoot. Charity Navigator, which influences approximately $10 billion in funding annually, will be launching a new rating system in 2010 designed to assess a nonprofits' overall performance, not just their admin-to-program cost ratio. Until this new system is in place, however, social investors should focus on the five questions highlighted above when considering making a donation of any proportion.

The future of the nonprofit sector hinges upon better performance management. As more and more donors rid themselves of the "gift giving" mind-set and begin to think and act like social investors, more money will go to high-performing organizations. For organizations that are not on board the performance management train, it could mean less funding. And that's a good thing.

-- Jeff Mason

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Posted by James Dillard  |   November 27, 2009 at 11:15 AM

More often than not, donors are not social investors. They're actually social consumers - buying goods on behalf of the social good.

Investments are one time infusions of capital that allow an organization or business to grow (reach more people, etc), and a relatively few donors and foundations are making these.

Most are playing the much more valuable role of being consumers of social goods - providing the cash flow than non-profits need to run. And because of this, large non-profits get good at the things advertisers are good at: telling stories, pulling at heart strings and knowing the right people.

What we really asking 'Givers' to do is to become educated consumers... which is possible but somewhat of a lost cause (even in a world where you can directly compare products, advertising and marketing can sway a huge number of consumers).

What we really need is a way to connect outcomes (students graduated, men without violent tendencies, etc) to giving. Fortunately, there is incredible demand for this (see Kiva and other person to person giving), however, I don't think the right place for it as at the industry level.

Posted by Jeff Mason  |   December 02, 2009 at 01:31 PM

Simply connecting outcomes (results) to giving is important but not sufficient. Outcomes are what you achieved yesterday. I want to know what I can expect from an org tomorrow. I want to know if I give/invest/buy with a $1 today what can I EXPECT that produce. This is why understanding the ability of an org to manage it's performance is so important. With this understanding you can assess the likelihood that you will get something in return for your money.

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