Guidestar has just released the results of a survey entitled "The Effect of the Economy on the Nonprofit Sector: A June 2010 Survey.”

Chuck McLean and Carol Brouwer wrote the report, the purposes of which were “to explore how charitable organizations fared during the first five months of 2010 and to try to gauge the effect of the downturn in the economy on the American nonprofit sector.”

Among the findings, some issues stand out among public charities and grantmaker subsectors.

On the Charity Side

Public charities were asked if total contributions to their organization increased, decreased, or stayed about the same between January 1, 2010, and May 31, 2010, compared to the same period a year earlier. Thirty percent experienced an increase in contributions, while 28 percent remained the same. Forty percent reported a net decrease. McLean and Brouwer then asked, “What factors caused total contributions to decrease?” Forty percent said private foundation grants were smaller and 22 percent said that private foundation grants were discontinued. This in the face of 63 percent of the respondents stating that demand for their organization’s services increased!

Takeaway: charitable organizations faced smaller or discontinued grants from foundations in a climate where demand for their services is up.

On the Grantmaking Side

Now let’s look for a moment at the grantmaking side of the house. Eleven hundred of the 6,508 respondents indicated their organization awards grants, with 580 identifying themselves as private foundation/grantmakers (thus, in the mix of grantmakers we probably have a mix of charitable re-granting organizations in addition to private foundations). Among these 1,100 organizations indicating they give grants, 68 percent indicated that their giving remained the same or increased in the five-month period of January-May 2010 compared to last year. Further, 65 percent indicated that they made no major changes in their grantmaking. A much smaller proportions reporting they either cut back on programs (12 percent) or cut back on payments (8 percent).

Takeaway: Grantmaking, from the perch of the grantmaker, has remained the same. Few grantmakers have cut back on programs or payments. This is interesting in light of the above finding that charities report significant declines in grant funding.

What are the implications of this? There are several, I’m sure. For the purposes of this post I’ll constrain my thoughts to issues of impact and evaluation.

What Could Be Going On?

If I’m leading a charity, I might think the following to myself. “If my grant funding is down, yet trends suggest that grant givers have not changed their overall behavior, who is getting funded, and why?”

Since I’m a strategy and impact guy, my mind tends to turn to thoughts of monitoring and evaluation. It may be the case that funders are paying more attention to charities that understand how to evaluate their day-to-day work in ways that demonstrate true impacts.

We see from the Guidestar report that demand for services is up among charities. This implies that organizations are going to have to be very savvy at bringing their services to scale while not diluting impact. This is challenging if an organization doesn’t know its place in the charity ecosystem, doesn’t have clear outcomes delineated that should result from their services, and lacks a systematic way to track successes and failures. This could explain some of the variance in why foundations and grantmakers don’t report a general dilution in their funding. Perhaps there’s been a shift in giving to organizations they trust to create promised, sought-after impacts.

It’s also possible that funding is shifting within intact programs from charities that are working on the ground to those that are further from the “shop floor” – such as charity service providers, think-tanks, and other capacity building organizations.

What else could be at play here?

The increased appropriations in the Swedish Environment bill, from 15 to 20 billion SEK, caused the Minister for the Environment Andreas Carlgren to exclaim “Never before has this much been done for the environment”. It is probably true in economic terms, but what does it really mean to “do something for environment”?

To pour money onto a problem does not mean you are solving it. To really solve a problem require insight, bravery and systematic work. Sometimes also funding is required. In political rhetoric money is seen as a miraculous cure that automatically solves all problems. Unfortunately it doesn’t work that way. Many solutions, perhaps even the most impactful ones, don’t have to cost a single penny! It is humanity’s ability to think that can create miracles.

To advance the national environmental goals and the EU environment policy put high demands on our capacity to practically realize political rhetoric into operations. For example, there is a call within the appropriation for more research. Certainly some of the challenges in solving environmental issues could be addressed by seeking new knowledge. But more research doesn’t solve all the problems either. In reality nothing happens if research results are not made available and applied.

I argue that the greatest potential for change (and some of the most economical) stems from a collective and strategic use of existing knowledge and convert that into bases for decisions, working tools, guidelines, routines and practical action. It has been known for long that great gain lies in reducing the so-called implementation deficit.

To carry out comprehensive changes in a way that demonstrates improvement on environmental issues is quite a challenge. It is hard due to the complexity created by many factors and actors that, in different ways, affect the course of event and outcomes. Moreover, there is no definite key to what is right, and because of that we need to continuously learn to increase our skill to apply what we learn to reach our goals.

To have real impact, it is necessary to identify the barriers that politicians, administrative officials, society organizations, commercial and industrial life and private citizens have and that are preventing successful change. We know that these parties lack knowledge that is available within research, but this knowledge need to be transformed into instruments that are functional in workrooms, meeting spaces and in the field to a much higher degree.

Knowing these barriers, decision makers, officials, interest groups, businesses and privates can establish strategies and implement activities that they believe will address these barriers accurately. For each specific issue there are a number of possible strategies. The question is, which mechanisms should the strategy depend on for impact? Should it be competence development, economic incentives or attempts to influence attitudes? The real issue is always — What activities are most likely to accomplish the targeted change? In order to arrive at functional strategies, accurate knowledge and precision tools are needed in the hands of those who take environment policy to action.

All parties involved in the realization of strategies and measures should implement them and collaboratively draw conclusions on how to refine and improve the strategy for the next step. In this way we learn over time what works and what does not work. It’s like working with innovation. You start with an idea, you make a hypothesis, test, learn and revise.

In sum, we can enhance the success of Sweden’s environmental programs by placing existing knowledge in the hands of those that can and should apply it. In our effort of doing this, we should systematically work as innovators to manage our inputs and activities as testbeds and modify our strategies accordingly as new knowledge and understanding gets reclaimed. In other words, practical realization of complex environmental objectives is not primarily a question of money. What is needed above all is the insight that solving environmental issues is an innovation process. By working as innovators we are able to continuously produce activities needed to have impact in workrooms, meeting spaces, in fieldwork and everywhere where we have influential factors on the environment. It is not until then we can pour money into the bucket where real impact is guaranteed. Then we have done something for the environment.

A little over four years ago we started to ask people what some of the root causes were to better organizational effectiveness in the foundation and nonprofit sectors within the United States. We talked with personnel at large and small nonprofits, and program staff from small family foundations to large private ones . We also consulted the literature on organizational effectiveness in the nonprofit world. Over time we captured what we heard into a poster size (3 feet x 2 feet) root cause “map” with over 65 boxes containing discrete assertions about the challenges foundations and nonprofits face in attaining organizational effectiveness. The diagram also contains scores of arrows that conceptually connect the assertions.

Early versions of the map were shown to our initial interview respondents from the foundation and nonprofit world (and to just about anyone who would look at it!). Over time we confirmed, disconfirmed, and refuted many issues, ever refining the map. It’s not perfect, but it does reveal an honesty and candor that underscores the passion of the people working in the third sector.

Because the concepts are ever evolving, our aim is to make transparent what we've learned and start a conversation on

• where the most viable opportunities for improvement are, and
• what we should address as a field.

In a series of posts we’ll report on what we’ve learned and ask for your reaction. Part One is about foundations. In Part Two we'll look at nonprofit organizations. We'll also publish the map in an upcoming post so anyone can have a copy of it and see the ecology of effectiveness, as we've captured it, for the sector.

Part One: Foundation Effectiveness

We began this thought experiment with the following assertion:

“We, as a social change community, not as effective as we could be.”

We then asked stakeholders in the field why that’s the case, particularly in foundations.

Four major clusters of root causes evolved from the above assertion. One cluster of reasons focused on the way in which the input from consultants, on which many foundations rely, doesn’t always translate into better overall effectiveness. Another cluster focused on how proposal vetting is not as effective as it could be. A third looked at how program evaluation is not leveraged in the best ways possible. And the fourth cluster, which I’ll discuss more in depth below, notes that foundations are not as strategic as they could be.

Why Aren’t Foundations As Strategic As They Could Be?

Three major areas developed in our analysis as to why foundations are not as strategic as they could be.

The first is no surprise. It's hard to stick to a strategy.

• With the passage of time, leadership and staff attain new knowledge that influences how they view the future.
• The stakes for not sticking to a strategy are not readily evident in the day to day work of foundation staff.
• It's hard to make strategy visible and operational in every step of an organization's day.
• It's hard to deliberately re-focus a strategy.
• Board members may have personal interests that can influence grantmaking.
• The needs of a community change over time.

Another second reason why foundations are not as strategic as they could be is that program portfolios can become populated with projects that may not be mission-related. This can occur when foundations have vague, unattainable or unrealistic goals. There are several reasons why foundations would hold such goals:

• It can be more appealing for a foundation to make small contributions to a big problem rather than completely solving a delimited one
• Foundations and grantees are not necessarily centered on a culture of measurement. After all, with measurement comes responsibility; what one doesn't see one doesn't need to fix.
• Foundations want to leave their options open.
• A foundation's strategy may be illusive and confusing. The contributors to this include
  • An inherent ambivalence about power and control over grantees. Foundations can be reluctant to tell grantees what to do because
    
    • they wish to be detached and objective and not involved in funded projects
    • they don't have staff or resources to support funded projects
    • they have respect for the independence of grantees
  • A lack of a market that drives foundations to be more effective and outcome oriented.
  • A tendency to prefer being detached and objective and not involved in funded projects

A third area that contributes to foundations' difficulty in sticking to strategy is a lack of emphasis on results that lead to a change or impact. A reason offered for this is that the quality of grantee operations may be based on foundation's perception of a grantee's organizational efficiency rather than a grantee's social results.

Next Time: Evaluation, Proposal Vetting, and Consultants and Their Relationship to Foundation Effectiveness