• Why foundations have trouble becoming more strategic (part one and two)
• Failure as a key to foundation effectiveness
• Foundations’ undue attraction to quantitative analysis for evaluation
• Foundations becoming better learning organization

If you’re working in philanthropy or advising donors, take some time to read through his ideas.  He poses some great questions and challenges for donors and foundations working to focus their grantmaking.

For fun, here are the buzzwords in Bingo format (Philanthropy Buzzword Bingo) to play during your next meeting with foundation staff.  Let me know if you win.

Stage 3:  Denial of Risk and Peril – Collins’ team found that in this stage, leadership continues to ignore mounting internal warning signs, explains away negative date trends or blames them on others, or spins ambiguous data.  Teams no longer engage in honest dialogue to analyze situations and solutions.  The results quickly show in deteriorating financial ratios and stakeholder loyalty.  I’ve seen this happen most often in the nonprofit sector as executive directors attempt to shield board members and donors from negative trends or the consequences of their own mistakes.  They’ve tended to display the hubris described in Stage 1 to external stakeholders while developing more dictatorial management internally.  Based on Collins’ book, answering “yes” to any of these questions indicates warning signs of this stage of decline:

• Does management discount negative news or data trends?  Do they only look at the positive side of ambiguous data?
• Is the organization pursuing bold goals or big bets without any accumulated experience or data to prove they could work?
• Is there a decline in the quality and amount of team dialogue and debate, or a shift toward quick consensus or dictatorial management?
• Does management externalize blame rather than accept full responsibility for setbacks or failures?

Stage 4:  Grasping for Salvation – companies that declined pursued silver bullet solutions that didn’t provide lasting results. They showed their mediocrity through chronic inconsistency and desperation.  The companies that turned around did so by making a series of well-executed decisions and changes based on facts and research, and by creating greater clarity around their core strengths and then providing resources to those strengths.  I’ve seen nonprofit boards more often than staffs pursue silver bullet solutions.  Often they’ll replace the CEO with a well-known civic leader, attempt big new productions or events to attract audiences and donors, and/or cut into the core of the organization’s services.  The organizations that kept declining seemed to lurch from one idea to another in search of success.   Two organizations that turned around did so through collaborative and deliberative work with their donors and customers over a number of months.

Answering “yes” to any of these questions indicates warning signs of not making it out of this stage of decline:

• Is the organization looking for a charismatic leader or outside savior, or pursuing other silver bullets such as big acquisitions, untested new strategies, or radical organizational or cultural transformations?
• Are big decisions being made in panic and haste instead of in disciplined, fact-based deliberation?
• Are leaders selling the hype of new ideas and directions before they deliver results?
• Is there a sense of confusion, dashed hopes, and/or cynicism?  Do stakeholders no longer believe in what the organization says it stands for?  Have they lost faith in its ability to prevail?

Stage 5: Capitulation to Irrelevance or Death – the leaders have abandoned any hope of creating a great enterprise and either sell out, allow the enterprise to atrophy into insignificance, or allow it to die.  Collins writes more than once that Stage 1 doesn’t automatically lead to Stage 5, but also warns that the longer a company spends in Stage 4, the more likely that Stage 5 occurs.  Organizations in Stage 5 answer yes to the following questions:

• Is the organization still earning money but has increasing debts (no working capital)?
• Are the leaders exhausted and dispirited?
• Does the organization not have a seriously compelling answer to the question, “What would be lost, and how would the world be worse off, if we ceased to exist?”

Conclusion

Collins writes, “Institutional self-perpetuation holds no legitimate place in a world of scare resources; institutional mediocrity should be terminated, or transformed into excellence.”  The philanthropic sector continues to debate “Are there too many nonprofits?” when the real question is “Are there too many mediocre or insignificant nonprofits?”  I agree with Collins’ team that the point isn’t to struggle to survive; it is to deliver great results and make a distinctive impact.

I’ve been involved in some way in closing three nonprofits.  It was hard emotionally to be sure, but in each case it allowed what few charitable resources were remaining to be put to better use elsewhere.  Unfortunately, most nonprofits I’ve seen in decline don’t make the decision to close soon enough – they wait until Stage 5 when everyone’s spirit, resources, and goodwill are already gone.  How the Mighty Fall should be recommended reading for any nonprofit or foundation leader that wants to reverse decline before it is too late.

What do you think?

The shorthand result of Collins’ team’s research is that organizational decline is largely self-inflicted, can be avoided, and can be reversed.  The team found the companies mostly shared five stages of decline, going through them at varying depths and paces.  I think what they learned can also serve as good warning signs for nonprofits and foundations.

Stage 1:  Hubris Born of Success – great enterprises can become insulated by success and allow it to blind them from continuous learning.  In my work, I’ve seen successful funders coasting on good investment returns, successful nonprofits boasting about their awards and short-term wins, and both ignoring early warning signs from their stakeholders – all in the name of “look how successful we are!”  Based on Collins’ information, answering “yes” to any of these questions indicates warning signs of this stage of organizational decline:

• Does your management team see success as “deserved” rather than something fortuitous or hard-earned in the face of daunting odds?
• Does management constantly distract itself with new opportunities, adventures, or extraneous threats?
• Is the rhetoric of success (“We’re successful because we do these specific things”) replacing continuous questioning of why specific things work and under what conditions they’d no longer work?
• Have management staff members lost an orientation to ongoing learning and inquisitiveness?

Stage 2:  Undisciplined Pursuit of More – overreaching and undisciplined growth damaged companies far more often than complacency.  They lost sight of the disciplined creativity (or “hedgehog” in Collins’ terminology) that led their enterprises to greatness in the first place.  They also lost sight of keeping talented people in key positions and planning for healthy leadership succession.  I think it is especially easy for foundations and nonprofits to confuse growth with success – to confuse more income and customers with high-quality impact.  Answering “yes” to any of these questions could mean warning signs of this stage of decline:

• Does your organization confuse big with great?
• Do your staff answer the question “What do you do?” with a statement of personal responsibility (their stake in the organization’s success) rather than a simple job title?
• Is there a declining proportion of talented, productive people in key positions?
• Are bureaucratic rules subverting the ethic of freedom and responsibility that marks a culture of discipline?
• Is management investing more (money, acclaim, privileges…) in itself and less in building the long-term greatness of the organization?

I’ll cover the other three stages of decline in my next post in a couple days.  In the meantime, do any of these problems sound familiar to you?  Do you think foundations and nonprofits are as susceptible to hubris and lack of discipline as businesses?

The University of Pennsylvania’s Center for High Impact Philanthropy provides one set of practical answers through its new, free “High Impact Philanthropy in the Downtown” report.  The 50-page report examines three areas in which donations and grants can both meet immediate needs and prevent large future costs to our communities:

• Housing (foreclosure prevention) through housing counseling and outreach programs
• Health through community health centers and targeted prevention and outreach programs
• Hunger through emergency food providers and easing access to public benefits programs

I like the Center’s approach of basing its recommendations on a combination of the strength of research available, informed opinion from philanthropists and policy analysts, and direct observations of the programs.  (Full disclosure – I was asked to review a draft of the report.)

The report turns good research into practical advice.  For each area, the Center offers an analysis of the needs and trends, 2-3 case studies and cost-benefit analyses of effective solutions, tips for looking for best practices and asking good questions of local providers, and recommendations on sizes and types of grants that make the most difference.

Arabella Advisors offers a different set of answers in its new 2010 edition of “High-Impact Giving Opportunities.”  The free, 16-page report takes a more macro perspective by providing insights on using charitable resources to tackle:

• Climate change through policy work
• Human services through mergers and alliances
• Education improvement through better partnering with government
• Community development through mission-related investing

Take the opportunity to read both pieces.  Even if the exact issues they cover don’t meet your interests, anyone can learn from the processes they offer to plan and evaluate opportunities to make a difference.

• I know you – Campbell & Company and the Center on Philanthropy at Indiana University released a study noting that when asked in person, donors gave 19% more when compared to being asked by telephone, mail or email.  The average donation was 42% higher in religious organizations.
• We share values – the same study showed that donors give statistically higher gifts when they perceive they and the beneficiaries held similar values.
• I can meet people’s basic needs or help them help themselves (if my own income or education is lower) – the Center on Philanthropy also released a different study on motivations for charitable giving.  The study confirmed previous research that people with incomes of less than $100,000 or with a high school education or less were are more responsive to appeals for food, shelter and basic self-sufficiency.
• I can help make the community or world a better place (if my income or education or higher) – the same study showed wealthier and better educated people are more responsive to broader altruism.
• The intent of my gift is assured – Dr. Frederick Fransen and Dr. Keith Whitaker note in their article in Investments & Wealth Monitor that donors increasingly want long-term controls and assurances placed on large gifts and bequests.
• Your nonprofit brand is strong – BBMG’s “From Legacy to Leadership” white paper reports that to attract and sustain my loyalty, your nonprofit will need to successfully answer three questions:  “How does this brand improve my life?”, “How does the brand help me make a difference in the world?”, and “How does the brand connect me to a community that shares my values?”

Each of the reports and articles goes more in-depth than these quick bullets.  There’s probably nothing radically new in the information provided.  However, each provides solid evidence and advice as nonprofits think through their 2010 plans for fundraising and communications.

Bill shared these lessons, amongst others, on the webinar:

• Community is not the network of relationships but the value and functionality that comes from those relationships
• Traditional community improvement work tends to, in Bill’s words, “fetishize structure and form, and emphasize institution building to the detriment of building a connected environment.”  Neighborhood residents, nonprofits, and grantmakers aid and abet the problem.
• Neighborhood networks need to be less structured with low thresholds for participation – “flexible environments filled with ambitious, creative people who are working on their stuff and engaged in public life”
• Lawrence CommunityWorks has built a more network-centric organization and program structure through: constantly building person-to-person connections, fostering open architecture of groups and a club-like membership structure, and offering activities that are “value propositions” instead of services.
• Donors and funders should be more patient and flexible when supporting networks and focus more on growing forms of connectivity instead of growing specific organizational structures.  The development of successful neighborhood networks takes time, needs room to experiment, and is rarely linear.

Bill’s ideas were similar to the works I cited in my last post – networks that create real community results rely on:  durable, trusting relationships, a clear value proposition for the participants, and someone purposefully connecting people and ideas.

If you want to see and listen to Bill’s presentation (and you really should want to), Grassroots Grantmakers posted it for free public access at http://www.grassrootsgrantmakers.org/page11842.cfm.  In addition, Bill blogs about these ideas and more at http://valueofplace.wordpress.com/.

And, let me know what you think about Bill’s ideas.

First, through my work for the Lumina Foundation for Education, I’ve gotten to know Paul Vandeventer.  Paul is the CEO of Community Partners and co-authored Networks That Work with Dr. Myrna Mandell.  The book is a short, “must read” guide on developing and managing effective coalitions, helping pose and answer key questions around purpose, commitment, conflict, staffing, and other issues that networks and coalitions face.  For my friends back in Indiana, Paul will be speaking at the Indiana Grantmakers Alliance conference in November.

Second, Janis Foster, Executive Director of Grassroots Grantmakers, turned me on to the blog Network Weaving.  The team has a thoughtful set of posts (here, here, and here) about how philanthropists can enhance their giving and strengthen their grantees through developing deep networks of relationships.  In a newer post, they discuss the importance of network weavers, people who intentionally connect people with each others’ assets, opportunities, and dreams.

Lastly, I ran across a short white paper by the Interaction Institute, Net Gains: A Handbook for Network Builders Seeking Social Change.  The authors believe the nonprofit sector lags behind the business sector in using networks to innovate and grow.  They then sketch out five strategies for accelerating the use of networks to improve nonprofit impact.

These resources reminded me that funders and nonprofits alike enter into networks and coalitions too lightly.  Getting organizations together to work on an issue, or even just to learn from each other, takes far more time, thought, and resources than we typically devote.  The results are typically frustration all around and coalitions and relationships that don’t begin to reach their potential.

I suspect I’ll be running into coalition development issues in my work in the coming months and am glad to have these new resources at my fingertips.

In one chapter, Sobel cites the work of authors Venkat Ramaswamy and Francis Gouillart on “experience co-creation.”  They note the business environment is increasingly driven by intensified competition, commoditization of products and services, and customers that are highly knowledgeable, demanding, and web-connected.

Sounds like the same environment that nonprofits and donor-advised fund managers face in building relationships with donors, right?

The result is that a customer’s perception of value is no longer associated with your products or services.  Increasingly, it is associated with co-creation – the “experiences around the purchasing, servicing, and the use of a product or service…The customer is becoming an active partner in seeking, creating, and extracting value.”

Sobel uses Ramaswamy and Gouillart’s DART model (Dialogue, Access, Risk, Transparency) to challenge his readers to think about opportunities for enhancing customer interactions and experiences:

1. Lack of Dialogue – What activities – like “sales pitches” – are one-sided?  What activities prevent your customer from engaging in dialogue with you that might lead to new ideas about value?
2. Lack of Access – What customer interactions are opaque because the right information isn’t available to either your customer or you?  Where can you increase information flow earlier?
3. Lack of Risk Management – Where is there an imbalance of risk or a lack of fully understanding the risk the other party is taking?
4. Lack of Transparency – What processes in your organization are mysterious or one-sided?  Could revealing those processes lead to trust and new customer opportunities?

For my friends in the nonprofit world, I think these are great questions for anyone working with donors.  Today’s donors want more information, want transparency, want interactive connections with a cause, and more often than not want their risk in donating lowered.  Sobel’s questions and the experience co-creation concept could be great fodder for planning donor stewardship and retention strategies.

For my friends in the funder world, these are great reminders in interacting with nonprofits.  How can the grant process be more of a two-way dialogue, be less opaque, be a better balance of risk and reward?

What do you think?  What would it look like to spend more time co-creating experiences with your customers?

However, two recent news items caught my attention, and I thought they were worth sharing.

Ken Berger, President & CEO of Charity Navigator, has been blogging about his goal to add accountability and program outcome measures to the financial measures the organization tracks.

His most recent post links to a presentation PDF with Charity Navigator’s current ideas on scoring a nonprofit’s accountability and transparency.  The measures mirror some of the Standards for Charity Accountability by the Better Business Bureau’s Wise Giving Alliance.  While I applaud measuring transparency and accountability, it doesn’t make sense to me for Charity Navigator to create a different set of measures than the BBB or the new IRS 990.  Update 7-08-09:  Ken responded to my query on this issue and said “Our Accountability Tab will not require any additional work by charities. It comes right off the IRS 990 that all charities we evaluate have to file.”

I know that I’m something of an outlier amongst my nonprofit and foundation friends in my paying attention to Charity Navigator and the BBB.  However, I know their ratings (while imperfect) have far more traction with donors, donors’ professional advisors, and the media than do the opinions and reports of foundation staff.  And those donors give far more than foundations do annually, so it does make sense to pay attention to where donors are getting advice.

The other item I caught is the next iteration of work by the Alliance for Effective Social Investing, a powerhouse group of staff from foundations, nonprofits, consulting firms, and other national groups.  The Alliance published a new social value assessment tool for nonprofits in April.  The 31-page tool, primarily for use by external evaluators, has thoughtful questions rating a nonprofit’s:

• Tactical use of data and outcomes
• Strategic use of information to drive program decisions and manage staff
• Program fidelity and impact.

The individual questions likely appear in some form in other organizational assessment tools used by consultants.  This tool packages the results into a good rating of risk in giving to the nonprofit.

The tool is still being tested and the Alliance is still gaining traction.  But I think given the organizations and people involved, nonprofits and foundations will want to start paying attention to these ideas too.

Your thoughts on the use of these types of tools by donors and consultants?