Fall 2001

Are We Effective?
Minnesota Grantmakers Explore How to
Improve Organizational Effectiveness

The term "organizational effectiveness" is the latest buzzword in grantmaking circles. One of the youngest and fastest-growing national grantmaker affinity groups is Grantmakers for Effective Organizations (GEO), with more than 400 members and counting. In Minnesota, organizational effectiveness is the focus of a new member network at the Minnesota Council on Foundations, the theme of the Council's annual conference this fall, and a new funding area for some grantmakers.

Just what is organizational effectiveness? And what does it mean, exactly, to be an effective grantmaking or nonprofit organization? To get some answers, "Giving Forum" talked to some of the most active local grantmakers on the issue. Their responses show that organizational effectiveness is challenging some foundations and corporate grantmakers to rethink their funding strategies, redefine effective grantmaking, and revisit how to best meet the needs of nonprofits.

Mark Lindberg, who manages Otto Bremer Foundation's new Organizational Effectiveness Program, stresses that effectiveness is more about being mission-directed and less about having a strong administrative structure. "Organizations can be run very well administratively but still lack a focus when it comes to mission," he says. "Strengthening organizations is not an end in itself."

What Is Organizational Effectiveness?
Like any relatively new concept, the definition of "organizational effectiveness" (OE) is still in a state of flux. Some people equate the term with technical assistance, management assistance, organizational development or capacity-building. Others use the term to describe the funding of a nonprofit's general operating expenses. Grantmakers working in this area say that organizational effectiveness can include all of these things but is much more.

"Organizational effectiveness is really a catchword for a group of related concepts (about) the quest for quality and accountability among nonprofits," says John Molinaro, vice president, program, for West Central Initiative in Fergus Falls. "I think it's the nonprofit version of the term 'organizational excellence' used in the for-profit world."

GEO offers its own working definition of organizational effectiveness as "the ability of an organization to fulfill its mission through a blend of sound management, strong governance and a persistent rededication to achieving results."

What Is an Effective Grantmaker?

What are the characteristics of an effective organization? To answer this question, some local grantmakers point to the six characteristics developed by the Ewing Marion Kauffman Foundation in Kansas City, which has been making OE grants since 1997. Kauffman defines an effective nonprofit as one that is mission-directed, adaptable, customer-focused, entrepreneurial, outcomes-oriented and sustainable. Local OE funders agree that these characteristics are the same for both effective grantmakers and effective nonprofits, although the detailed attributes will vary for each. Here are their views on each characteristic:

• Mission-Directed. The characteristic of an effective grantmaker mentioned most frequently by OE funders is "mission-directed" — the organization knows what its mission is and directs all its efforts toward achieving that mission. "So many foundations get caught up in the day-to-day of just getting money out the door and not focusing on what their mission really is," says Brad Kruse, organizational development specialist for the Initiative Foundation in Little Falls.

An effective organization not only has a clearly articulated mission but also has buy-in on the mission from everyone involved in the organization, including staff, board and volunteers. "When every person in that organization can articulate its mission and feel like they contribute to that mission, to me that's a sign that the organization is effective," says Claire Chang, senior program officer at The Saint Paul Foundation.

Another sign that an organization is mission-directed is that it revisits its mission regularly to make sure it is still relevant. Staff members at the Otto Bremer Foundation in St. Paul, for example, conduct an annual planning retreat where they focus not on administrative details but on identifying the opportunities for, and barriers to, meeting their mission. Mission-directed organizations also tend to have a business and/or strategic plan that is clearly tied to the mission.

• Customer-Focused. Effective organizations are ones that know how to pay attention to what their customers need and respond to those needs. "It's engagement with your clients or grantees and a willingness to really get in the trenches and work with them to understand what they're struggling with and to try to engage them at that point," says Molinaro.

For grantmakers, a key aspect of a customer-focused orientation is to be responsive and not prescriptive — giving nonprofits what they truly need and not what you think they need. "As funders we may have limited expertise in the issues and challenges faced by nonprofits, and we can't pretend we're experts when we're not," says Mary Pickard, president and executive director of The St. Paul Companies, Inc. Foundation. "But we certainly can be counselors in terms of listening and asking the right questions to help people think through what it is that they need to do."

A key way for grantmakers to be customer-focused is to incorporate feedback from grantees into their regular operating processes. The St. Paul Companies, for example, has been conducting an annual survey of its grantees for the past ten years. In the survey the company asks grantees to rate it on four attributes of effectiveness and asks basic customer-service questions about their experience with the application process — did they get the guidelines when they asked for them, for example.

West Central Initiative has undertaken a continuous improvement strategy in which it is constantly out in the field listening to its customers — donors, grantees and communities. Over a two- or three-year period, WCI tries to visit every one of the 83 communities in its nine-county service region.

• Adaptable. Effective grantmaking organizations are willing and able to meet changing community needs and adapt to a changing external environment. For Mark Lindberg, senior program officer at Otto Bremer Foundation, a healthy organization is one that can anticipate or incorporate change without the entire organization being disrupted by the change. He says adaptability is characteristic of a "learning organization," which describes an organization that is constantly challenging itself and creating opportunities to learn and change in response to changes in its environment. "It's an organization that regularly commits both resources and time to think critically about how it does its work," he says.

Lindberg suggests that one tangible indicator of a learning organization is that it has specific line items in its general operating budget to support regular opportunities for staff and board members to review and assess their work, such as an annual planning retreat.

One step that Otto Bremer has taken to be a continuous learner is to change its internal grant review cycle slightly to allow time for staff and trustees to meet with representatives of different geographic or sector-specific communities every other month. These meetings enable the foundation to learn more about what is going on in its areas of interest.

OE funders agree that the fear of change is perhaps the biggest barrier to effectiveness for any organization and particularly for foundations, which are insulated from the profit-making pressures that are the impetus for most true organizational breakthroughs. "All the research shows that organizations that really exude excellence almost always get there because of a near-death experience," Molinaro says. "The problem foundations have is that they're insulated from a near-death experience. Their revenue stream isn't likely to become threatened to the extent that as an organization they're going to step back and say 'what do we have to do to survive?' And that question is the one that drives most organizations off dead-center and moves them in the direction of becoming effective."

Foundations can also face legal barriers that prevent them from changing. If a donor specifies in her will that the foundation must contribute to specific charities, for example, it is difficult for a foundation to change that unless the recipients fold or merge.

To help grantmakers be as adaptable as they can within their legal constraints, OE funders recommend that they be much more deliberate and proactive in creating an impetus for change themselves — since the external environment won't do it for them. Staff and board members need to schedule regular opportunities to sit down and clearly identify the status quo and to challenge themselves to determine if the status quo is still what they should be doing to achieve their mission effectively.

• Entrepreneurial. Effective nonprofits will be entrepreneurial in pursuing new opportunities, resources and innovations to achieve their missions. For grantmakers, this often translates into a willingness to fund new approaches to solving problems and to seek out new funding methods and strategies.

To be entrepreneurial, an organization needs to be flexible and willing to take risks, and local OE funders claim that grantmakers usually fall far short of the mark. "For grantmakers as a field, most of us don't tend to be labeled by our constituents as risk takers," says Chang. "We tend to be perceived as more conservative; wanting to put our money on the sure thing."

Pickard agrees that grantmakers need to become much more comfortable with taking risks and having faith that people will do the right thing. "It's important to understand that every once in a while it's not going to work, and that the important thing is to get the lessons out of it," she says. "But when you take a risk and it works, the returns are exponential."

• Outcomes-Oriented. An effective nonprofit is outcomes-oriented, which in large part means that it has defined clearly the results it wants to achieve, is able to regularly measure and evaluate its progress in achieving those outcomes, and can use those measures and evaluations to make adjustments as necessary.

"A well-defined, regular outcome-oriented evaluation plan asks the 'so what?' question — 'So what have we done to make things better?'," says Molinaro. "That's a very difficult question to ask oneself."

Pickard points out several reasons why grantmakers in particular have a difficult time answering the "so what?" question: lack of time, lack of skills in this area and lack of good information. "We often need to rely on outcomes measured by the nonprofit community, and the nonprofits don't always have the resources to provide this information," she says. "Learning how to measure outcomes provides a great opportunity for nonprofits and for funders. This is an evolving field and we need to explore it in more depth."

OE funders offer several recommendations for grantmakers that want to become more outcomes-oriented. First, commit resources for regular external evaluations of your work — holding your organization to the same or higher evaluation standards to which you hold your grantees. Second, ensure that your strategic plan incorporates appropriate outcomes and evaluation measures.

Third, Molinaro challenges grantmakers to develop outcomes that focus on doing better rather than on doing good. "It is very easy in this world of ours to do good," he says. "It is very difficult to do better — to quantifiably take the existing situation and move it to some place where things have fundamentally changed for the better."

• Sustainable. Kauffman's final OE characteristic is sustainability, which focuses on a nonprofit having a sound and sustainable financial structure, including proper financial management systems and diverse, healthy funding sources and relationships. Some local

OE funders expand Kauffman's definition of sustainability to include a well-developed administrative structure — human resources, technology, office management — that's appropriate to the mission.

OE grantmakers point out that a common misperception about improving organizational effectiveness is that it is equivalent to developing an efficient organization. "Organizations can be run very well administratively but still lack a focus when it comes to mission," says Lindberg. "Strengthening organizations is not an end in itself."

Funding Organizational Effectiveness

Some local grantmakers have been funding certain aspects of what is now being called "organizational effectiveness" for many years. Since 1980, for example, The St. Paul Companies, Inc. has provided OE-type grants to help strengthen the nonprofit sector.

Recently a few Minnesota grantmakers have added new funding areas that reflect the latest concepts of the current OE movement. Last year the Otto Bremer Foundation launched its Organizational Effectiveness Program, which will invest about $5 million in nonprofit effectiveness over the next five years, and the Initiative Foundation launched the Healthy Organizations Partnership (HOP) program, which includes discretionary OE grants as well as more extensive two-year training and assistance.

Grantmakers who fund organizational effectiveness offer several learnings, including:

• Needs are similar regardless of organization size, according to Kruse. He says that two very different HOP participants — one with a seven-member staff and $300,000 budget and one with a part-time executive director and $35,000 budget — asked "amazingly similar" questions during the application phase.

• For new nonprofits, general operating funding can be more useful than OE funding, says Pickard, because grants for OE-specific activities such as strategic planning or management transition aren't very useful when a nonprofit is just getting its bearings. "For smaller emerging organizations, having significant operating support is what allows them to do all the things they need to do to experiment and to build an organization," she says. "It's the venture capital."

• Consider "buying time." Many nonprofit leaders are stretched so thin that they can't devote adequate time to critical thinking, leadership development and other important OE areas. That means a funder should go beyond covering consulting fees to provide operational support that allows the executive director to shift some responsibilities to other staff.

• Trust is important. A nonprofit may be hesitant to seek support to improve its effectiveness if it thinks this will lead funders to make judgments about it as being poorly run. "We have to have a mutually respectful relationship in order for this to work," says Pickard.

• Walk the talk. OE funders agree that grantmakers won't be successful in funding this work unless they are working on their own effectiveness. "Those that haven't gone through the struggle of looking at their own organizational effectiveness probably aren't going to get much beyond the administrative piece," says Molinaro. "It takes having lived it and integrated it to really understand how to work with others on these issues."

• OE support IS direct support. Some funders may be hesitant to provide OE funding because of a perception that it does not meet immediate programmatic needs. But Lindberg stresses that OE support can in fact maximize a funder's investment in programming: "I've heard very compelling stories from executive directors of nonprofits who have said, 'The capacity-building support that you are giving is directly impacting the work of our folks on the ground.'"

• OE support should be customized. According to Molinaro, the biggest mistake funders make in providing OE support is to assume that it is the same for every nonprofit, when in fact it needs to be customized because each organization is in a unique place. "There's very little we can do with organizational effectiveness with standardized curriculum in classes," he says, "and it seems for most of us to be the easy way out."

Sustaining the Momentum

A potential danger in the rapidly growing popularity of grantmaking for organizational effectiveness, say local funders, is that expectations about nonprofit performance are rising but the field itself is still developing. OE funders believe that the OE movement holds tremendous potential for nonprofits — and grantmakers — to improve the impact of their work in meeting societal needs. However, "some funders are still trying to connect the utility of OE funding with their traditional grantmaking programs," says Lindberg. He adds that the role and expertise of consultants is another aspect of the work that offers several challenges. "If this work isn't done well," he says, "it will quite possibly become another one of those faddish buzzwords that comes up from time to time in philanthropy but fails to meet its potential."

If funders want to support OE, Kruse encourages them to commit to it for the long haul. "People that want immediate results this quarter shouldn't dabble in organizational effectiveness work," he says, "because it takes years and years and years for organizations to really evolve and change and improve."

Although organizational effectiveness is the trendy new term, Molinaro suggests that the basic concepts behind organizational effectiveness are really no different than those of all the other management movements we've seen in the past. "The challenge and issues that we face today and in the next five years with getting to organizational effectiveness are the same ones we faced in the last 30 years," he says, "and that's to break out of our complacency as organizations so that we will take the time and the effort to look at how we can change for the better." GF

More Information

Grantmakers for Effective Organizations
www.geofunders.org

"Profiles in Organizational Effectiveness for Nonprofits" 
Ewing Marion Kauffman Foundation
www.emkf.org/youth_development/reach2001.cfm

© Copyright 2001 Minnesota Council on Foundations
Reproduction in any form without the written permission of the publisher is prohibited.