23 Feb 2004  Research & Ideas

It’s Back to Business-Basics for Nonprofits

Moving from theory to practice: Former HBS professor Jeff Bradach shares practical advice on how nonprofits can improve their strategy and produce measurable results for their cause and donors.

 

To transform lofty aspirations into quantifiable impact, nonprofits need to become more familiar with traditional business tools such as business plans, precise mission statements, and goal setting to improve their performance.

That was the message from Jeff Bradach, co-founder and managing partner of The Bridgespan Group, a not-for-profit strategic consulting firm dedicated to nonprofits. Bradach spoke to an audience at Harvard Business School on January 21, 2004 as part of the Social Enterprise Faculty Seminar Series.

Today's business climate demands accountability from organizations. At the same time, both for-profit and nonprofit companies are subject to intense media scrutiny and increased expectations to account for their actions. These changes, Bradach said, are starting to have a profound effect on how nonprofits view themselves. There is growing competitive pressure on nonprofits to focus on their organizations and strategies, not just the social value their organization creates. Even more importantly, nonprofits are beginning to look at ways to produce measurable proof that what they do works.

As a former HBS professor, Bradach was able to share a unique perspective with the audience, comparing the recent focus on nonprofit strategy to the rise of interest in for-profit strategy in the 1970s. In Bradach's view, the sector is on the front end of a curve, with nonprofits less afraid to look critically at what they do and how they do it.

The good news is that everything is not equally worth doing.
— Jeff Bradach

Bradach said when he moved from the classroom to consulting he was surprised to find so many nonprofits lacking a basic business theory to run their organizations. The philosophies of the Bridgespan Group changed as they realized they could help nonprofits more by educating them on building business frameworks and developing organizational strategy. "There are core questions that help teach organizations how to perform," he said.

Working to strengthen the underlying strategies of nonprofit organizations, Bradach and his group have identified what they see as major strategic stumbling blocks. The process of overcoming these problems can help nonprofits develop clear and measurable strategies for success.

Lack of clarity about intended impact

What do you want to do, and how will you know when you've done it? These are two upfront questions that Bradach says often end up consuming the most time with new clients. Nonprofits need to think about what they are trying to accomplish, and be able to translate these goals into specific, workable terms. Bradach recommends that nonprofits consider a few basic questions to help them formulate their intended impact:

  • Who are the intended beneficiaries?
  • What benefits do our programs create?
  • What do we want to maximize?
  • How do we define success?
  • What won't we do?
  • What would make us obsolete?

To illustrate, Bradach introduced the example of Bridgespan Group client Harlem Children's Zone (HCZ). Their mission is to "improve the lives of poor children in America's most devastated communities." While this mission inspired volunteers, donors, and even management, it didn't communicate a plan of action. How can an organization measure the success of its programs against such a lofty goal? Bradach demonstrated ways to ask questions in order to create specific goals. In the example of the HCZ, he advised them to define which poor children they plan to help. He went on to ask: What are the ages of the target children? Exactly what improvements would they look for? What will success look like?

With a clear intended impact, organizations know what they are accountable for, and can more reliably measure their achievements.

Problems defining theory of change

As defined by the Bridgespan Group, theory of change explains how an organization will achieve its intended impact. Organizations need to understand and identify cause-and-effect relationships in the sector they serve, and decide which relationships they will support. For example, many organizations aspire to end homelessness, but they focus on different elements of the homeless problem. Some support job training, while others are involved in healthcare or advocacy. HBS professor V. Kasturi Rangan pointed out the question organizations need to answer: What can this organization do to solve this aspect of the problem?

Bradach suggested points to consider in the development of the theory of change:

  • What do you think your beneficiaries need in order to achieve the intended impact?
  • What are the most important elements of your programs' content and structure? How do these lead to your desired outcomes?
  • What was the thinking behind the selection of these elements in achieving your intended impact?
  • What is the minimum length of time that a beneficiary needs to be engaged to achieve the intended outcome?

"The idea is not to kill the mission," he said. Nonprofits simply need to understand and define what comes between the grand, inspirational mission and the activities and programs of the organization. By letting this in-between area remain grey, organizations have no way to measure whether programs are working, or even know if they are on the right track.

Confusion over what things cost

Bradach was surprised to find that many organizations have a weak understanding of their costs. "It is critical to understand the underlying economics of the organization," he said. In order to get a handle on how money is spent, he recommends that companies do a series of basic cost allocation exercises. One helpful exercise is for nonprofit leaders to measure their perceived costs against real costs. Bradach has found that these estimates are often wildly divergent. Organizations also need to look at their activities, and really map out how much each of these activities is costing them.

How do you take available resources and achieve maximum social impact with them?
— Jeff Bradach, The Bridgespan Group

"They need to understand the different pieces of the puzzle, and what each of these pieces ends up costing the organization," he said. Once clients actually chart their resource allocation, they often see that their spending doesn't align with what they had identified as key points in their mission. "These can be surprisingly eye-opening for top execs."

Difficulty making hard choices

Once an organization has the clarity of knowing what it wants to do, what it will hold itself accountable for, and what it will cost, there will be difficult choices to make. Some programs may be popular and even effective, but may not align with the newly formed intended impact and theory of change. The bad news, Bradach explained, is you can't do everything. The needs and challenges nonprofits face are extraordinary. What nonprofits are trying to do is extraordinary. Resources are limited.

The good news is that everything is not equally worth doing. By clarifying and defining intended impact and theory of change, organizations can gain the clarity they need to make the important decisions of how to allocate time, money, and staff.

The most important piece of the strategic challenge is to make decisions that create the tightest fit between actions and intended impact. An organization's choices must reflect its priorities.

Once leaders have asked the right questions, the resulting clarity will help them with difficult choices they need to make to be effective. "The question that drives all of this is really Economics 101," says Bradach. "How do you take available resources and achieve maximum social impact with them?"

About the author

Manda Salls is the Web editor for Baker Library.