November 30, 2009
November 25, 2009
Upon joining the non-profit sector, a number of people opined to me that they are happy I’ve decided to dedicate my time and effort towards strengthening the sector’s work. In fact, one of the sound bites I kept hearing is that non-profits – despite their inability to sell equity (and thus raise money through either private investors or the larger public capital market) or the lack of an agreed upon “profit” metric for measuring organizational success – need to behave more like for-profit businesses. So, listen up my fellow non-profit professionals, I’m going to impart some words of wisdom I learned from my days working in the for-profit world (at institutions such as Freddie Mac, UBS Investment Bank, and others).
We need larger pay packages to attract and retain qualified professionals. In order to create the type of fast thinking, innovative companies such as AIG, Bear Stearns, Enron, Tyco and others, we need to increase our compensation packages. Currently, this kind of fast-thinking/innovative executive talent retails for approximately $10.5 million, or roughly 344 times the average worker’s salary ($30,700). Since the average executive director of Southwestern Pennsylvania only makes a mere $96,110, or 3.6 times the average worker’s salary – that’s a lot of innovation we’re leaving on the table! Lesson #1: if we are to attract for-profit executive talent then we must start paying our non-profit executive directors better.
Ignore sustainability and adopt a “do whatever it takes” attitude to exceed your short-term goals. We in the nonprofit sector spend far too much time talking about creating sustainable programs and achieving long-term outcomes. Instead, we need to adopt a more market-centric view of the world, just as for-profit businesses have to when their performance is measured by the market. Take General Motors, for instance. In the late 1990s and well into the first decade of the 21st Century, GM ignored suggestions that the company should rethink its focus on the sale of light trucks and SUVs and instead become a pioneer in the production of fuel-efficient (sustainable) automobiles. However, GM’s short-term focus on becoming the premier seller of light trucks and SUV (its most profitable product line) seemed to be paying off:
In 2002, GM sold more than 8.5 million cars and trucks and was the first auto manufacturer to sell 1.2 million SUVs and 2.7 million trucks in a calendar year. The company set industry sales records in the United States and owned nearly 15 percent of the global vehicle market. And investors took notice – the company’s stock rose approximately 45% over the next year.
Of course, you know the rest of the story by now – fuel prices rose and consumers grew tired of paying for non-fuel efficient vehicles. GM was stuck with a bunch of cars and trucks (mostly trucks) that they tried to “give away” with 0% financing and large rebates – again, focusing on exceeding the company’s short-term sales numbers even at the expense of hurting long-term profit margins – but nobody wanted them. Lesson #2: for-profits rarely practice sustainable planning so why should your organization.
Transform your board. Nonprofit executive directors, not only are you egregiously underpaid relative to your for-profit brethren, but also you need to hold more board power. This year’s Nobel Memorial Prize in Economics winner, Oliver Williamson, in a recent article, “Corporate Boards of Directors: In Principle and in Practice,” submits that today’s corporate boards are largely ruled by the CEO and are passive financial stewards. He writes:
The CEO is in de facto control of the operation and composition of the board…most boards most of the time are responding with nodding approval, and boards are beset by inertia, hence are slow to become active when the corporation experiences adversity” (260).
In hindsight, we’ve spent far too much time espousing the idea that nonprofit boards need to be active and chart the agency’s strategy, raise money, etc. After all, when is the last time you heard of a corporate board functioning this way? No, on a corporate board the CEO/Chairperson sets the agenda and the remaining board members are asked to “nod in approval.” Lesson #3: we need to retrain our board members to be passive financial stewards and centralize all power with the executive director (and newly appointed chairperson).
As you read these “lessons,” I hope it is apparent by now that there is an awful lot each sector – the for-profit and non-profit – can stand to learn from one another. I think the three lessons above illustrate areas the for-profit sector should take a cue from the nonprofit sector and consider adopting these practices. Conversely, there are a number of for-profit practices – strategic planning, capital budgeting, using data to inform evaluative programmatic judgments and more – that I believe are beneficial for nonprofits to adopt. However, to think that either sector has a monopoly on best practices is just over simplistic and flawed logic. As Jim Collins’ writes in his monograph Good to Great and the Social Sectors, “We need to reject the naïve imposition of the ‘language of business’ on the social sectors, and instead jointly embrace a language of greatness” (2). Touché, Jim.
September 22, 2009
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Every year thousands of executives and senior level managers spend millions of dollars trying to answer the question: how do I better run my organization? To accommodate this demand, a plethora of management books, tools, workshops, and lecture circuits are annually launched. Fortunately, every so often, a management book is written that presents a novel approach or unique solution – and Matthew May’s In Pursuit of Elegance is one such book.
While May’s book focuses on the creative process of crafting “elegant” solutions, yet another salient idea that surfaces from the novel is what he calls the “Law of Subtraction.” The Law of Subtraction says that an organization should seek to continuously improve the quality, cost, and delivery speed of its product/service (value-adding).
Summoning the lessons from his nearly ten years of work experience with the Toyota Motor Corporation, May suggest that well run organizations (value-adding) do this by focusing on eliminating to the best of their abilities the things that hurt quality, raise costs, and slow things down. To repeat: great organizations achieve their goal of continuous improvement by eliminating the things that negatively impact quality, costs, and time.
A simple case study will illustrate this point: Fortune magazine in March 2008 named Apple “America’s Most Admired Company,” as well as “Most Admired for Innovation,” honors stemming from the launch of its hugely successful iPhone. However, this market-changing innovation occurred as a result of Apple’s stop-doing strategy – or its implementation of the Law of Subtraction. As CEO Steve Jobs put it:
“We tend to focus much more. People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of many of the things we haven’t done as the things we have done.”
In practice, the Law of Subtraction suggests that your organization’s leadership team carefully define what mission-related product/service it excels at delivering and then begin the process of allocating resources in a “subtractive” manner. In the case of May’s old employer, Toyota, this approach (called the practice of Kaizen) decreased employee stress levels; led to higher and more consistent job performance; and reduced the wasteful use of organizational resources.
As you begin to think about your own nonprofit organization, and how the Law of Subtraction might apply, start by asking a classic Peter Drucker question: If you weren’t already in a particular program, would you start it today? If the answer is no, May’s Law of Subtraction suggest you may have found a jumping-off point.
August 19, 2009
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I was supposed to do a blog post yesterday and I missed my target. But…I have a very good excuse.
All this week, the Bayer Center is hosting The Grantsmanship Center’s Training Program. I am attending and it is awesome! I am learning so much about grants and the search/proposal process. Development is certainly an art form!
The trainer from TGC is excellent as well. She very obviously has years of experience in development and proposal writing and shares her knowledge as well as lots of real world examples and stories. Today we start working in groups and will produce a full-fledged proposal by 1:30 tomorrow afternoon!
If anyone wants to learn more about this workshop, here’s the link to the information for it on TGC’s website: http://www.tgci.com/gtptraining.shtml.
July 23, 2009
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I have the blessing of going through a kitchen renovation right now. I have to wash dishes in the slop sink in the basement, and microwave food on the window seat in my entry way. I have to search for 10 minutes just to find my salt. I have to wade through boxes of kitchen stuff in the guest room just to get a book off the bookshelf.
And… I had to empty my junk closet to let the contractors re-route a heating duct. I’ve lived in my house 9 years and have added 3 children over those years. So there was a lot of opportunity to stuff it full. As I emptied it, I was embarassed to see what I had been “saving” for that perfect moment. I had saved a ripped inexpensive raincoat that I thought I might need if I went caving again; the bridesmaid dress from my sister’s wedding that I would never wear again. Throwing things out or putting them in a giveaway bin was painful, but once I got started, it was freeing.
This afternoon, I also met with a leader of an organization going through a strategic planning process. We talked about the SWOT analysis and a MacMillan Matrix–a process to determine which programs fit the mission, have opportunity to grow (what needs to be done, and has funding to get done), what his organization already does well, and if there is passion or energy to get it done. It gives him an opportunity to ask his board and community leaders–what is most important to them, and what is worth investing in.
I realize that although there isn’t much of a silver lining to these economic trials that families and nonprofits are going through, there is an opportunity. It gives us the “pain” needed to make difficult decisions–to get rid of the less needed/past their prime/not working very well programs that a nonprofit may have. A chance to realize that your resources could be spent better in other ways.
In the end, I will have a renovated kitchen. But an unintended benefit will be the newly organized, half-empty closet– full of opportunity.
June 26, 2009
When I was thinking about some of our nonprofit clients recently, it led me to muse yet again about Heisenberg’s uncertainty principle. I mean, doesn’t everyone ponder subatomic particles when they think about nonprofits? Or is it just me?
Anyway, Heisenberg’s uncertainty principle is one of the core tenets of quantum physics. Most simply, what it tells us is that you can’t know both the precise location and the precise velocity of a particle at the same time. You can know one; you can know the other. But you can’t know both. So I ask you, are you letting the principles of quantum physics get in the way of your organization?
Do you know your precise location and your precise velocity? Too many nonprofits subscribe to the uncertainty principle and just know one or the other – they know where they are, but they’re not sure where they’re going, or else, they have a definite destination in mind, but they don’t really know where they’re starting from.
In the first case, they might monitor their activities in great detail day to day. They may thoroughly understand who they serve, how they serve them, and what it costs them to do that. But if they haven’t taken the time to look externally and really figure out how the world is changing and where they need/want to be in three years, they’re merely adrift on the wings of uncertainty. They know where they are, but not where they’re going.
On the other hand, some organizations have a strong vision in mind. Their goal is clear, they know what they want to accomplish, and they think they see a path to getting there. But they haven’t bothered to look at where they are right now. What is each program costing? How does the Board assess its own performance? Why is turnover 150%? They’re hurtling into the future on a spaceship whose engine is fueled by uncertainty.
The good news is that quantum physics only applies (so far as we know) to the microscopic world of muons, leptons, and tauon neutrinos. So, since you’re a bit bigger than they are, you actually can know where you are and where you’re going. And if you want to be a strategic nonprofit, you must. Knowing both your location and velocity (i.e., assessment and vision) is the key to making sure that your nonprofit survives and thrives to fulfill its mission.
Now, as for the famous quantum physics puzzle of Schrodinger’s Cat and the notion that it’s both alive and dead until you look at it, I haven’t figured out yet how to relate that paradox to nonprofits….
Maybe next week.
June 22, 2009
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Over the last six months, Scott Leff and I have observed a greater proportion of nonprofit Boards seeking clarification of their agencies’ finances – distilling the important and necessary financial information into a condensed report – and financial health. With that in mind, the Bayer Center recently unveiled a set of diagnostic tools that we are calling our “Financial Wellness Package.” To borrow a little medical parlance, we liken it to a “financial check-up” with your friendly Bayer Center consultant.
One piece of our “Wellness Package” consists of looking at your agency’s financial performance relative to organizations of similar mission and (budget) size. As a part of this analysis, we analyzed close to 240,000 nonprofit organizations that filed 990 information and calculated numerous financial performance ratios as one approach towards answering the Board question: “How financially healthy is my organization?” We refer to these figures as our “Financial Benchmarks.”
Originally, we had just planned to use the benchmark results as one component in our Wellness Package, and thought nothing of the broader sector implications that could be gleamed from our analysis. However, after further review and discussion, we’d like to share with you some of the broader takeaways we discovered that may influence how you think about your agency’s finances and where you stand relative to peer organizations of mission and size.
We look forward to sharing some of these findings with you as we all continue to seek and share industry best practices. Stay tuned…
June 1, 2009
Congrats to Mary Ann from Greater Pittsburgh Literacy Council, the final winner of our blog comments contest and of a 1 GB USB drive. Look for fun, future Bayer Center blog contests to come! (If you have a great idea for a blog contest, we’d love to hear your ideas!)
We’re hearing more and more about online meetings. Travel can become the first budget casualty in budgets hit by the economic downturn, and conference calls and webinars can bring us together on the cheap.
Thanks to Andy Goodman, who helped us understand why do-gooder presentations so often bore in Why Bad Presentations Happen to Good Causes, we’re learning about social sector teleconferences and web conferences. Although the full survey report has not yet been published [Editor's note: the full report is now published here], Andy sneak previews the results with some alarming statistics in his May Free Range Thinking newsletter.
A disappointing pair of statistics combines the high prevalence of these meeting formats with a low rate of training on effective remote meetings. In short, more than half of us participate in phone conferences; half of us think their use is going to grow in our work; and three quarters of us have had no training on how to make this kind of meeting work well.
The numbers are similar for web conferences and video conferences, although only 8% of Goodman’s respondents report attending a video conference frequently. On the other hand, a quarter of people have attended a webinar, and a larger number of people see webinars increasing than phone conferences. The training rate is similarly, low, though, at 72%.
Of course, training on effective meetings is rare in general. It’s become clear, though, that there are some ways to make these new meeting forms better than dreadful. Goodman, for one, runs a great webinar. One of his small secrets: put up a picture of the person speaking on the screen. It’s a small human touch that makes a big difference to the audience’s attention and participation.
Have a webinar or conference call horror story to share? Have a tip that has helped your remote conferences work? Share it in the comments.
May 20, 2009
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For those of us not in the automotive sector, an organizational “dashboard” is likely a “user-friendly, often color coded summary chart(s) of the key indicators of an organization’s performance.” I liken it to CliffNotes for staff, management, board members, donors, etc.
The “art” of designing your organization’s dashboard really depends on what story/message you’re trying to summarize. For instance, Scott Leff and I have been busy recently helping organizations reduce the stacks of internal financial reports they disseminate to board members and instead replace these trees with a single, colorful, summary financial report. From this report, board members can quickly glean how the organization is performing (actual vs. realized budget), how much cash is available, and how the organization is financially performing relative to its local and national peers (benchmarking) and its own past results (trending).
[Editor's note: My colleague Jeff Forster points out that he posted about Dashboards last month with two big points: 1) dashboards aren't just about financial measures, although they're obviously quantifiable and 2) CRM databases have thrust dashboards to the fore as though they're something new under the sun (but they're not). Also, Jeff and me rode together in CDCP's Pedal Pittsburgh (50+ mile) ride last week and spent much of the time discussing this blog entry and nonprofit dashboards, kind of.]
One way to get the internal dashboard dialogue started is to ask yourself if your board’s financial reports are telling the story that you are hoping to convey. If the answer is “yes,” then next ask yourself if you can do a better job of summarizing this information into one report?
If you think you can be doing better, then you probably are not using your board’s time wisely. (You’re supposed to be talking about mission-related information and not spending all your time on financial minutia.) A suggestion – consider putting aside a few hours to spend with your staff/colleagues/Finance Committee and conference on what financial picture/story you’d like to convey to your board. The benefits you’ll get in return from a more mission-focused board will far exceed your time investment.
Have a question or something to add to this post? Leave a comment, and you’ll be entered to win a 1 GB USB drive. One winner per week through the end of May.