Nonprofits
Straight Talk in Mixed Company: A Plea for Across-the-Aisle Conversations about Overhead
About a year ago, Don Howard and I co-authored “The Nonprofit Starvation Cycle,” which examines how limiting overhead dramatically impairs nonprofits’ ability to achieve impact. We describe the vicious cycle that starts with funders’ unrealistic expectations about how much running a nonprofit costs and results in nonprofits’ misrepresenting costs while skimping on vital functions. The overhead issue is not “news”—indeed, leaders have been talking about it for decades—but the piece clearly struck a chord. Over the past year, we’ve seen continued momentum on this issue. In May, the Government Accountability Office (GAO) released its report on the dynamics of indirect cost rates, calling for government grantmakers... (continue reading this blog post)
About a year ago, Don Howard and I co-authored “The Nonprofit Starvation Cycle,” which examines how limiting overhead dramatically impairs nonprofits’ ability to achieve impact. We describe the vicious cycle that starts with funders’ unrealistic expectations about how much running a nonprofit costs and results in nonprofits’ misrepresenting costs while skimping on vital functions. The overhead issue is not “news”—indeed, leaders have been talking about it for decades—but the piece clearly struck a chord.
Over the past year, we’ve seen continued momentum on this issue. In May, the Government Accountability Office (GAO) released its report on the dynamics of indirect cost rates, calling for government grantmakers to come together to fix a system that places “stress on the nonprofit sector, diminishing its ability to continue to effectively partner with the federal government to provide services to vulnerable populations.” In a recent Urban Institute report, 68 percent of nonprofits studied say government is not paying the full cost of contracted services. As demonstrated in our article, foundations also reinforce the cycle. Research by Grantmakers for Effective Organizations (GEO) finds that 80 percent of foundations know their grants don’t cover the costs associated with grant reporting.
Yet despite the worst economy in decades, these reports are not calling for overhead to be cut. Rather, recommendations from a variety of sources seem remarkably aligned: funders should simplify and standardize grant processes, and be open to fully funding grantees’ work; nonprofits should develop a clearer understanding of the fully loaded costs associated with getting results; and nonprofits and funders alike should talk more explicitly about linking costs and outcomes (see Neuhoff’s and Searle’s “More Bang for the Buck”).
There’s the rub. “Explicit talk” between nonprofits and funders can sometimes be the rarest of commodities. Not once in Bridgespan’s own presentations of the cycle have we successfully stimulated conversation between funders and grantees. Maybe we weren’t using the right format. Or maybe when funders and nonprofits get in the same room, honest talk just takes a walk. Lack of trust, mismatched power, and a long history of not telling it like it is are enormous barriers to addressing the root causes of the starvation cycle.
In the end, it is people—not organizations—that make decisions. Decisions need to be made on the basis of mutual understanding. We can talk all we want about systematic change, but until we find a way to improve the tenor of funder/nonprofit conversations, we’ll be a long way from realizing the potential for social change.
What if there were a way to break through and have the right conversations? For example, bringing together funders from one set of geographies and nonprofits from another, or funders from one field and nonprofits from another—potentially detouring around the power dynamics. Or facilitating a multi-step process, letting the two sides practice honest conversation before getting to the really tough stuff.
As we wrote in the “The Nonprofit Starvation Cycle,” changing funders’ unrealistic expectations about overhead and getting nonprofits to understand and report their actual costs will require a coordinated, sector-wide effort. Happily, there are pockets of willing experimenters. In 2011, GEO is hoping to organize a collaborative effort across foundations, nonprofits, and intermediaries (including Bridgespan) to explore steps we can take together to break the starvation cycle. I am familiar with similar collaborative efforts underway at the state and local level in Texas, Massachusetts, and Illinois. I have a hunch that others in the field are contemplating similar approaches and would love to hear about them.
As difficult as they may be, these across-the-aisle conversations can be a powerful tool for change. Have you been part of funder-nonprofit conversations that have addressed big common challenges? What do you think might have been the secret sauce that led to honest talk?
Ann Goggins Gregory is the director of knowledge for the Bridgespan Group and a former manager in Bridgespan’s consulting practice.
Simply putting boxes and lines down on paper doesn’t guarantee that your organization will make better decisions.
Long-term investment in organic agriculture will provide above-market returns, environmental impact, and—in the developing world—enormous social impact.
Q&A with KoAnn Skrzyniarz of Sustainable Brands.
Critics of Obamacare have taken away attention from important aspects of the act such as its focus on keeping people healthy.
The misalignment between the expansive goal of “health” and a cramped
Entrepreneurs are setting up shop in the nation's urban food deserts.
A riveting memoir by Egyptian revolutionary—and Google marketing executive—Wael Ghonim.
COMMENTS
BY Leonard Garden
ON November 2, 2010 01:52 PM
Private-public partnerships also give short shrift to overhead—universally unpopular on the balance sheet. Reality is, often the activities undertaken in the field require fewer resources than beneficiaries can manage wisely. Providing more cash for good field management is just overhead under a new account label—call it capacity building, training of trainers, institution building, backstopping and other euphemisms. Bottom line is overhead is necessary, particularly if someone is going to lend a discerning eye to the given program including what needs improvement from the initial design—often modified mid-program. So many actors are also conducting so many valuable experiments in similar fields (I am in the business of tracing raw materials along the food chain) that desk research is never sufficient given the resources available online today—all office work. Let’s face it: overhead is undervalued.
BY Dan
ON November 2, 2010 02:52 PM
Fully agree with this: “In the end, it is people—not organizations—that make decisions. Decisions need to be made on the basis of mutual understanding. We can talk all we want about systematic change, but until we find a way to improve the tenor of funder/nonprofit conversations, we’ll be a long way from realizing the potential for social change.”
Thus, the challenge is creating learning circles and forums that build small groups who turn discussion of problems into brainstorming of solutions, and then into actions that implement those solutions. I would love to get a team of students, faculty and alumni from Stanford into a group focused on the goals of this strategy map: http://tinyurl.com/tmc-strategy-map
If such a group already exists, please share the link so I and others can join.
BY Allan Shore
ON November 4, 2010 01:39 PM
Great representation of what the problems are and why what is happening isn’t working. The very reason that I started working to be an aggressive advocate for NGOs as they jump on the teeter-totter of double or triple bottom line possibilities is because they either don’t know how or are fearful of being confident in what they bring to the table. Most seem more interested in quietly and painlessly securing some money than in really sharing what needs to be done, what system shortfalls exist and how the new directions can best fix these problems. No honesty can take place in a setting where one side doesn’t know its own value and clearly doesn’t know how to approach those from what they think is a totally different world. I look forward to sharing these great thoughts with my clients ... though such honesty will probably cause me more problems than I’d like.