The Business Case for Investing in Talent
Every dollar invested in employee development yields more efficient and effective impact.
The nonprofit sector is known for underinvesting in talent. From low compensation to lack of training, the pursuit of minimal overhead has resulted in anemic spending on human capital. The Foundation Center calculated 2011 nonprofit sector spending on leadership development at $400 million—a mere 0.03 percent of the sector’s $1.5 trillion total annual spending. This equates to per-person spending of $29 in the nonprofit sector vs. $120 in the private sector. Foundations, too, have played a role, allocating no more than 1 percent per annum toward leadership-development initiatives in their grantee organizations over the past 20 years.
Lately, though, we are starting to see a shift in the sector that reflects what we at ProInspire believe: An investment in talent is an investment in a nonprofit’s ability to achieve its mission and meet increasing societal needs.
This idea is gaining traction among nonprofit funders, professionals, and thought leaders alike. There exists both a demand for talent investment and a growing body of evidence that documents its value in increasing social impact.
Demand for talent development opportunities exists at both the individual and organizational levels:
- A Bridgespan survey of more than 500 nonprofit professionals singled out leadership development and succession planning as their biggest organizational weaknesses—by more than a two-to-one margin.
- In a 2013 ProInspire survey, 93 percent of managers said they believe leadership or managerial training will increase their effectiveness; 50 percent said they do not have the knowledge, experience, or resources to be successful in their current role.
- The Evelyn and Walter Haas, Jr. Fund’s Flexible Leadership Award program has grown from a local pilot program to one that supports 50 organizations with long-term, customized leadership support. Between 2005-2012, the Fund awarded $21.6 million in leadership initiative grants.
We know that demand alone will not produce a significant uptick in talent investment; rather, such investment must be linked to organizational outcomes in meaningful, quantifiable terms. Yet calculating return on investment (ROI) is a complex and costly endeavor, and few nonprofit data points exist to demonstrate that return. One compelling example is Boys and Girls Club of America (BCGA), which enlisted McKinsey & Co. to identify and measure the impact of the four leadership traits most critical to BGCA’s mission. More than 650 leaders from 250 local organizations participated in development programs aimed at cultivating those traits. BGCA then compared the performance of participating local affiliates against a control group. The result? Participant affiliates outperformed the control group affiliates on fundraising, membership enrollment, and retention. In fact, the revenue increase attributable to the leadership development program was four to five times the cost of the program—a success by any measure.
The Haas Fund’s Flexible Leadership Awards program mentioned above offers another success story. In its pilot period (2005-2010), 93 percent of participating organizations met or surpassed their mission-advancing goals, and 13 of 14 organizations saw budget increases averaging 64 percent.
Through ProInspire’s work with nonprofits, we find that many organizations underinvest in growing and developing employees. While nonprofits often plan 6-12 months in advance for recruitment of new employees, they often ignore professional development and career growth for current employees until it’s too late—that is, until they need to fill a role and realize they don’t have internal candidates, or until people leave because their growth has stagnated. Our research shows that organizations can employ a mix of strategies to meet different needs and budgets. Two examples of how to prioritize and support growth of current employees come from Communities in Schools and GlobalGiving.
Communities in Schools (CIS), a national, federated organization with a national office staff of about 50 and a budget of $19 million, has made professional development a priority. The organization provides a budget to each employee for professional development. During the annual review process, employees discuss with their managers how they are developing, and their performance, career trajectory, and needs. President Dan Cardinali says, “We believe that investing in our people will enable CIS to achieve greater results, ultimately helping students achieve in school."
GlobalGiving, a charity fundraising website based in Washington D.C. with a staff of 30 and a $4 million budget, has embedded investment in its people into the organization’s values. It employs an electronic feedback tool, provides each employee $1,200 in annual professional development funds, and tracks talent-related metrics. These efforts have paid off: GlobalGiving is managing four times more donation volume than it did five years ago, with only incremental growth in staff and budget.
These success stories show that it’s time to change the lens on talent investment in the nonprofit sector. Instead of viewing sector spending as a zero-sum game between overhead and direct services, let’s reframe it as a win-win, where every dollar invested in talent yields more efficient and effective impact. With the support of funders, organizations, and individuals within the sector, we can strengthen our collective impact through a sharper focus on talent investment.