Engine of Impact

Essentials of Strategic Leadership in the Nonprofit Sector

William F. Meehan, Kim Starkey Jonker

• Publisher: Stanford Business Books
• Year: 2017
• ISBN:
  9781503603622
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Organizaciones sin ánimo de lucro y benéficas

We are entering a new era—an era of impact. The largest intergenerational transfer of wealth in history will soon be under way, bringing with it the potential for huge increases in philanthropic funding. Engine of Impact shows how nonprofits can apply the principles of strategic leadership to attract greater financial support and leverage that funding to maximum effect.

As Good to Great author Jim Collins writes in his foreword, this book offers "a detailed roadmap of disciplined thought and action for turning a good nonprofit into one that can achieve great impact at scale."

William F. Meehan III and Kim Starkey Jonker identify seven essential components of strategic leadership that set high-achieving organizations apart from the rest of the nonprofit sector. Together, these components form an "engine of impact"—a system that organizations must build, tune, and fuel if they hope to make a real difference in the world.

Drawing on decades of teaching, advising, grantmaking, and research, Meehan and Jonker provide an actionable guide that executives, staff, board members, and donors can use to jumpstart their own performance and to achieve extraordinary results for their organization. Along with setting forth best practices using real-world examples, the authors outline common management challenges faced by nonprofits, showing how these challenges differ from those faced by for-profit businesses in important and often-overlooked ways.

By offering crucial insights on the fundamentals of nonprofit management, this book will help leaders equip their organizations to fire on all cylinders and unleash the full potential of the nonprofit sector. Visit www.engineofimpact.org for additional information.

PART I

Strategic Thinking

Build and Tune Your Engine of Impact

CHAPTER 1

The Primacy of Mission

“A fish rots from the head down,” says the ancient proverb. When it comes to nonprofits, the rot usually starts with a vague and unfocused mission. That’s because nonprofits are, by definition, mission-driven organizations. The leaders of a typical corporation can assert that its primary purpose is “to maximize shareholder value.” From that core purpose, any stakeholder can infer how the corporation’s performance will be measured and how its leaders will frame strategic decisions and trade-offs.¹

Nonprofits, however, lack such inherent clarity of purpose—and the market discipline that goes with it. They frequently have multiple stakeholders who have various, sometimes conflicting, perspectives and agendas that may change over time. A focused mission that is encapsulated in a clear and concise statement, therefore, is the foundation on which nonprofit organizations must build their strategy for achieving impact. A clear mission statement should serve to guide all major decisions that a nonprofit organization makes. These include inevitable trade-offs; sources of funding to seek; and which skills and leadership the organization needs in order to attract and retain its executive staff, board members, and even funders.²

The concept of mission has been applied to the nonprofit sector for more than a century. Indeed, the notion of accomplishing an organization’s mission appears as early as an 1895 book of writings about Hull-House,³ a settlement house cofounded in 1889 by Jane Addams (the first American woman to receive the Nobel Peace Prize, in 1931) to provide social and educational opportunities for working-class people. In the 1950s, the legendary Peter Drucker emphasized the importance of having a clear mission, a message he delivered throughout his career of more than fifty years as a management scholar. As Drucker asserted in his 1990 book, Managing the Nonprofit Organization: Principles and Practices, “The first thing to talk about is what missions work and what missions don’t work, and how to define the mission. . . . The first job of the leader is to think through and define the mission of the institution.”⁴

But, despite the long history of applying the concept of mission to nonprofit organizations, the use of this essential tool suffers from widespread neglect throughout the sector. To date, there is no major study of the application of mission or the use of mission statements in this supposedly mission-driven sector. What evidence does exist reveals a mixed and confusing commitment to developing a strong mission statement.

In our 2016 Stanford survey, at least 75 percent of nonprofit executives and staff reported that their organization’s mission statement was either “good,” “very good,” or “excellent,” in terms of being “clear,” “focused,” “reflects what my organization does,” and “reflects my organization’s skills.”⁵ These data would be heartening if they didn’t conflict so strongly with our own experience that most nonprofit mission statements don’t guide stakeholder decisions or engagement. In 2014, as part of a webinar that we presented for Stanford Social Innovation Review, we surveyed participants from the social sector about their organization’s mission statement. In a sample of more than one thousand registered participants—including nonprofit executives, staff, and board members—87 percent said that their organization’s mission statement was not well crafted, 63 percent that it was unfocused, 59 percent that it was unclear, 87 percent that it was not memorable or sticky, and 76 percent that it was uninspiring.⁶

Over the past eighteen years, about one thousand students in Bill’s course on strategic leadership of nonprofit organizations at the Stanford Graduate School of Business (Stanford GSB) have completed a session on organizational mission in which they are asked to choose a nonprofit of personal interest and analyze the effectiveness of its mission statement. They then interview a half dozen of the organization’s stakeholders—executive staff, board members, donors, clients, and so forth—to evaluate how well the mission is known, understood, and actually applied. Each year, about three-quarters of these students determine that the mission statement they are evaluating lacks rudimentary clarity and is, moreover, so broad that even a large, resource-rich organization would struggle to accomplish all the activities it purports to undertake, let alone do them with excellence and impact.

A mission-driven organization should pursue its mission like a lodestar that will always keep it on course. It would therefore benefit many—perhaps most—nonprofit organizations to start any strategic planning effort with a review and assessment of their mission and their mission statement. A well-conceived mission statement that can guide an organization in making key decisions should do the following:

1. Be focused. Many nonprofit missions are too broad and unfocused, for instance, promising to end global poverty, bring about world peace, and feed all the world’s hungry people when in fact the organization has resources only to grant a few hundred microloans, teach a few thousand children about nonviolent communication, or feed a few thousand people in one county.

2. Solve unmet public needs. Nonprofits exist to address needs that markets and governments can’t or won’t tackle, which is why they are accorded singular status, starting with their special tax category. Their missions should thus aim to address public—not private—needs that corporations, governments, and other nonprofits will not otherwise meet.

3. Leverage distinctive skills. The nonprofit sector tends to draw people who have passion and high aspirations. But, to make an impact, they also need to develop specific skills and capabilities that are tailored to achieve their mission in ways that other organizations cannot or do not achieve.

4. Guide trade-offs. Mission statements can help guide nonprofit leaders in deciding which initiatives and activities to pursue and which to abandon or avoid. Funding opportunities or new programs that are compelling but not aligned with their missions should be resolutely declined; instead, challenges that will take their mission to the next level should be accepted, even if this is harder than taking on an incremental, less focused activity.

5. Inspire and be inspired by key stakeholders. Nonprofits generally have multiple stakeholders—board members, staff, clients or customers, governmental agencies, and the public at large—whose interests may conflict. A great mission statement should respect and reflect these stakeholders’ diverse interests, even as it balances them and, in the best-case scenario, inspires them.

6. Be timeless. Change is inevitable—nonprofits will invariably need to reengage their stakeholders’ understanding of and commitment to their mission every three to five years. But the best mission statements endure through periods of change—and they should be fundamentally altered only in truly exceptional situations. (Here let us note that we see nothing wrong with sunsetting a nonprofit whose mission has been achieved or that has discovered its intervention is not as impactful as it had hoped.)

7. Be sticky. Mission statements must be more than a motto and less than a summary of an organization’s strategy. They should be long enough and comprehensive enough to provide real guidance for stakeholders. But they must also be compelling enough and short enough to be memorable—or “sticky,” as the best-selling authors Chip Heath, professor at Stanford GSB, and Dan Heath, senior fellow at Duke University’s Center for the Advancement of Social Entrepreneurship, so memorably phrased it.⁷ The most memorable statements are short and concrete but can extend to three to four sentences when suitably sticky.

The Danger of Mission Creep

Breadth of mission, often accompanied by vagueness, is a prevalent virus in the nonprofit sector and the cause of its most severe chronic disease, commonly known as “mission creep.”

Mission creep can stretch an organization so thin and so wide that it is no longer able to effectively pursue its core goals—if, indeed, the organization’s leaders can even remember what they are. In the private sector, it would seem preposterous for a company that creates specialty dark chocolate to jump into the medical device business or start manufacturing home furnishings. Yet nonprofits routinely extend themselves in equivalent ways—expanding their programs far beyond their core competencies—and no one raises an eyebrow.

Another factor contributing to mission creep is the misguided belief that broad and vague missions are more inspiring than those that are specific and concrete. An example of a well-intentioned but overly broad mission statement is this: “The mission of the Elks National Foundation is to help Elks build stronger communities.”⁸ Likewise, aspiring social entrepreneurs commonly assert that they plan to found an organization whose mission will be “to alleviate global poverty in our lifetime.” While some—though not us—might argue that vagueness is more inspiring than concreteness, vagueness and its companion, breadth, are inarguably antithetical to focus, a core tenet of strategy. Indeed, when students in Bill’s course conduct interviews at their chosen nonprofits, they often discover that many stakeholders do not even know their organization’s mission, let alone understand or feel any degree of passion or personal commitment toward it.

The problem of mission creep is often caused or exacerbated by funders who insist on making grants to narrowly defined programs. This dynamic often causes nonprofits to shift their core activities beyond their preexisting area of focus in order to appear to fit a grant-making request for proposal (commonly known as an RFP). At the peer learning event we led in 2013 for recipients of the Henry R. Kravis Prize in Nonprofit Leadership, a prevailing theme was the importance of developing the capacity—and the courage—to say “no, thank you” to funders whose grants might foster that kind of mission creep.

If funders are generally to blame for the onset of mission creep, internal stakeholders are often complicit. Oley Dibba-Wadda, former executive director of the Forum for African Women Educationalists, offered a blunt description of such people during the Kravis Prize event. “I call them ‘mission whores,’ and they are at work within most organizations,” she explained. “They are internal stakeholders of an organization who are willing to ‘sell out’ by excessively broadening the scope of the mission in order to obtain funding or other advantages.”⁹ Not every Kravis Prize recipient used such choice words, but most could cite instances in which a member of their organization had to lead a colleague away from the temptation of mission creep.

Focus Beats Diversification

In guarding against mission creep, it is critical that nonprofits shun the urge to diversify their program areas and activities. “Focus on your core competencies” has become a ubiquitous expression in the business world, but it took many decades plus hard data on financial returns to convince businesses to focus. The 1970s and early 1980s were the era of conglomerates (think ITT, Fortune Brands)—a time when industrial diversification was the name of the game. Companies that simultaneously ran hotels, produced sausages, sold insurance, and built dining-room tables were the darlings of Wall Street. Conglomerates claimed management skills and a lower cost of capital as advantages that enabled them to outcompete more focused companies.

But because public companies share a common and well-accepted performance measure—maximizing shareholder value—strategists, stock analysts, and finance professors could actually identify which companies’ strategies performed best. And countless studies demonstrated that a strategy of focus beats diversification. Companies that performed best were those focused on a single business, or set of closely related businesses, in which their core competencies provided them with identifiable competitive advantage(s).

These well-settled findings from corporate strategy are useful starting points for nonprofits. In the nonprofit sector, organizations do not share a common performance measure, so data proving the greater effectiveness of focused organizations do not exist. However, some academic research that associates focus with efficiency—that is, with the percentage of funding going to programs—is compelling (even though we are the first to acknowledge that financial efficiency is not the most important metric on which nonprofits should be evaluated). For example, Geoffrey M. Kistruck, Israr Qureshi, and Paul W. Beamish analyzed panel data involving charitable organizations over a five-year period and found that the main relationship between product diversification (i.e., diversification in program activities) and efficiency is an inverted-U shape: “Charities that diversify into new related services experience some initial positive efficiencies at very low levels but then very quickly become more inefficient at increasingly unrelated levels.”¹⁰ This makes sense, in the same way that conglomerates typically have higher overhead than businesses with a single product or service.

We have heard most, if not all, of the arguments against focus and find none compelling. Take, for example, a funder that might offer a grant to “extend your organization’s capabilities into a related activity.” This, of course, is where your mission begins to creep—and you will get no sympathy from us when you have to face the consequences.

If anything, focus is more important for nonprofits than for businesses. When it comes to program activities, “more of the same” almost always trumps “more new kinds of programs.” Most nonprofits are small and therefore highly limited in capacity; 93 percent of them have budgets of less than $1 million per year. Even the 15,500 largest nonprofit organizations (those with budgets of $10 million or more) are highly unli...