Building the Sector

Building the Sector This brief is a reflection on some of the lessons learned from the Hawaii Community Foundation’s (HCF) 10+ years of funding organizational effectiveness. It also describes the forces that we think will have great impact on the nonprofit sector in coming years, and sets the stage for a series of statewide meetings that we’ll be having with nonprofit leaders, consultants and funders in May 2014.

A Decade of Learning In 2002 HCF’s Board of Governors approved Organizational Effectiveness (OE) as one of the organizing strategies for the Foundation’s work. This strategy was based on the belief that nonprofits with strong infrastructure, capable management and resilient leadership are better able to fulfill their civic missions. In order to achieve positive community impact Hawaii needs effective nonprofits that are successfully delivering on their missions. The OE Program included grants for the planning or implementation of a capacity building project, support for executive transition and strategic restructuring; it also included leadership development programs (PONO, HELP, Ho`okele), technical assistance trainings, five Board Leadership Conferences, as well as research, articles and studies about the sector. From 2001-2012 HCF invested more than $14 million in these programs, and made nearly 900 grants.

In that time we learned that capacity building takes time, there are few quick fix solutions, and nonprofits and philanthropy must be adaptive in their approach. The best capacity building projects are based on an honest assessment of an organization’s strengths and weaknesses, and an awareness of the challenges and opportunities in its operating environment. Less than 50% of our OE grantees said that their original capacity building objectives had been realistic, either because more time was needed or because implementation was much more complicated than they had originally anticipated.

Although no figures are available, we know from experience that a large portion of nonprofit capacity building relies on external consultants. While Hawaii has some excellent consulting resources the consulting pool is small, resulting in types of services that are not readily available, or the need to seek help from mainland consultants which can be costly. Over the years nonprofits have

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reported challenges with managing consultants, often due to their own inexperience with the process. Some nonprofits expect the consultant to do all the work when in reality the consultant is there to facilitate a solution and the process requires substantial staff investment. Nonprofits have also described a lack of momentum once a consultant finishes; if a project isn’t structured correctly it’s possible for new organizational capacity to leave with the consultant. Technology has had some impact in that high-quality webinars and on-line trainings are more readily available than a decade ago; but Hawaii’s limited consulting resources will continue to be a challenge for the sector.

In addition to direct grants, our capacity building work included leadership development programs (for executive directors and senior nonprofit staff, and in a less targeted way, boards of directors). We learned that leadership that is self-aware and adaptive (able to interpret and respond to changing circumstances) with a solid network of peers is essential to the effectiveness of a nonprofit. Nonprofit leadership is extremely challenging and one of our early goals was to prevent burnout and reduce turnover at the executive level. We saw that even a limited amount of peer learning and coaching had a big impact; 77% of PONO Fellows reported that they stayed in their job longer and 70% stayed in the sector longer as a result of PONO. We also had concerns about baby boomers retiring from the leadership of the sector; as a result we launched HELP (Hawaii Emerging Leaders Program) to develop the leadership skills of senior nonprofit managers. After HELP more than 96% of fellows said they were ready or extremely ready to step into a larger leadership role.

Although we have yet to see the large-scale retirement of boomers due in large part to the economic downturn, we believe that leadership development is critical to building the capacity of the sector and its ability to adapt to change.

Evolving Landscape As HCF considers the landscape in which nonprofits operate we see several forces that have and will continue to exert increasing influence over time. If we look at recent data from HCF’s 2012 Nonprofit Industry Study we see that revenues into Hawaii’s nonprofit sector have remained flat since 2006 (and when adjusted for inflation have actually decreased), charitable giving and government funding are down, and many nonprofits are in a weakened financial position because they coped with the economic downturn by depleting their cash reserves. Added to these stressors is the fact that more than 75% of local executive directors are expecting increased demand for services.

As the economy recovers, we expect individual giving to recover but we don’t have the same expectations of government funding.

A national study by the Urban Institute found that from 2009-2012 nearly 40% of nonprofits experienced a decrease in state and local funding (contracts and grants), and almost 50% experienced a decrease in federal funding. Between state and federal entitlement obligations and other fiscal 2

crises no one expects this funding to be restored. This is a particular challenge for the health and human service sectors that rely most heavily on government funds. This same study found that the largest revenue increases came from individual donors and fee-for-service activities. As individuals become more important either as donors or consumers it’s useful to look at the profile of donors, especially younger donors. They’re less motivated by loyalty to a nonprofit and more by the results a nonprofit can produce; and in some cases the nonprofit is irrelevant. If results can be accomplished by a collective, a campaign or even an individual (e.g. Kiva.org, DonorsChoose.org) that becomes the focus of their giving. Individual donors are not alone in this results orientation, in this era of budget cuts government agencies are also increasingly emphasizing results a.k.a. impact -- what has changed or improved as a result of a nonprofit’s actions. Based on the Foundation’s experience, many nonprofits can easily describe outputs -- what they do, how much they do, how many they serve; but they are less adept at describing their impact. We believe that over time more of the sector’s funding sources will require nonprofits to clearly articulate what changed as a result of their actions.

Related to this focus on outcomes is a movement towards shared action; the sector-wide interest in “collective impact” is a reflection of this. Mario Morino of Venture Philanthropy Partners describes in his book Leap of Reason: Managing to Outcomes in an Era of Scarcity, “When nonprofits gain greater clarity on the outcomes they seek to achieve, they often come to two realizations: “We can’t get there from here” and “We can’t get there alone.”” Interwoven with this focus on impact and collective action is the internet and technology. The unprecedented availability of and access to data is changing the way individuals learn about, engage with and support charities. At the same time technology offers the sector new ways to track and understand its impact; and the internet has new collaboration platforms that make working across many people and organizations far easier than in the past.

Next Steps The Foundation believes that these forces – a desire to fund results, the need to use data to understand outcomes and improve programs, a focus on collaborative approaches as a way to solve social problems, and the impact of technology and the availability of data will greatly influence the sector over the next decade. Together these represent challenges as well as opportunities for the sector to create new models and innovative approaches to solve social problems. Some of the questions we’d like to discuss at our meeting include: What trends do you see impacting the sector in the next 3-5 years? In order for your nonprofit to remain vital and relevant, what are you going to have to get better at? What assistance would be most beneficial to your organization in order to help you adapt to changes happening in the sector?

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