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Taking a Businesslike Approach to Charity

Increasingly, donors, funders, and the media are using business criteria to measure charities' performance. They expect nonprofits to quantify their missions, programs, goals, and achievements and to be able to show how closely they have or have not met those standards.

That's exactly as it should be, Newsletter readers say.

The November Question of the Month asked, "Do you believe that charitable organizations should use business criteria to measure performance?" Some 80 percent of participants responded, "Yes." Another 14 percent replied, "No," and 5 percent were not sure.

Yes: "You Can't Deliver What You Don't Measure"

"You can't deliver what you don't measure," wrote Kathleen Olson of the Point Defiance Zoological Society. "Funders more and more are looking for outcomes. Why should we expect any less of our staff, board and volunteers?"

Performance standards are necessary to ensure delivery of services, Lois A. Smith of the Northwest Substance Abuse Treatment Center for Women and Children maintained: "Without them there isn't a chance that the consumer will receive full equivalent of the services 'promised' and as should be provided to each!!!!"

Jack Hickey-Williams, president of Empowering Resources, suggested that the nonprofit sector's very nature makes using business measurements advisable: "We are a major industry in the US; we ask individuals, corporations and foundations to invest in us. We should be willing to match our skills, talent, to any of the best corporate organization in the USA."

Nonprofits, Jeremy Gregg of Campfire USA Lone Star Council pointed out, are operating in a new environment: "Charities can no longer rely solely on the nature of their work to prove their effectiveness." He elaborated, "We exist because the public trusts us to do a job that the government would have to do otherwise; to earn that trust, we need to hold ourselves to the highest standards of accountability. Fiscal responsibility, though not the ultimate measure of success, is a very important standard by which to measure a non-profit's performance."

The need to maintain public trust and demonstrate effectiveness was a common theme. "Charities are handling donors' money with the intent of fulfilling a promise or mission. This makes them ultra responsible for solid business and financial practices," said Gail Billingsley of the YMCA at Virginia Tech. Paula Dickson of the Lake County Community Action Agency concurred: "Charitable organizations should be held to the highest [standards] of accountability if we want the public to trust and support the work that we do."

An anonymous participant argued that adopting business criteria can pay off in other ways: "While the term 'Business' or 'Performance Measures' might make those in the non-profit world uneasy, they are highly beneficial. ... Marketing principles can assist a non-profit in serving more clients, strategic planning demonstrates that an organization has a concrete plan for the future, and financial benchmarks are not only beneficial to the future security of an organization, but one aspect that many donors investigate before they make a contribution."

Several participants, however, issued caveats with their affirmative answers. "Measuring performance provides essential information about the health of an organization. ... It is important to keep in mind the human factor, however, remembering that a measurement is a fact, not a judgment," wrote Nan Breedlove of STAND! Against Domestic Violence. Nonprofits "need to have a 'goodwill' quotient built into any performance measure," Ted W. Regan of Rippleffect, Inc. stated.

In the end, it's all about mission, said Erin Melus, president of RADD: "Utilizing applicable business criteria maximizes both societal and donor ROI, but 'applicable' is key. Performance must serve mission."

No: "Serve the Mission, Not the Bottom Line"

Mission was also the reason cited most often by respondents who answered, "No." An anonymous participant observed, "Business criteria revolve around profitability. Efficiency, productivity, and pricing all feed into profits. Nonprofits need to attempt to measure performance, but most human service organizations measure success with number of people assisted, or some equally 'soft' number. We try to achieve efficiency and productivity to serve the mission, not the bottom line."

Focusing too closely on business-style measurements can compromise how an organization carries out its mission, another anonymous participant asserted: "Certainly we should be good stewards of our resources, but our first and foremost concern should not be 'the bottom line.' When we overemphasize about performance measurements, we begin to 'cream' our beneficiary selection and eliminate the most needy and those with the most barriers from our client list."

And Kevin Higgins of Lovejoy Hospice, Inc. pointed out that business criteria miss some important factors: "While there should be accountability to the principles of sound business management, there is a different set of rewards which are not easily translatable in business terms."

A Donor's Point of View

Perhaps a donor should have the last word. Margaret Tomaszek of Bank One noted, "As a banker and a donor, I want to know that the maximum amount of my donation or loan is benefiting the mission of the organization. I look at non-profit management as having the same fiduciary responsibility to act on a 'reasonable person' basis as I am required in my profession towards depositors."

Suzanne E. Coffman, December 2004
© 2004, Philanthropic Research, Inc. (GuideStar)

Suzanne Coffman is GuideStar's director of communications and editor of the Newsletter.
Topics: Nonprofit Leadership and Practice