Sustaining Nonprofit Performance: The Case for Capacity Building and the Evidence to Support It

Chapter 3. The State of Nonprofit Capacity Building

Just because organizational capacity matters to effectiveness does not mean that efforts to strengthen capacity actually work. Indeed, there is very little hard evidence that capacity building produces a significant rate of return on investment, not because capacity building has a dismal record, but because it has almost no measurable record at all. Although there are plenty of stories about how capacity building can change organizational life, including some told in this chapter , there is relatively little evidence of measurable impact. To the contrary, the available evidence suggests that capacity building in the private sector has a very high rate of failure. Organizational reengineering is believed to collapse roughly half the time, total quality management is often abandoned well before its seven-year tipping point, the vast majority of mergers and acquisitions produce net declines in productivity, three out of four new computer systems do not improve efficiency, new software works only a third of the time, and downsizing almost never generates much downsizing.1 The list of disappointments has been growing for decades: a 1993 study of 1,000 downsizing campaigns showed a 19 percent success rate; a second study of 135 “massive restructurings” showed that 50 percent failed to The State of Nonprofit Capacity Building 44 3 THE STATE OF CAPACITY BUILDING 45 achieve significant increases in value compared with the competition; a 1998 study of 7,500 software upgrades showed a 26 percent “fully successful rate,” meaning on time, on budget, and fully functional; a 1998 analysis of restructuring at 5,000 firms between 1986 and 1998 showed that changes in organizational structure through reengineering, flattening , and downsizing had mixed impacts on market share and financial performance; a 2001 study of process reengineering showed a 23 percent success rate; and a 2003 study of major change programs at forty firms showed that 58 percent of the efforts failed to meet their targets.2 Even when capacity building succeeds, researchers are not always certain why it worked. As Darrell Rigby, a Bain & Company senior researcher, writes of the recent surge in the use of business management tools, “The term ‘management tool’ now encompasses a broad spectrum of approaches to management—from simple planning software to complex organizational designs to revised business philosophies. Many of these tools offer conflicting advice. One may call for keeping all your customers, while another advises you to focus only on the most profitable . But all of these tools have one thing in common: they promise to make their users more successful. Today, beleaguered managers—struggling to demonstrate that they can adapt to rapid change in an increasingly challenging world—are turning to management tools in unprecedented numbers.”3 Nevertheless, as this chapter shows, the nonprofit sector is doing almost as much capacity building as the private sector. According to the random-sample Internet-based survey of 318 nonprofits on which this chapter is based, nonprofits used an average of ten tools to strengthen organizational capacity during the past few years, which is surprisingly near the pace set by the private firms surveyed by Bain. This chapter draws on the survey to ask what these nonprofits were doing, why they decided to act, and how they did the work. The Search for Capacity Building As a term of art, “capacity building” cries out for rigorous measurement. After all, capacity can be contained in organizations and people, imported through education and practice, exported through peer-to-peer learning and rigorous research, and replenished through even more education and practice. If capacity building is the answer, increasing organizational impact is the question. This hope has clearly fueled funding for more capacity building. As Barbara Blumenthal reports, philanthropic funding for technical assistance tripled from $62 million in 1997 to $218 million in 2001, while management development grants quadrupled from $60 million to $218 million.4 During the same period, membership in Grantmakers for Effective Organizations, an affinity group within the Council on Foundations, expanded dramatically, as did subscriptions to Nonprofit Quarterly, a journal devoted to organizational effectiveness, and enrollments in graduate training programs. Unfortunately, the activity did not produce a parallel increase in evidence-based research on what actually works for strengthening organizational capacity. To the contrary, research funding dropped sharply, in large part because Atlantic Philanthropies and the David and Lucile Packard Foundation left the field. For good or ill, more than $1 million of that funding supported the research featured in this report...