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

Chapter 4. The Case for Capacity Building

However the term is used, capacity building involves an activity such as planning, reorganizing, merging, downsizing , assessing, auditing, installing, training, recruiting, measuring, treating, and so forth. As such, the case for capacity building hinges on finding a positive relationship between the activity and organizational effectiveness, whether measured by short-term outputs such as morale, expertise, productivity, or efficiency or by longer-term outcomes such as higher performance. There are many methods for building the case, including expensive structured surveys, such as the one on which this chapter is based, which cost more than $250,000. Largely driven by funding constraints, the best work on capacity building involves more limited case studies of the kind that McKinsey and Company uses in its 2001 report Effective Capacity Building in Nonprofit Organizations.1 McKinsey’s thirteen case studies include a large range of organizations, from the Nature Conservancy at $780 million in revenues and 3,000 employees to Powerful Schools at $700,000 and fourteen employees. All of the organizations were engaged in some form of capacity building at the time of the McKinsey study, which was funded by Venture Philanthropy Partners. Tasked with exploring the characteristics The Case for Capacity Building 86 4 THE CASE FOR CAPACITY BUILDING 87 of successful capacity building, the study provides rich details on the thirteen efforts, which include the merger of the nation’s two largest food banks (Second Harvest and Foodchain), City Year’s effort to maintain its core identity as it expanded, and the Nature Conservancy’s campaign to increase collaboration across its local members. Consider its brief description of capacity building at Citizen Schools, a Boston-based organization that seeks to expand student learning before and after school. As McKinsey notes, the $1 million expansion was funded by New Profit, a venture philanthropy partnership among individual donors. Working with a private consulting firm, Citizen Schools and New Profit eventually decided to create a “balanced scorecard ” to track objectives and measures: The Scorecard now serves as a tool both for managing the organization internally and for managing the relationship with New Profit. Even New Profit’s funders will only have to pay their pledged funds in later years if New Profit fulfills its own Balanced Scorecard, which in turn depends on Citizen Schools’ Balanced Scorecard. The cumulative effect of all these efforts has been to create a culture of measurement and accountability throughout Citizen Schools. With the performance expectations clearly defined —and with the organization’s financial health linked directly to meeting them—everyone affiliated with Citizen Schools comes to work knowing exactly what they need to do. Although the case studies are too diverse to offer much insight on how the capacity building actually worked, there is little doubt that the capacity building produced significant gains for each organization, albeit in very different ways. According to the report, the Second Harvest– Foodchain merger positioned the new organization for a sharp increase in social impact by “simultaneously eliminating competition for funds and food donations,” City Year’s renown for its powerful culture and shared values helped its revenue to grow from $700,000 in 1988 to $25 million today, and the Nature Conservancy’s One Conservancy campaign helped the vast national organization to “develop new organizationwide initiatives such as Last Great Places, improve the recruiting and retention of top talent, and conduct more coordinated and aggressive fund-raising campaigns.” McKinsey would almost certainly argue that different kinds of capacity building produce different kinds of outputs. Whereas mergers might produce savings, scorecards might produce focus. But McKinsey might also argue that there are common outputs across the thirteen cases, including greater focus, tighter measurement, competitive advantage, higher productivity, and so forth. This chapter describes the characteristics of successful capacity building by asking structured questions about the 318 efforts identified in the capacity-building survey. As the chapter shows, the impact of improvement is more difficult to measure the further one moves from the actual intervention. It is one thing to show that a given activity produced the intended output, but quite another to show that it altered more general organizational capacity, and quite another still to suggest that it had a measurable impact on program performance. Far too many of the respondents had little more than personal observations on which to judge their organization’s improvement effort. Nevertheless, as this chapter also shows, there is good reason to suspect that capacity building does...