The Business of Nonprofits


Posted by Debbie Koh

The Wall Street Journal recently ran a special section on philanthropy and charitable giving. I recommend reading the entire report (available here), but the article that first caught my eye was Should Philanthropies Operate Like a Business?

The “yes” side argues that nonprofits should adopt more business practices in order to create social returns on one’s philanthropic investment. More specifically, the authors argue that data collection and measurement are necessary for nonprofits to generate impact. The argument against this kind of business approach hinges more on a market-gap argument; that nonprofits serve a population that government and business don’t. The author of this “no” side worries that a dramatic shift toward a businesslike mentality will end up leaving the underserved, well, underserved.

I’m inclined to fall somewhere in the middle. It is critical, though inherently difficult, to find ways to measure and evaluate impacts in health, welfare and other social issues. Such efforts must be undertaken with great care. Ill-defined criteria may be useless at best or end up subverting the intended effects at worst.

Achieving specific indicators, like serving x many people food, doesn’t address what might be a systemic problem that requires policy change achieved by sustained advocacy efforts. A hyper-focus on hitting specific benchmarks, like enrolling y number of children participating in an after school program, can be detrimental to the quality of service provision if resources are spent on recruitment efforts rather than curriculum development.

But, I don’t think the debate here is really about the application of “business thinking” to the social sector. The authors are essentially arguing about the role of the philanthropist: how much say should an individual or institution get when it comes to how their money is spent? I think this concern reflects an often-voiced uneasiness or ambiguity the larger public holds about nonprofits and social service organizations: they recognize the importance of the work but struggle to see how their donation really leads to change. They’re trying to figure out how exactly you hold the whole nonprofit, social impact sector accountable for the money they receive.

This issue can be frustrating even to me, a practitioner in this field. (I think this is why featuring child sponsorships or individual loan needs have become such a popular fundraising strategy. That individual connection, the feeling that one’s money will meet a person’s specific need, is powerful.) Like measurement, instituting such accountability can be a double-edged sword. Meeting current donor requirements, whether government or private, is already an arduous task for many organizations. Additional requirements may push some organizations beyond their current capacity or simply take away resources from achieving those desired returns. More money might be needed to hire extra staff or to create an IT system to track all those new indicators, for instance.

There are no clear answers here but these are issues that we should continue to grapple with, whether we are on the giving or receiving end. Overall, I’m happy that this kind of discussion is moving beyond the classroom and into a larger forum. Please feel free to share your thoughts.

Debbie graduated from Wagner in 2010 with her MPA in Healh Policy and Management, International Health She returned to her native California in 2011 and
currently works for Venture Strategies Innovations (www.vsinnovations.org), a US-based nonprofit organization committed to improving women’s health in developing countries.  All views expressed  in this post are her own.