Aaron Hurst: June 2008 Archives
By Aaron Hurst on
June 24, 2008 10:44 AM
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Last year I had the honor of being
on a panel with the CEO of the Girl Scouts (the best managed organization in the
country at one time, according to Peter Drucker) and Stephen Post. Stephen had
just published his new book, Why Good Things Happen to Good People, and was
making the rounds promoting it. The book summarizes a number of recent studies
that have linked doing good deeds with increased quality of life. It is a
pretty basic idea and well aligned with the intuitive religious concepts of
karma and the golden rule. It is nice to see that science has been able to
prove it.
This follows another group of
studies, led by Robert Putman and his colleagues, that documents the
dilution of social capital, which is also linked to an impact on the quality of
life for the average American. Their argument is that with fewer and less
meaningful connections between people, society begins to break down and people
become isolated. This is then linked to the breakdown of a civil society, which
requires networks of people outside of business and government to
rally to preserve our collective values (for better or
worse).
It is argued that one of the key
roles of the nonprofit sector is to be this conduit for these two societal
needs. A 24 Hour Fitness for karmic health, a social club for the lonely and
well intentioned, as well as a gathering place for revolutionists with small to
large ambitions.
This is a distinctly American social
design. We enable thousands of social entrepreneurs to meet this need through
nonprofit associations. In some instances, service is simply part of their
broader program ambitions and in other cases it is the core. These
organizations provide an on ramp for civic engagement and good
deeds.
We even have a $1 billion federal
agency dedicated to supporting service in this country - Corporation for
National and Community Service. As a society we consider service a right, as we
see it as connected to our core values and to the basis for social networks and
our democracy.
As an end onto itself, service is an
odd goal for an organization. Ideally it is a wonderful byproduct of another
desired outcome. For example, Operation Access, a San Francisco-based
nonprofit, provides free surgery for patients without health insurance by using
volunteer doctors. It is great to have doctors do something altruistic, but the
primary goal is to help the person under the knife. We see the amazing
volunteer work right after a natural disaster and first think about the victims,
not the volunteers who get to feel like heroes.
This service culture is perverted
occasionally by volunteer organizations and companies who try to placate
volunteers through field trips to see "poor people" or faux volunteer projects
to build team work. The majority of volunteer work in this country, however,
remains focused on improving the health and happiness of those in need and
building associations of like minded citizens who are invested in making their
neighborhoods, cities, states, country and world a better
place.
The Role of the
Nonprofit Sector
This is the
third in a series of posts about the critical roles that nonprofits play in our
society. Previous posts were on the roles of nonprofits as canaries signaling
problems in public policy and as a safety net for basic needs.
By Aaron Hurst on
June 20, 2008 2:15 PM
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For some reason, I was recently
looking at Maslow's hierarchy of needs. For those who forget Psych 101, Maslow
believed that while humans have a wide range of needs, they must first meet very
basic survival needs like food, shelter and water before they are able to pursue
psychological needs like love, esteem and self-actualization. It makes sense--
if you are starving to death, a BLT is more attractive than some
TLC.
As societies evolve, they too seem
to follow Maslow's hierarchy. In a developing country where food, water and
shelter needs are unmet, the government and society as a whole spend very little
time concerned with supporting the psychological well-being of citizens. In
wealthy societies like the United States, we take shelter, water
and food for granted as basic human rights, and we see our society's ability to
provide them as core to our identity as a "civilized"
nation.
In every community there are
nonprofit organizations charged with meeting these basic needs. Shelters and
food banks crop up in every major city to ensure that all citizens have a safe
bed and the sustenance to make it another day. This is the core of the sector:
non-profit organizations providing basic services to satisfy the baseline needs
Maslow identified.
This is a segment of the nonprofit
sector that has been in transition for the last twenty years. It has been at
the heart of the Reagan and Clinton-inspired government outsourcing agendas
and a common target of the venture philanthropy movement and its call for
greater organizational effectiveness and efficiency.
According to Lester M. Salamon at
Johns Hopkins, between 1982 and 1997 nonprofit market share in a range of basic
direct service areas dropped significantly, by as much as 50% in some
areas.
To understand this trend, it is
important to get your head around the challenges of running a nonprofit
providing these safety net services to a community.
These are hard organizations to
manage. By definition, the client can't pay for the services, so the
organization must look to the community to pick up the bill, meaning that the
organization becomes accountable to two sets of clients. The latter client--the
paying community-- wants some means of determining the fair market cost (FMC) of
a safe night in a shelter, or a meal, to assess the effectiveness of a program.
You could determine the FMC of a
night at a shelter by comparing it to local lodging costs. It should certainly
be less than the cost of a room at the local Motel 6, and an online search of
shelters shows that it is. The cost of a shelter ranges from $5 (Boise) to $35 (Cleveland), and $43.99 to $41.39 for a room at
Motel 6 in those same cities. So it passes the Motel 6 test, but one is struck
by the relative and inconsistent cost structure for non-profits (700% difference
between the shelters vs. 6% in the motels). One also wonders why it costs $35
to provide a bed in a shelter when, for $7 more, Motel 6 can provide a private
room, bathroom, cable and other amenities (not to mention a profit for the
company)?
The government and corporate America
started asking these questions about 20 years ago and, finding the answers
unsatisfactory, began to partner to address these needs outside of the nonprofit
sector. Companies like Lockheed Martin, a defense contractor, started winning
contracts for social services programs when it proved that it could offer similar services at lower cost (or at least more transparent cost) than
competing non-profit organizations.
The lack of nonprofit transparency is not
intentional. It is a byproduct of the origins of these organizations and their
leadership. Most of these nonprofit organizations were formed by compassionate
neighbors, designed to serve a small community, and eventually evolved to take a more
holistic approach, rarely providing just a single service. After running a
shelter for a couple of years and seeing the same faces everyday, they realize
that providing a bed is not enough and that they need to find ways to enable
their clients' independence. With that realization, they instinctively begin to
offer additional services and counseling, many of which are never reflected on
the balance sheet. It is harder to calculate the cost of providing a service when
it is coupled with a dozen other services in the same organization.
These services are often home grown,
unique to the individuals providing them and the specific population served.
They are designed to meet a wide range of the root causes of an issue like
homelessness, which include addiction, mental health, unemployment and domestic
violence. They are often unique in their
approach and mix of services, client populations and geographies served, making
an apples-to-apples comparison between organizations hard.
The inability to make organization
to organization comparisons contributes to the lack of transparent information. How do you know
what the FMV is for a service? The origins of these nonprofits also discourage nonprofit
mergers as each of these organizations develops an identity as a unique
institution and overlooks the significant areas of similarity with peer
organizations. As a result of not scaling and merging, the cost structure does
not achieve economies of scale.
If, for example, a nonprofit were
solely in the business of providing safe beds for citizens in need, we could
easily measure the cost per bed and begin to reduce the cost to serve through
scale and thereby increase the reliability and quality of the service, and
develop more effective organizational structures at scale.
The sector should consider
separating out commodity services like food or shelter, and create a transparent
and scalable model for delivering these services reliably. We could consequently show society that we can provide these services with greater quality than
corporations, and at a very competitive price.
We can then focus the attention of
our community-based nonprofit service agencies on the critical services that
move those in need out of dependence to independence. Here we will see a
diversity of approaches, and amazing innovation, that the nonprofit sector has
delivered for decades, in ways that most companies would
envy.
Using these two strategies we can
show that the nonprofit sector can provide both basic services as efficiently as a company
and local innovation that Lockheed Martin never
could.
The Role of the
Nonprofit Sector:
This is the second in
a series of posts about the numerous critical roles that nonprofits play in our
society. The first post covered the role of nonprofits as canaries,
signaling ineffective public policy.
By Aaron Hurst on
June 18, 2008 1:47 PM
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My corporate training was
in product management. I was trained to
build and grow product lines.
There were three
questions I was taught to ask to uncover major growth opportunities:
1) What additional
services or products can we sell to our existing customers? If you have a
store, you can increase revenues by getting each customer to buy two items
rather than one.
2) Can we sell our
existing product to a new type of customer?
I recently learned that Diet Coke can be used to remove graffiti. They could change the packaging and sell it
at Home Depot.
3) Are there core parts
of the product or the supply chain used to create the product that could be
leveraged to create an additional product at low cost and give us a competitive
advantage? You see this done a lot with
auto manufacturers that use the same engine or chassis for multiple lines of
cars. For example, the Passat and
several Audis are built on the same chassis.
Working now as a
nonprofit manager in an organization poised to introduce a new product line, I
tried to use these same three questions to identify and prioritize our best
options for growth.
What I am discovering is
yet another impediment to nonprofit growth (and therefore cost effectiveness
and efficacy). It is tied to the
challenge of having two customers - the client served and the public or private
funding that covers the cost of serving clients who by definition can't pay
themselves.
It is relatively easy to
identify new services to provide clients.
There is an almost endless source of unmet need.
The challenge is that the
funding sources are built to support single program organizations that are
relatively similar in size. Foundations, specifically, do not proportion their
investments based on relative market share or the cost per outcome achieved. Rather, they cap the size of a potential
investment (typically between $25k and $100k), and no matter how big or cost
effective you are, you hit that ceiling.
So, if two organizations
are providing the same service in a market, a foundation might give them each
$25k per year (total of $50k for both organizations). If those same organizations merged and were
able to collectively serve 25 percent more clients on the same budget (assumes
economies of scale), the foundation would reward them by cutting their grant in
half to $25k, as that is their ceiling per organization.
Flip that around and you
can see our challenge. If we have a
foundation funding the Taproot Foundation at their ceiling amount, the only way
to get them to support a new program without cannibalizing our revenue for
existing efforts is to start a new entity for the new program. Taproot Foundation would do our current
programs and get the $25k grant and the Turnip Foundation (spin off) could get
a second grant. This, of course, would
double our overhead expenses, as we would need two HR, accounting, and IT
departments, among others.
If Foundations are
serious about outcomes and efficacy, they could address this in a couple of
ways:
- create some grant
programs based on market share (the more services you deliver, the larger the
grant)
- allocate grants to providers
who maintain quality while operating at the lowest cost until the grant budget
is drawn down. So, if the best provider can use 80% of the grant budget to
serve clients, they would get 80% of the funding. the next best provider would get the
remaining 20%.
- create a policy that if
two organizations merge, they will be eligible for 200 percent of the ceiling
of a single nonprofit going forward (or better yet, bump it to 250 percent to
create incentives)
This is directly tied to
one of the biggest criticisms of foundations.
The current common foundation model is based on the assumption that
foundations exist to keep nonprofits in business. It should instead be focused on partnering
with nonprofits to achieve the maximum public benefit.
All that said, if I had a ton of money and started a foundation, I wouldn't want people lecturing me about how to give it away.
By Aaron Hurst on
June 13, 2008 10:23 AM
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Citing redundancy and the extreme growth in the
nonprofit sector over the last two decades, it has become in vogue to talk
about the need for merger activity in the nonprofit sector. While the
number of nonprofits in this country has grown close to 70% in the last decade,
focusing on mergers distracts us from addressing one of the most significant reasons for the
growth.
Having interviewed hundreds of nonprofits across
the country over the last seven years, it is evident to me that the rise in the number of nonprofits is
largely correlated to a decrease in the effectiveness of public policy.
The increase in nonprofits should be a barometer for society, telling
us that we need to have the courage to demand better public policy to ensure
the sustainability of our way of life.
Our local, state and federal governments are not
effectively meeting the needs of society. Fortunately, we are a country
of entrepreneurial and compassionate people who step up and try to solve problems on their own when they see them.
An Example:
A couple of recent graduates from the Goldman
School at UC Berkeley
realized that foster youth in this country are "aged out of the system" at
18. On their 18th birthday they are given a garbage bag with their
belongings and a pat on the back and sent out on the street. Within two
to four years of aging out of foster care in California, over 50 percent of former foster
youth are unemployed, 40 percent are homeless, and 20 percent will be
incarcerated.
Faced with these grim statistics, these social entrepreneurs started the First
Place Fund for Youth to provide a range of programs to serve these recently emancipated youth. They helped them establish credit, get housing and build a social network to support
them as they struggled to make the transition to independent adults.
Programs like this are now popping up across the country as others see the need
and are inspired by the Fist Place Fund for Youth.
This shouldn't be a partisan issue. Nearly
all Americans agree that foster youth, children who have often been abandoned by their
parents, are the collective responsibility of society. When they are
abandoned, we all become their new parents. How many of us would boot our
child out of the house with a garbage bag and a pat on the back?
Even for the few of us out there who don't feel that we are
responsible for these children, the simple economics of the situation make this a cut
and dry case. Not only do these youth end up costing society a lot of
money, whether it's requiring public
services or entering the prison system at a cost of $31,000 per year
(data from California), but we also lose out on income tax to support our society (roughly $10,000 per person per
year). The math is compelling.
The First Place Fund for Youth is a canary in
the coal mine. The need for this organization is a clear sign that our foster youth system needs to be redesigned not just to keep these youth out of
trouble until they turn 18, but to create a gradual and thoughtful process for
slowly aging them out of the
system until they are truly set up for success as independent and productive
members of society. Most parents remain involved in supporting their
children well past their 18th birthday; they provide financial
support, a fall back that enables their children to take risks, mentorship and
advice, emotional support, and all the other things that I know I took for
granted. We collectively need to take responsibility for foster youth
beyond their 18th birthday.
As we learn about the need for First Place Fund for Youth
we should be asking why our public policy has failed our society on this issue
and how we can
right our
path. The solution is not simply to merge them with other nonprofits serving
foster youth. It is to change public policy.
This is one of the most critical roles of the
nonprofit sector in our society. We need the canary to keep our mine safe
and to keep it running.
The challenge today is that we are not listening
to the canaries. As Al Gore wrote in "The Assault on Reason", our
government is not focused on setting policy based on reason and evidence (he
also romanticizes that we once did, which is questionable).
A Proposal:
What if we regularly surveyed all nonprofit
leaders (the canaries) and asked them what change in public policy would enable
them to happily close their doors? We could then take the most frequently cited suggestions and
develop a "canary report" for the media and government that identified 10-15
key bi-partisan policy
changes that would strengthen society and celebrate these canaries as heroes in
improving our communities.
The
Role of the Nonprofit Sector:
Clearly nonprofits do not exist solely to act as canaries. This is the first in
a series of posts about the numerous critical roles that nonprofits play in our
society.
By Aaron Hurst on
June 9, 2008 5:59 PM
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Back in
2003, Lisa Acree, then at BSR, turned me on to Barbara Waugh's book - "Soul in
the Computer". Given the title and the butterflies on the cover I would
never have read it, but Lisa insisted. I am glad she did. It tells
Barbara's story as a self-proclaimed "corporate revolutionary" at HP. She
shares her tips for how to be the power rather than fight the power. She
shows how she was able to make HP a more socially and environmentally friendly
company from inside the walls rather than by picketing the HQ.
I was
reminded of the book this morning while reading Julia Moulden's blog on the
Huffington Post.
Julia refers to this type of leadership as the "New Radical Innovator" and
today wrote about the appointment of Ronnie Abrams, a hot-shot attorney, as
special pro bono counsel to one of New
York's most prestigious firms, Davis Polk
& Wardwell. She describes Ronnie as someone "who stays
inside their field or organization and drives change from within."
Over the last few years I have met a lot of outstanding
Americans who are New Radical Innovators. They are working across the
business community and leading the pro bono movement at their firms and
companies. They are working in their field to create change within their
companies, in their professions and in their communities. Pro bono is an ideal
platform for this new form of change leadership. It is awakening business
professionals to their power to make the world a better place from the inside
out.
By Aaron Hurst on
June 3, 2008 5:10 PM
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The Stanford Social Innovation
Review just published a study on the keys to managing breakthrough performance
for a nonprofit. It was done by several Bain consultants and the CEO of
Critttenton Women's Union.
Their conclusion is that
breakthrough nonprofit managers follow four key
principles:
1)
Costs of Serving Should Always
Decline
2)
Market Position Determines Your
Options
3)
Clients and Funding Pools Don't
Stand Still
4)
Simplicity Gets
Results
These are the four principles we use
to run the Taproot Foundation, but they are almost exactly aligned with the four
new Service Grants we are launching this year in our new Strategic Management
practice. We designed these four Service Grants based on a year of
comprehensive research on nonprofit needs and the effectiveness of pro bono
service to meet those needs. The four new Service Grants
are:
1)
Financial Analysis - Helps a
nonprofit understand the true cost of their
programs
2)
Competitive/Collaborative Analysis -
Helps define the organization's role in their
marketplace
3)
Strategic Planning Prep - Helps a
nonprofit understand the changes in their community, especially changes to
clients and funding environments
4)
Strategic Scorecard - Defines the
simple core metrics for a nonprofit to use to measure
performance
You can see how well they are
aligned. SSIR's research underscores the potential for pro bono consulting
resources to make a huge impact in supporting and building breakthrough
nonprofits. Here is the full article:
http://www.ssireview.org/articles/entry/achieving_breakthrough_performance/
By Aaron Hurst on
June 3, 2008 11:47 AM
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The Committee Encouraging Corporate
Philanthropy (CECP), a membership organization of 165 Fortune 500 CEOs, just
published their quarterly newsletter and it is all about pro bono service. This is the first publication of its kind and a real milestone for the pro bono
movement.
Here is a link to the
PDF:
http://www.corporatephilanthropy.org/ncp/pubs/CECPSpring2008.pdf
The newsletter features articles by
the CEOs of Deloitte, IBM and McGraw-Hill. It includes a definition for pro
bono as well some great case studies and features written by the Secretary of
Labor and Chair of the President's Council on Service and Civic Participation.
It even includes a brief piece by the Queen of Pro Bono, Esther Lardent,
President of the Pro Bono Institute.
By Aaron Hurst on
June 2, 2008 4:36 PM
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By
executive order today, I hereby declare June 19th Matt O'Grady Day
at the Taproot Foundation. From this year forward, we will close our
offices on June 19th every year to celebrate the wedding anniversary
of our very own Vice President, National Expansion (Matt is officially tying
the knot later this month in San Francisco), and more importantly
to celebrate a major milestone in the civil rights movement in this country -
the legalization of gay marriage in the largest state in the land.
You will
see that Matt O'Grady Day is now listed on our site as an official Taproot
Foundation holiday.
While
progress is never fast enough, I am proud to be part of a society that is able
to evolve to get closer and closer to achieving our ideals of life, liberty and
the pursuit of happiness for all.
