Reflecting on "The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy" by The Hewlett Foundation and McKinsey & Company

A new resource for all of us dedicated to "doing good well' arrived this week. The Hewlett Foundation, in partnership with McKinsey & Co., has published a report titled "The Nonprofit Marketplaces: Bridging the Information Gap in Philanthropy. The link leads to downloadable pdf versions of the paper and a brief executive summary, as well as to an online discussion forum to encourage questions, comments and constructive criticism in response to the paper.

The paper's stated purpose is to provide a "framework for action" for some of the stakeholders involved in philanthropy, listed as nonprofits, individual donors, financial advisors, foundations, intermediaries, banks, and technology companies. And as you might suspect from the title, the framework has to do with supplying, demanding, and making good use of various types of information about philanthropic activity.

There's alot here to like. Hewlett and McKinsey provide some very valuable roadmaps for how each of us – and the organizations we work with – can improve what I like to call the praxis of philanthropy. Praxis is my favorite short-cut term for "informed practice," a quick way to describe the intersection of what we know and what we do. In particular, the authors suggest, we need more and better information, we need to be aggregating that information, and we need to spread it around.

For example, a table on p.20 breaks down the types of information a nonprofit could provide about its programs and goals, management and support, feedback, and metrics. For each, it suggests whether that line item is knowable, publicly available, easy to get, and has been analyzed. The table itself could serve as a valuable check-list for an organization that's working its way towards the highest possible level of transparent reporting, or for an individual looking for a way to assess the relative transparencies of different organizations.

And an exhibit on p. 45 models the kinds of information that intermediaries could provide about organizations: details like the organization's mission and programs; strategy, activities, and results; organizational structure and finances; and stakeholder feedback. The report specifically suggests the continued expansion of the kinds of work that Social Actions is doing. Hewlett and McKinsey call for new on- and off-line platforms that connect and build community, and that improve online access to, and aggregation of, the data points listed above. Social Actions is included among the listed intermediaries playing a key role in building central repositories of information.

There's some good stuff, too, in the section titled "Jump-starting Change," where Hewlett and McKinsey assign marching orders to some of the stakeholders listed above:

Are you a nonprofit? You're encouraged to use performance metrics and tools to plan, execute, and reflect on defined goals. Educate your donors about how to assess your performance. Share what you're learning about your impact and organizational performance.

An individual donor? Demand more information from nonprofits and adopt an investment mindset in the way you respond to it. Base your donations on the nonprofit's performance and impact.

Are you a foundation? Share your research on what works (and doesn't) in addressing social issues. Let people know the theory of change that underlies your foundation strategies. Be more transparent about your grant-making criteria and reasoning. Directly fund initiatives that increase the effectiveness of the entire philanthropic sector. Create funds that enable individuals to mirror your investments. Align your application and reporting system with those of other foundations.

For intermediaries like Social Actions: We're encouraged to facilitate connection, conversation, and collaboration. Aggregate and distribute information about performance and impact. Provide the tools that would enable people to track and analyze that performance, and educate individuals and organizations on how to use them. Assist in creating "sector-wide meta-data standards" for information. And one final suggestion is often overlooked: create business models for our own operations that cover the costs of providing these products and services.

And a set of recommendations common to all stakeholders: Collaborate. Find and use a common language. Agree on performance standards and measurements. Share what you know. Share your successes and failures. Work together.

Finally, something I was especially happy to see: a list of negative unintended consequences that everyone who takes up the report's suggestions should strive to avoid, and ways in which those consequences might be mitigated or avoided completely. This kind of statement – about what can be lost as well as gained if a particular course of action is taken – is rare and, I think, worth presenting here in its entirety for quick reference (see below). Clearly, I find alot of value in what Hewlett and McKinsey have presented. At the same time, not surprisingly, I feel some frustration in reading the paper, too. I say not surprisingly because my mission – like that of Social Actions – centers on empowering individuals to take action on issues that they care about. This paper reflects a mission that centers on empowering foundations, nonprofits, and affluent donors. It doesn't speak to the growing and influential role that ordinary people are playing in transforming philanthropy and the nonprofit sector for the better. I support the authors' call for more research on the donor community, and suspect it would reveal an expanded role and motivation for the small-scale donors missing from this report (and an expanded role for beneficiaries, too, but that's a topic for a whole other post.)

The second source of frustration wasn't so much in response to what was in the paper as to what was left out. It's a valuable presentation of what could be done, with very little of the how, and even less of the "why what's being proposed hasn't already been done and what's different now that makes new things possible."

There are reasons why the changes in praxis called for by the authors haven't already been made. Some of them are logistical, and its true (and encouraging) that we have new and powerful tools for generating and distributing the information that's called for here. But logistics alone won't address what Hewlett and McKinsey describe as "marked resistance to "making the call' on [a nonprofit's] performance and sharing more detailed information on organizational performance, beneficiary satisfaction, effective strategies, and social impact" (p. 43). It's not comfortable to admit when your program failed, or when unintended negative consequences outweigh a program's technical success. It's risky to share that information, and the rewards are ill-defined. How is an organization to know when opening up their stores of hard-won expertise and resources will lift up all of the boats on this philanthropic ocean, and not just benefit others to their own detriment? Why would a donor demand more information about the impact of his or her donation, when the default is often to not know and feel good about it?

It's outside the scope of Hewlett and McKinsey's report to explore those questions in detail, but it would serve the philanthropic community well to better acknowledge their import and to perhaps propose the means by which we could explore them further. Pulling in behavioral science, cognitive science, network theories, systems theories, and institutional economics – or at the very least pointing to them and highlighting the resources they represent for improving philanthropic activity -- would have been a valuable addition to the work Hewlett and McKinsey present here.

Although, as the authors stress, the report itself is presented as a starting point. As mentioned above, they're openly requesting feedback and critique on the discussion forum. I'm looking forward to learning more there and from comments to this post, too, about the report, its implications, and where we go from here.

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From the report: A Note on Unintended Consequences

(The following is taken directly from the text. See below for citation reference.)

Here are some consequences we should strive to avoid:

Large, established nonprofits with significant marketing resources choose to "game the system" rather than honestly measure and learn from their performance.

New nonprofits are unable to demonstrate a history of impact and are shut out of funding opportunities.

Nonprofits that operate on long time horizons (e.g., preventative medicine) or with indirect theories of change (e.g., libraries) are unable to show proof of impact and lose funding.

The easy availability of imperfect "proxy" data removes the incentive to gather outcome or social impact data.

The introduction of an open conversation about performance degenerates into unproductive arguments and leads to ad hominem attacks.

Partnerships with actors like banks lead to a "capture" of the nonprofit sector by the private sector and weaken the mission-driven culture of the nonprofit community.

We believe that the sector can mitigate or avoid these unintended consequences through:

A sector-wide commitment to learning, where publication of suboptimal performance and lessons learned, coupled with a commitment to improve, is rewarded and not punished.

The development of metrics and targets that are relevant for segments of nonprofits (e.g., by issue area, by size) and provide the basis for relevant evaluation and comparison.

The rapid introduction of stakeholder feedback on both the effectiveness of nonprofits and donors.

Ongoing dialogue on the effectiveness of the nonprofit marketplace and how innovation and the introduction of more and better information is advancing or harming the sector.

The development of a culture that defaults to transparency. Although there are times when it is appropriate to maintain confidentiality, the standard in the sector should be openness."

"The Nonprofit Marketplace: Bridging the Information Gap in Philanthropy." 2008. pg. 51. The William and Flora Hewlett Foundation and McKinsey & Company. Accessed on November 26, 2008 at http://www.givingmarketingplaces.org.