Category Archives: Impact Measurement

The Commodity Nonprofit

May 13, 2008 – 9:46 am

Yesterday I asked whether nonprofits delivered a commodity of a premium product/service. I want to reiterate that I did not use “commodity” to mean “inferior to a premium product.” I meant commodity to refer to homogeneous products that consumers general choose between based solely on price. Examples: milk, gasoline, printer paper, computer storage devices, generic pharmaceuticals. For-profit organizations can make a TON of money selling commodities (see oil & gas companies during the past few years), so I am not suggesting that selling premium products is somehow superior to selling a commodity.

Let’s think about the nonprofit space. If Organization A can deliver vaccines in Africa for $5 per shot and Organization B can deliver it for $10 a shot, a rational donor would likely fund Organization A. The assumption behind that decision rests on the idea that the product being delivered (a vaccination) is identical and so the most important thing to consider is cost. But what if we look at pre-school education? I don’t care how many teacher-hours are delivered per dollar. I care about the quality of the teaching (because the teaching is not an end to itself, it is the education of the child that we care about). In this environment, we have a premium product market where a rational donor will judge cost in relation to value. However cost still matters. A Lexus might be worth twice as much as a Ford, but even though it is a better car it would not be rational to pay 100 times the cost of a Ford.

When I think back on the discussions we’ve had about overhead expense ratios and the fallacy of quantitatively evaluating nonprofits, I realize that the commodity/premium product dichotomy can help us understand when to look at cost and when cost can be misleading.

There are a lot of nonprofits that deliver commodity-like products and that’s OK. Those organizations should be judged based on cost of delivery. But many, many nonprofits deliver a premium product that is better (or worse) than similar products offered by competing nonprofits (and for-profits). These organizations should be judged on the quality of their product and the cost of delivery in relation to the level of quality.

By Sean Stannard-Stockton | Also posted in Effective Giving, Grantmaking, Philanthropy | Comments (1)

The Tyranny of Metrics

April 30, 2008 – 2:53 pm

Reader Jeane Goforth writes:

Evaluation. My co-founder and I spent 2 hours standing on a street corner ‘after’ work discussing how to measure and convey the profound experiences we have daily. My stomach churns and my shoulders ache when our expert non-profit adviser talks about metrics. I struggle to add one more thing to my to-do list and I know metrics don’t say enough about why what we’re doing works and why it is important.

To me, this comment sums up everything that is wrong with metrics, both how they are dismissed by detractors and how they are misapplied by advocates.

Bad metrics are “one more things to my to-do list”. If the metrics don’t help the nonprofit run their organization better, than their relevance should be questioned. At Ensemble Capital we track a number of metrics about the performance of the firm. We don’t do this to show them to anyone else, we do it because they help us understand our organization better. But we also know that the metrics that are trackable do not capture everything (or even most) about our business.

One of the most important events in Ensemble’s history (in my mind) was when I was making a presentation to the CEO of a public company about why he should consider opening a private foundation. Half way through the conversation he cut me off and said, “Let’s do it. This makes all the sense in the world. A couple of years ago I asked my CPA if I should have a foundation and he gave me one answer. Then I asked my lawyer and he gave me another answer. But clearly you understand the reasons that I personally need a foundation, so let’s get one started today.” This individual had access to some of the best advisors around. Yet they failed him when it came to philanthropy. That was when I knew Ensemble was going to be a success. But that statement doesn’t show up in any metrics that we track.

Every nonprofit should be searching for relevant metrics to track that can help them run their business. If you don’t realize that total donations are going up only because two large donors have significantly increased their giving, then you will not see the increasing risk to your budget of losing those two donors. If you are working with high school students to help them get into college and the rate at which students are going to college is not budging, you have some examination of your program to do (although it doesn’t mean by itself that you’re failing).

But metrics that do not help the nonprofit are probably useless to donors. If a donor asks for a metric that you do not think is relevant, it is either because you are mismanaging your organization, or far more likely, the donor does not really understand what you do.

Quantifying “doing good” is tough if not impossible. But the idea that nonprofits don’t have time on their to do list to think about whether they are doing a good job is poison. Anyone running a for-profit or nonprofit organization should be thinking everyday about how they can do better and what tools can help them understand their organization. If “tracking metrics” is something that is just busy work, then it is useless work.

By Sean Stannard-Stockton | Also posted in Evaluation, Philanthropy | Comments (3)

Evaluation 2.0

April 25, 2008 – 10:21 am

I believe that in many aspects of life, a kind of pendulum effect exists. This effect describes the way in which people’s opinions tend to swing back and forth around reality. Rather than reflecting reality, people’s views vacillate in an arc around true reality. This creates a kind of boom/bust scenario that is very evident in the stock market (dot com stocks will make me rich! Ahh! Dot com stocks are poison!), but also shows up in politics, educations, pop culture, etc. I ran across a well put description this morning on Yahoo Answers:

I think the idea is that: somebody gets a good idea, and then a whole lot of people 1/2 understand it, and make it absolute, taking it to an extreme. Until somebody discovers “another” great idea, (the way things were originally done), and everybody jumps on that runaway train to hell.

The lesson: Moderation. A little common sense goes a long way. Don’t just “swing with the pendulum” of fashion in teaching/learning methods.

I think that there is a strong pendulum effect in philanthropy. I see it at work when we talk about metrics, evaluation, “philanthrocapitalism”, venture philanthropy, etc. Today I want to share with you an excellent article in the Financial Times by Gara LaMarche, the president of The Atlantic Philanthropies. I think LaMarche describes well the way in which approaches to evaluation have “swung too far” and his recommendations for a middle ground makes a ton of sense.

The philanthropic world, poked and prodded by a wave of new donors fresh from success in the business world, is grappling with the issue of evaluation. How do we know that grants – or, as they are now often called, reflecting the influence of the profit-making sector, “investments” – are making an impact?…

…Evaluation is a learning tool for the organisation and the funder, not a stick with which to beat grantees.

…Doing this correctly takes money… Funders should recognise and support their grantees in their efforts to learn what works.

…Evaluation should measure only what is important. Data should never be collected for the sake of it. The “metrics” obsession that has overtaken some funders has not always recognised this. Funders should never make grantees jump through hoops, distracting them from their core mission and costing valuable staff time, for reporting on trivial things. And there is nothing more demoralising, from the grantee’s perspective, than doing all this paperwork only to have it ignored.

…Both funders and the organisations they support need more humility about cause and effect. Organisations working for social or policy change should understand that no significant change was brought about by one organisation working alone.

…Finally, the most important thing: start with what you believe. If you have a passion about ending the death penalty or the isolation of older people – whatever it is – find a way to advance it first and worry about how to measure it second.

You can read the full, excellent article here.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Evaluation, Philanthropy | Comments (5)

Donors Want Impact?

April 9, 2008 – 9:43 am

In response to my recent Financial Times column about new approaches to funding growing nonprofits, the following letter to the editor appeared in the April 5 edition of the FT.

Sir, Sean Stannard-Stockton (“Non-profits look to invest in themselves”, March 29) errs when he concludes his interesting column by saying that “while yesterday’s donors were content to give to a non-profit based on emotional appeal, today’s donors want to know their money is really going to have an impact”.Since the late Renaissance and the Reformation era when the conceptual and applied shift towards “modern philanthropy” with its pursuit of rationalised solutions to systemic problems occurred, donors have sought to optimise the outcome of their investments. Today’s “venture philanthropists” promise greater results and more accountability by borrowing from the practices of venture capital, just as “scientific philanthropists” of the late 19th century did by adopting the principles of the reigning intellectual framework of science.

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived - because the problem of an unequal distribution of resources endures - and that perpetual frustration with the limits of philanthropy is a prime reason for the continual reworking of ideas.

Amanda B. Moniz,
Department of History,
University of Michigan

Michael Edwards of the Ford Foundation responded to the same sentence in my column saying, “[you] assume that impact considerations are new, when in fact they have been around for fifty years or more - just not expressed in the ways you
think are satisfactory.”

I agree that the concept of impact (attempting to give in ways that can do the most good for your dollar) is not new within institutional philanthropy. Because a lot of my readers work at institutional foundations, consult for these foundations, or work at nonprofits that receive grants from these foundations, I often address issues of institutional philanthropy. But I’m not an expert in institutional philanthropy. My firm, Ensemble Capital, serves individual philanthropists. When I talk about The Second Great Wave of Philanthropy, I’m talking about major shifts going on with individual donors. When I write for the mass audience of the Financial Times, I’m writing for individual donors. But given how my writing on this blog veers into issues of institutional philanthropy on a regular basis, I can see how it is my fault if people perceive that I’m declaring “impact” as a new concept to foundations. It is not.

Individual donors have always been aware of the idea that their donations could do more or less good depending on which nonprofits they funded. While they might not often use the word “impact”, the concept makes sense if it is explained to them. But I reject the idea put forth by Moniz and Edwards that “donors” (and that was the word I used, not “foundations”) have embraced impact considerations for half a century.

If in fact donors understood impact, which at its core assumes that some donations do more than others, than you would assume that these donors would strive to achieve higher levels of impact. Yet there are almost no mass market books that discuss this issue, almost no articles in print or online, almost no organizations that help donors achieve impact.

Now before you send me emails pointing to Inspired Philanthropy or Don’t Just Give It Away, before you point out that I’m writing a mass market column on these very issues at the Financial Times, before you tell me about excellent consultants like The Philanthropic Initiative, Arabella Philanthropic Investment Advisors, or my own firm Ensemble Capital, let me just say that all of that adds up to just a bit more than zero.

Individual donors have access to almost nothing compared to individual investors. Every bookstore in the country has a whole section devoted to personal finance (books on which generally ignore charitable giving while lavishing pages of copy on other obscure financial issues). Every daily newspaper devotes space to advising individual investors and we have many mass market publications targeted directly to the individual investor. Investors issue with investment advisors is not so much finding one (believe me, there are thousands of advisors trying to find you right now), but picking from amongst the many qualified professionals.

Most individual donors don’t even know the difference between a nonprofit and a foundation. Institutional philanthropy actual is making a effort to let people know what they do since most Americans cannot even name a single large foundation. Individual donors with a portfolio of appreciated assets still mostly write checks to charity instead of transfering assets or setting up a philanthropic account (this is similar to saving for retirement in a checking account because an investor had never heard of a 401k).

I could go on and on.

I actual have my own criticism of the sentence in my column that Edwards and Moniz call out. When I wrote “while yesterday’s donors were content to give to a non-profit based on
emotional appeal, today’s donors want to know their money is really
going to have an impact,” I actually overstated the case in the opposite direction of the way they saw it. Edwards and Moniz argued that the statement was false because they believe yesterday’s donors were focused on impact. I would say that my statement was flawed because in fact, not even “today’s donor” knows what impact is. “Tomorrow’s donor” will be the ones deeply concerned with impact. But at least today we have real movement in that direction.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Foundations, Grantmaking, Media, New Philanthropy, Philanthropy | Comments (12)

Robert Wood Johnson & the Long-run

April 8, 2008 – 9:04 am

Referencing my post on short-term vs long-term focus in philanthropy, the Robert Wood Johnson Foundation asks for ideas via their blog:

Last Friday, in his thoughtful blog, Tactical Philanthropy, Sean Stannard-Stockton, wrote about the often-missed opportunity philanthropies have to focus on the long run…

On the Pioneer Portfolio, we’re interested in understanding those long-term trends, because they are driven by forces and create conditions that make today’s radical ideas tomorrow’s successes.

Recently, we’ve been watching trends of patient empowerment, IT/communications technology, and data mining/rapid learning. What trends are you watching and what implications do you think they have—long term—for health and health care?

You can click here to leave a comment on their post.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Long-Term Philanthropy | Comments (0)

Short-term vs. Long-term Focus in Philanthropy

April 4, 2008 – 8:03 am

In the Summer 2007 edition of the Stanford Social Innovation Review, Charles Conn, a senior advisor to the Gordon and Betty Moore Foundation and a high tech executive, wrote about the short-term focus of most foundations in an article titled Robbing the Grandchildren:

If future generations could vote on how foundations invest their money today, would they choose the current allocation? Byron Swift, chair and executive director of the World Land Trust, suggested this thought experiment to me, and I am disturbed to find that my answer is no……U.S. charitable foundations are better positioned than companies, governments, and universities to address these long-term, potentially catastrophic problems. One of the few sources of long-term risk capital, they control more than $500 billion in assets, generating funding that with other charitable giving totals almost 2 percent of GDP. With Warren Buffett’s gift, the Gates Foundation alone will control more than $60 billion in assets and $3 billion to $5 billion in annual spending. Other foundations closely associated with the digital revolution (such as Dell, Ellison, Packard, Hewlett, Moore, Omidyar, Page and Brin, Yang) could account for at least $50 billion to $70 billion more.

Perversely, though, many of these new tech entrepreneurs are worsening foundations’ shortsightedness by implementing businesslike metrics and controls in a way that reinforces short-term thinking and behavior. Other questionable management practices, such as low payout rates and lack of coordination with other organizations, further aggravate foundations’ myopia…

…A recent movement, sometimes called philanthrocapitalism or venture philanthropy, seeks to avoid complacency and lack of focus in foundation management by introducing rigorous success metrics and accountability practices. Many of these new-style foundations limit their scope to a few problem areas and, like corporations, intensely monitor outcome metrics, often with tight windows for review. To those of us who came to foundation work after a career in business, this sounds eminently sensible; after all, the foundation world is littered with fragmented, unfocused, and failed programs…

This short-term, metric-focused approach likewise hampers grantees. Foundations take the passionate and committed people in these institutions and harness them to near-term indices of progress. Grantees, in turn, stop playing the long-term game in order to keep the money flowing. They aim lower, too.

I agree completely with Conn’s thesis, but I want to elaborate because Conn fuses “short-term”, “metric-focus” and “businesslike” as if they automatically go hand in hand.

In the stock market, most people have become more and more short-term oriented. In the 1950’s, investors held stocks for an average of 7 years. Today the average is 11 months. Investors have gained access to vast amounts of information they never use to see and yet in many cases have used this information to change their mind more frequently rather than to gain more conviction in their decisions.

Almost all great investors make financial decisions based on a long-term outlook, not a prediction of what will happen in the next three months. At my firm Ensemble Capital Management, we talk about “arbitraging other investors’ time horizons”. In other words, we try to identify situations where short-term bad news about a company causes other investors to sell the stock so that we can buy it at lower prices. We use short-term good news that causes a stock to move higher to sell stock in companies whose longer-term outlook we think is deteriorating. Warren Buffett or most any great investor will tell you that Wall Street’s obsession with quarterly earnings reports is misplaced. Some companies (such as Coca-Cola, a company Buffett has owned a long time) have stopped issuing guidance to investors regarding what their next quarterly earnings might be.

It is human nature to want results as quickly as possible. But to achieve success, we must match our investment decisions to our time horizon. If we want to fix a local school because our child will be attending starting next year, then it might make sense to focus on short-term solutions. But most donors fund issues because they want to have a sustained impact on a situation. The techniques that might reduce crime in a bad neighborhood the most over the next month are unlikely to be the techniques that will have the largest, permanent impact on reducing crime rates over the next couple of decades.

Financial market participants are often short-term focused. They often focus on metrics which describe short-term conditions, but do little to illuminate long-term trends. But great investors and great philanthropists must focus on the information that matters to the long-term success of their projects.

Disclosure: Nothing in this post should be considered investment advice.

By Sean Stannard-Stockton | Also posted in Effective Giving, Evaluation, Grantmaking, Philanthropic Capital Markets | Comments (0)

Albert Ruesga on Metrics Mania

March 26, 2008 – 9:20 am

Albert Ruesga, who blogs at White Courtesy Telephone, was a panel member at the recent Metrics Mania debate at the Bradley Center for Philanthropy & Civic Renewal. Albert posted the text of his comments today and they are outstanding.

At a time when we are seeing a growing backlashing against “philanthrocapitalism”, it is interesting to look at what is being grouped under that term. For many people, “metrics” and the push for more “evaluation” of philanthropy is an unwelcome element of a “business-like” approach to giving. I believe that evaluating nonprofits and philanthropy in general is necessary for a the Third Sector to become a high-performing, high-impact driver of social good. But as I wrote last week, I think that much “evaluation” takes a scientific approach to measurement that is borrowed from the hard sciences, while the lessons of the liberal arts (under which investing and financial markets should be categorized) are more appropriate.

Albert, I think, would agree. He writes:

Measurement and evaluation, when done properly, are not just a bit of value-added for philanthropic or nonprofit work, they’re absolutely essential. Only a fool would disagree with that proposition.

But here I mean not just the kinds of formal evaluations described by Gary Walker in his essay, but informal evaluation as well: the kinds of course corrections we naturally make when we embark on a project, take a false step, and adjust what we do accordingly. Evaluation is not and should not be the sole province of the highly compensated consultant. We evaluate all the time; our own eyes and ears notice things the most astute consultant will never notice; and we’ll often be our own worst critics.

Now here’s where the metrics schmetrics comes in, perhaps: More nonsense has been spoken and written about evaluation than about any other subject in philanthropy. The number of people practicing evaluation without a license and without a proper scientific and philosophical grounding in the subject is, in my view, a scandal. Worries about evaluation, engendered in part by logic models the length of whale intestines, have become the math anxiety of the philanthropic world…

…I want to make clear that I’m not in the least anti-evaluation. As I’ve written elsewhere, I’m concerned that we tend to seek a kind of scientific or moral certainty from a formal evaluation where none exists. The questions that funders most often bring to an evaluator—Was this program worth our $25,000 investment? Should we continue funding it?—are questions only they, the funders, can answer. Say we measure a 25 percent drop in the truancy rate for a hundred kids in some program, and a 25 percent increase in their test scores. Is that worth $25,000 to you? Each donor needs to answer that question for him- or herself. As donors we will never be absolved of our responsibility to use our good judgment.

“Evaluation… the math anxiety of the philanthropic world.” What a great line. Evaluating nonprofits and social good in general is not about math. When I advocate for a financial markets-type approach to evaluation, I am not calling for number crunching. I wrote about this concept in January and will repost my comments from then rather than repeating myself:

Economics is often called the “dismal science”. I know that many people think that finance is boring. But the vision of financial markets as nothing but numbers and spreadsheets does not capture the reality. Do investors buy stock in Apple because they spent hours and hours processing spreadsheet calculations? No. While at the end of the day, buyers of Apple stock believe that the return on capital being generated by the company will make for a profitable investment, the information they use to determine that are not just numbers. The way in which Apple has captured the imagination of the consumer, (an intangible piece of data that cannot be added to a spreadsheet) is by far the most valuable asset that Apple has and it is a major reason why investors have flocked to the stock.

Have you ever watched CNBC, the news channel of the financial markets? It is far from some kind of spreadsheet crunching lecture. Every day, investors or all types come on the show and make passionate arguments for why certain companies are good investments. While numbers and calculations underlie much of their thinking, it is the story, the human story of the companies they discuss that take center stage.

Warren Buffet is widely considered the best for-profit investor of his generation. Does he sit in a corner office reading a spreadsheet the way that Phil suggests? The quote below is from noted investor Whitney Tilson (Tilson is a huge fan of Buffet and a fellow columnist of mine at the Financial Times):

If the future were predictable with any degree of precision, then valuation would be easy. But the future is inherently unpredictable, so valuation is hard — and it’s ambiguous. Good thinking about valuation is less about plugging numbers into a spreadsheet than weighing many competing factors and determining probabilities. It’s neither art nor science — it’s roughly equal amounts of both.

The lack of precision around valuation makes a lot of people uncomfortable. To deal with this discomfort, some people wrap themselves in the security blanket of complex discounted cash flow analyses. My view of these things is best summarized by this brief exchange at the 1996 Berkshire Hathaway annual meeting:

Charlie Munger (Berkshire Hathaway’s vice chairman) said, “Warren talks about these discounted cash flows. I’ve never seen him do one.”

“It’s true,” replied Buffett. “If (the value of a company) doesn’t just scream out at you, it’s too close.”

Taking liberties with Tilson’s quote, I would argue that donors should not “wrap themselves in the security blanket of metrics” because “the lack of precision around measuring the impact that nonprofits achieve makes them uncomfortable.”

World-class investors do not sit in their office crunching spreadsheets all day. Neither should world-class donors. But the underlying logic of both should be that of achieving the highest return on investment.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation | Comments (6)

The “Evaluation Revolution” & Problems with Measuring Nonprofits

March 19, 2008 – 9:26 am

In preparation for tomorrow’s Metrics Mania debate at the Hudson Institute, Gary Walker (former president of Public/Private Ventures) has written an essay titled “Reflections on the ‘Evaluation Revolution’”. As I write about the need for more evaluation of nonprofits and more funding for high performing nonprofits (and less for low performing nonprofits) I realize that many readers assume I am calling for more of the outcome and impact studies that have been used for some time. In fact, I believe that the kind of analysis needed is quite different.

The evaluations that Walker so eloquently discusses use a scientific framework. A framework that says we can quantitatively measure certain types of outcomes and that these results should be repeatable. This framework is borrowed from the hard sciences and I wonder how applicable they are in the social sciences. I believe that a better evaluation framework is that used in financial markets. Finance is not a hard science, it is a social science. One of my favorite books on investing is Investing: The Last Liberal Art by Robert Hagstrom in which the author lays out an approach to investing that draws on the lessons of literature, psychology, sociology and philosophy.

In financial markets much times is spent performing massive historical studies of what has or has not worked in the past. But every new investment decision must be made with the understanding that we’re not talking about physics here. Experiments are not repeatable. What worked last time, might not work this time. However, in the social sciences and in finance, we can study what has worked in the past and we can perform rational analysis about what might work in the future.

I’ve taken criticism in the past from people like Phil Cubeta who have suggested that I see philanthropy as a desk job where spreadsheets are run all day long. That is simply wrong and does not capture the kind of proactive philanthropic decision making within a social capital market framework that I think will lead to a nonprofit sector that performs at a much higher level.

I urge you to read Walker’s essay for a deconstruction of why traditional evaluation has not lived up to the promise.

By Sean Stannard-Stockton | Also posted in Effective Giving, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (1)

Embedded Foundations

February 27, 2008 – 12:57 pm

Lucy Bernholz coined “embedded giving” last year to describe products and services that are sold to a consumer with a promise to donate some of the proceeds to charity. Now we have “embedded foundations”. From the Springfield News-Sun:

The Chapin Hall Center for Children, a semi-independent policy research center at the University of Chicago, is studying foundations similar to Springfield’s Turner Foundation to identify effective philanthropic practices that could benefit national foundations.

What researchers found is a set of foundations with an uncommon but highly successful approach to giving, researcher Mikael Karlstrom said, resulting in significant, sustainable change in communities around the country. The ongoing study, titled “Embedded Funders and Community Change,” explores foundations that concentrate their resources in one limited geographic area and become deeply involved in those communities.

National foundations can swoop into an area and give money for a reform initiative over a certain time frame. When the time’s up, they can leave whether or not the initiative achieved the desired results and move on to the next project, said Prudence Brown, a researcher for the study.

The foundations at the center of Chapin Hall’s study — what researchers dubbed “embedded foundations” — aren’t about to pull up their roots…

…”The embedded funder says, ‘We’re going to keep working at this until we get it right.’ That’s a very profound difference,” Brown said. “Many of these foundations didn’t fit the stereotype of a foundation that holds itself above everybody. There was just a very admirable sense of persistence and deep understanding of community that takes many years to develop.”

You can read the whole thing here.

In financial markets it is understood that small investors have certain advantages over large institutions (the ability to make decisions without worrying about client perceptions, the ability to invest without “moving the market” or influencing the price of the stock, the opportunity to see Main Street trends without being caught up in the Wall Street herd mentality). I think embedded foundations is one way that smaller foundations can achieve high impact.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Philanthropy | Comments (0)

Rewarding Donors

February 25, 2008 – 9:39 am

Last month, a discussion unfolded on Gift Hub that I never got around to commenting on. In response to a question from Phil Cubeta I wrote:

I was trying to say they do not give away the bulk of their lifetime giving “today”. In other words imagine you had someone with $10 million in investable assets. Assume that an analysis of their financial wants/needs and their desire to give showed that they could and would like to give away $6 million over the course of their life. Imagine that all of the tax issues have been handled and the donor is free to give purely in the way that follows their altruistic motives (one of the reasons for organize your giving cited in my article is to separate the tax planning from the altruistic motive).

What I’m saying is that I rarely run across people who would choose to give the $6 million away today and then giving nothing else for the rest of their life. Instead, most people want to give over the course of their life. I think that while there may be a impact maximization case for giving everything asap, that most people want to give over their life and that that choice is OK.

Phil responded:

I agree with your perspective. Most people don’t want to just cut loose of the money, the big bundle, the ultimate gift, until late in life, since they actually enjoy the giving and may want to be actively engaged. Also, if you do give all at once to XYX charity, and you are then tapped out, will XYZ send roses on your birth day a year from now? You lose leverage, also, in giving the bundle at once, rather than doling the money out against progress and results on the things you care about.

Then, Gift Hub reader Michelle wrote:

Phil’s last remark is vital to note, and it’s something we see constantly on the inside. This is where the transaction becomes a relationship. Our donors do want the birthday flowers, the mentions in the newsletter, the gradual, long-term, and consistent shaping influence that keeping their recipient on a sort of allowance creates. Every day we see the many ways the donation relationship creates personal meaning and belonging. Were the gift made outright, with no future expectation on either side, the donor would risk the disappearance of a relationship - in many cases an important, self-defining one.

I think Michelle is right. Donors do want “birthday flowers”. But the question is why? Why is it that people who see an important need and are willing to part with their hard earned money to help alleviate the problem, want some flowers sent to them? Isn’t it enough that their money fed a child, lifted a family out of poverty, provided education, healed the environment or even saved a life? It is not enough because most nonprofits are unable to provide any convincing feedback to their donors that indicate the impact of their gift.

When you buy a new computer, you don’t need Dell or Apple to send you flowers as a thank you because the product in your hand affirms your choice to spend the money. Philanthropy is much more challenging in this regard because the “product” you “buy” goes to someone else or is part of a large, longterm event that can be hard to see your impact on.

But imagine the nonprofit that manages to figure out how to demonstrate to their donors (both emotionally and quantitatively) the huge impact of their gift? Suddenly, the nonprofit doesn’t have to spend resources providing “feedback” like birthday flowers. Suddenly, donors’ gifts result in the feedback that humans crave when trying to evaluate their actions.

Relying on birthday flowers is a bit like building a great customer service center to cover for the fact that your customers have no idea if your product is any good (”I don’t know what I bought, but they sure were nice to me!”). It may be necessary, but a much better choice would be to figure out how to show your customers how great your products are. Unless of course, you product isn’t anything special.

By Sean Stannard-Stockton | Also posted in Philanthropy, nonprofits | Comments (7)

Measuring What You Can’t See

February 19, 2008 – 10:08 am

The Wall Street Journal has a column today called, “A Modern Conundrum: When Work’s Invisible, So Are Its Satisfactions”:

In the information age, so much is worked on in a day at the office but so little gets done. In the past, people could see the fruits of their labor immediately: a chair made or a ball bearing produced. But it can be hard to find gratification from work that is largely invisible, or from delivering goods that are often metaphorical. You can’t even leave your mark on a document in increasingly paperless offices. It can be even harder trying to measure it all. That may explain why to-do listers write down tasks they’ve already completed just to be able to cross them off…

Jon Williams once worked in an auto-claims department where the number of new-claim calls, which could take a half hour, were tallied with the same weight as brief reminder calls to customers. Even so, his greatest sense of achievement was transforming an initially angry and frustrated customer into someone who was satisfied and even laughing. “That wasn’t measured at all,” he says…

The loss of such control over how and when a job is done is one reason the Industrial Revolution was resisted, says Gregory Clark, a professor of economics at University of California, Davis. “It seemed like the complete destruction of the value of work to people,” he explains…

Mechanical engineer Robert Schneider at least gets to see the ball bearings he designed being produced in the manufacturing plant downstairs from his office. But he spends a lot of time researching things that don’t directly translate into a finished product. “Much of the work I do goes unnoticed by anyone but me,” he says. “I need to rely on myself to know I am doing worthwhile work.”…

Somehow I think there’s a lesson in all of this for philanthropy. Some readers might suggest that the article shows how the modern economy sucks the life out of… life. But I would look to the obvious fact that even if we have more trouble measuring our work in an information economy, the work we do is not less meaningful. It seems to me that the key is to find ways to connect the work we do with some sort of progress. Progress towards better products, better services, more sales, happier customers… and the solving of social problems. In a world where invisible “information” is the product we produce, we must re-double our efforts to measure impact. But we must focus on measuring what matters, not that which is easiest to see.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (0)

Best of Stanford Social Innovation Review

February 16, 2008 – 10:58 pm

The Stanford Social Innovation Review is a must read if you care about philanthropy. They manage to straddle the line between offering academic journal type articles while at the same time offering up compelling, engaging writing. They even play host to a large group of philanthropy bloggers (including me).

You have to subscribe to the magazine to read most of the articles. But the SSIR is currently offering their five most read articles of 2007 for free:

Creating High-Impact Nonprofits

Conventional wisdom says that scaling social innovation starts with strengthening internal management capabilities. This study of 12 high-impact nonprofits, however, shows that real social change happens when organizations go outside their own walls and find creative ways to enlist the help of others.

Microfinance Misses Its Mark

Despite the hoopla over microfinance, it doesn’t cure poverty. But stable jobs do. If societies are serious about helping the poorest of the poor, they should stop investing in microfinance and start supporting large, labor-intensive industries. At the same time, governments must hold up their end of the deal, for market-based solutions will never be enough.

How Nonprofits Get Really Big

Since 1970, more than 200,000 nonprofits have opened in the U.S., but only 144 of them have reached $50 million in annual revenue. Most of the members of this elite group got big by doing two things. They raised the bulk of their money from a single type of funder such as corporations or government—and not, as conventional wisdom would recommend, by going after diverse sources of funding. Just as importantly, these nonprofits created professional organizations that were tailored to the needs of their primary funding sources.

Social Entrepreneurship: The Case for Definition

Social entrepreneurship is attracting growing amounts of talent, money, and attention. But along with its increasing popularity has come less certainty about what exactly a social entrepreneur is and does. As a result, all sorts of activities are now being called social entrepreneurship. Some say that a more inclusive term is all for the good, but the authors argue that it’s time for a more rigorous definition.

A New Era for Business

More and more business leaders recognize that their company’s future is increasingly intertwined with the needs and demands of society. What many executives don’t understand is how best to manage that changing relationship. In this article, McKinsey & Company consultants provide a model for incorporating sociopolitical issues into the strategic decision-making process.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Media, Philanthropy, Social Entrepreneurship, microfinance | Comments (0)

More on CalHospitalCompare.org

February 11, 2008 – 9:00 am

Last week I mentioned CalHospitalCompare.org, a website that shows comparative rankings for the effectiveness of California hospitals.

A reader emails today with some thoughts on problems with the measurements used by the site. He points out that the vaunted Cedars Sinai of Beverly Hills has only an “average” ICU mortality rate according to the site. The site assumes that a hospital should strive for a lower mortality rate (less patients dying is good right?):

Why are we pedantically told “lower is better”?  Why is lower better?  Is this not exactly, specifically, the dead-nuts center of the “metrics” conundrum?

If the Cedars ICU mortality rate was 50%, wouldn’t that mean Cedars must be where everyone in the know knows to go when intensively sick??????  Included among them, obviously, are the intensively sick at death’s door — thus inflating the ICU mortality rate with folks whose only hope is for more time in ICU — not escape from it.  “Mortality” measures nothing meaningful about the care and skill and hand-holding services provided AT DEATH’S DOOR in the Cedars ICU!

That 50% ICU croak rate might just mean Cedars is the place to go to be kept ticking long enough for all my family stragglers and long-losts to fly in and come kiss me goodbye?  I’d still add to the croak rate, but…  Wow!  What service!

What the hell kind of “metric” measures that PRICELESS service???!!!

What about the exact opposite “metric” finding:  Suppose Cedars ICU mortality rate was 1%.  This means, of course, if the “average” is 13%, that Cedars is either magical — or lying.  Let’s say they’re just wonderful.  And…  so…  via “metrics” getting into the hands of salesmen…  everyone discovers how wonderful Cedars ICU can be.  So business goes up on the word — logically, in the fullness of time.  Now…  More and more people at death’s door come to them for those precious last few hours or days…  But.  In the end, folks croak.  So?  Little by little, Cedars ICU mortality rate gets back in line with “average” and, like all intended measurements for goodness, is rendered meaningless.

Why, why, why, why so much time on this obsession with measuring The Good?

The emailer then takes me to task for focusing on measuring nonprofit outcomes. I found his argument above excellent. This is a great example of how important it is to measure the right things. We cannot depend too heavily on any one metric. There is no magic, simple way to determine how effective a nonprofit is.

Right now, any decent economist could give you a long list of statistics that show we are in a recession… and a list of statistics that suggest we are not. That doesn’t mean that metrics are worthless. It does not mean we should not strive to seek knowledge. It means that understanding our world is hard. But through understanding our world, we can create a better one.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Philanthropy | Comments (0)

The 2007 Slate 60

February 11, 2008 – 8:26 am

The Slate 60 was created as an antidote to the Forbes 400 (the list of the wealthiest Americans) after Ted Turner complained about the influence the Forbes list had on the wealthy and how it discouraged them from giving away money. With the 2007 Slate 60 out today, I think it a useful time to think about how cultural expectations drive human behavior. Personally I would love to see some sort of list of the most innovative, or most effective donors. Giving big is great, but giving well is better.

It is easy to measure how much someone gave, but really tough to measure how well they gave it away. In the financial markets, investors who generate the highest return on their investments are celebrated, not those with the largest portfolios. But then it is quite easy to measure for-profit investment returns.

When we discuss measurement, lets be sure to remember that we must measure the right things, not those that are easiest to measure.

By Sean Stannard-Stockton | Also posted in Media, Philanthropy | Comments (4)

Do Nonprofits Trust People?

February 11, 2008 – 8:00 am

A new blog I’ve been following, LifeYears, asks an interesting question today:

Non-profits seem sceptical towards outcome-based indicators of how effective different initiatives and projects are. Is this because they are afraid of what “ordinary people” would think and do if they had this information? And if so, could such a worry be rational?

The author, Ole Rogeberg, poses the question very seriously without passing judgment:

Personally, I hope (and want to believe) that outcome-based indicators would make the connection between giving and accomplishing stronger, that people would not just give in order to “do a good deed” but also start giving to “have an impact on malnutrition” or “reduce malaria” etc. But other people might believe that the consequences would be different. But other people might believe that the consequences would be different. Two possible worries that immediately come to mind:
  • Myopic funding: The more concrete, short-term and certain a program was according to its outcome indicator, the more funding it might receive. This might make it easy to get funding for vaccines and malaria nets, but hard to get funding for investments and development in health infrastructure, education, human rights work with women, etc.
  • Over-focused funding: Some measures may catch the public’s interest far more than others (”go viral”), and this might lead to large shares of funds going to these areas - not because the need is the largest or the impact the greatest, but simply because the indicator is catchy in some way.

Ole ends:

Even if you personally don’t see the problem - how can we answer this fear and develop indicators that don’t have excessive (largely unintended) negative consequences?

Important questions. Change is difficult and often has unintended consequences. Many, many people are resistant to my calls for more measurement and analysis of nonprofit outcomes. How can we handle their concerns? Or might their concerns be right?

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By Sean Stannard-Stockton | Also posted in Evaluation, Grantmaking, Philanthropy, Transparency | Comments (1)