• Aug

    Specialisation and Non-profit Performance Management

    In any sphere of human activity, success requires focused effort and specialization. Socrates makes the point in Plato’s Republic written around 360 BCE. People and organizations should do more of what they do best, yet nonprofit organizations working in international development are often unfocused and unspecialized. Nonprofits face formidable incentives to lose focus, especially if they are defined by what they want to achieve (like “poverty reduction) or by who they want to help (like “children” or “refugees”) rather than by what they do. This blog is a summary of a Kimetrica White Paper that argues if organizations are interested in achieving high and measurable performance, they need to resist the temptation to drift and take deliberate regular steps to focus and refocus.

    Institutional drift or loss of focus is the tendency of nonprofit organizations to increase the scope of what they do, or claim to do, over time. It is an endemic tendency in the nonprofit sector and in most other organizations. Specialization is a deliberate decision to do x, y and z, and not to do a, b and c. Drift occurs unless there is a specific decision point and process of re-focusing and narrowing of scope. The White Paper shows that top international development NGOs, UN agencies and multilateral financial institutions have a startling lack of specialization. In contrast, almost all the most successful companies (on the Fortune 500 list) operate in only one industry.

    Why does drift occur? Many organizations are trying to achieve lofty goals, such as poverty reduction and therefore believe that they should engage in all the activities that contribute to that goal. There are also strong financial incentives to diversify because it allows you to pursue a wider range of funding opportunities. As important, the factors that stop private companies from drifting are largely absent from nonprofits.

    For private companies, specialization is based on comparative advantage. If you can deliver a cheaper or better product than your competitor you have an advantage. Companies focus their resources on what they are good at doing. If they consistently ignore comparative advantage, consumers will purchase from their competitors and they will, eventually, go out of business. Nonprofits do not face this basic survival risk, and so they can continue to be a “jack of all trades” indefinitely. In the absence of market discipline, nonprofits need to take continuous and deliberate steps to get focused and stay focused. We describe these steps in the White Paper.

    The White Paper explains how focused organizations are better able to measure performance and achieve accountability. Unfortunately, the impact of non-specialist, multi-dimensional work is near impossible to measure. Therefore, ironically, we cannot quantify the performance benefits of specialization.

    Fortunately, for organizations that are defined by their intended impact rather than by their activities, it is possible to achieve specialization without losing sight of their mission and motivation. Their best strategy is to collaborate with like-minded organizations that are specialized in providing other services that best complement what they are doing. Coordination and collaboration allow organizations to stay specialized and implement focused projects, while ensuring that high level impacts are achieved.
    The White Paper is available here.

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