Balancing the Mission Checkbook

There are some recurring terms that I’ve been hearing over and over in meetings, conferences, and articles intended to help nonprofits, including arts organizations, respond to the serious challenges created by the recession. From what I hear we all need to be resilient, learn to innovate, and adapt to a new normal. It sounds good, but is there some substance that we can use behind these words?

Resilience: Frankly, the people who lead and work for arts organizations have always been about as resilient as you could be, if resilience means the ability to improvise with what’s at hand and bounce back.

Innovation: How about innovation? The arts shine as innovators in creating art, but much less so on the organizational side. Most nonprofit arts organizations are structured using a management and financial model that’s been around for a long time. More and more questions have been raised about the model that will eventually lead to some more options. On his great blog The Artful Manager Andrew Taylor frequently writes about these questions including here and here. There are other interesting developments in helping arts organizations to innovate for long-term structural change. The James Irvine Foundation states that “we define innovation as instances of organizational change that stem from a shift in underlying assumptions and provide new ways to fulfill the mission.” Incremental change isn’t enough for arts organizations to confront their long-term challenges.

Adapting to the new normal: I’m not so sure that we ever had an “old normal”, or that change is a new dynamic. Regardless of the current terminology, though, arts organizations are facing deep and sustained changes to their funding sources, audiences, and role in the community. There is a lot to learn about becoming more adept at identifying the questions and leading the necessary changes. The article Leadership in a (Permanent) Crisis describes adaptive leadership as the capacity to sort out and balance the short and long term issues. Facing immediate problems, many managers will hunker down and nibble around the edges of problems.

People who practice what we call adaptive leadership do not make this mistake. Instead of hunkering down they seize the opportunity of moments like this one to hit the organizational reset button. They use the turbulence of the present to build on and bring closure to the past. In the process, they change key rules of the game, reshape parts of the organization, and redefine the work the people do.

The time is critical for many arts organizations to understand their current situation, envision the extent of changes, and learn to truly and continually adapt.

What if? Last week I was sad to read that the Harlem School of the Arts closed its doors. The school was an institution in the neighborhood for over 40 years. The news report paints a case story of their failure to adapt – years of financial, management and governance problems and attempts to address them with short-term cuts, emergency fundraising efforts, and fingerpointing. If we don’t want to see this happen elsewhere we need to learn some new approaches.

Yes, they’re the buzz words of the day, but I can’t argue with the importance of resilience, innovation and adaptive leadership.

This blog was cross-posted at Springboard for the Arts’ Springblog.

This guest post was written by Carol Berde, nonprofit consultant.

Live Heart Healthy

Have you noticed the articles that accompany tax season each year, with advice about which financial records to keep and which to toss out? That inspired a little file purging in my office, or, as I thought of it, clearing the clots out of the office arteries. One item I found (and kept) got me thinking that nonprofit organizations also have to keep their arteries clear – not just once a year, but continually.

I found notes from a philanthropy conference I attended in 2002, in which the speaker urged his audience to “get comfortable with the new reality” following the post-9/11 economic downturn. Sounds a lot like the “new normal” we hear about today, doesn’t it?

In July 2009, the Pohlad Family Foundation made grants totaling almost $5 million to more than 70 nonprofits that provide housing for the homeless, human services, and community health care in the metro area. I had the privilege of being part of the team that assisted the Foundation and MAP for Nonprofits in making these funding decisions. As Scott Russell reported in a MinnPost piece about the Pohlad initiative on August 13th last year, “waiting lists and overstretched services are commonplace” at these organizations:

Many foundations and philanthropists have focused on meeting basic needs. The federal stimulus package has helped in some cases. Yet clearly money is tight from both government and givers.

Are tight funding, waiting lists, and overstretched services the “new reality” for nonprofits working to meet essential human needs? If it is, how can nonprofits keep their arteries healthy even as they serve more people with fewer resources?

Insight into the first question comes from our review of reports six months later from organizations that received these Pohlad funds. Among other things, grantees were asked to assess whether their financial condition had changed in the last six months of 2009. Of the 68 organizations reporting, 43% said their financial condition was better, 37% said it was unchanged, and 21% said it was worse. Operational efficiencies, expense controls – often including staff layoffs and elimination of retirement contributions – and Federal stimulus funds contributed to “better” financial positions. On the other hand, changed priorities on the part of public and private funders were the chief reason for “worse” financial positions. Huge increases in uncompensated care for people without health insurance or resources to pay deductibles and co-pays was another major stress on community-based providers of health and mental health care. “While we are effectively managing the downturn, we have been less successful stemming the tide of declining revenues and changing [funder] priorities,” wrote one grantee.

This anecdotal evidence suggests to me that settling into the “new reality” or “new normal” is not a one-time event for nonprofits. Cutting budgets, the work of 2009 for many, was necessary but insufficient. Rather, keeping a nonprofit’s arteries clear is a continual process of assessment and adjustment, just as watching our diets, exercising, monitoring cholesterol, and, if necessary, taking medication is for people who want to keep their arteries healthy. Here’s a three-part prescription for nonprofits’ heart health.

1. Scan the environment – both inside and outside the organization – continually. Planning for change is preferable to being surprised. Staying ahead and in touch is an added responsibility for executive directors who are already more than busy, but it is essential in the “new normal.”
2. Monitor priorities and strategies and make course corrections. Change is happening too fast for the old-style strategic plan that was adopted and treated like a fossil to still be useful. But that doesn’t mean that the whole idea of strategic planning has become irrelevant. To the contrary, having a clear strategic direction, overarching priorities, and well thought-out goals and strategies to realize them is more important than ever. Organizations that remain effective and use scarce resources efficiently do so, in large part, because they have a plan. What’s different in the “new normal” world is that a strategic plan must be dynamic, re-calibrated every 6 to 12 months in response to progress (or lack of it) and changes in the environment in which the nonprofit operates.
3. Confront the gnarly issues. Programs rarely operate in isolation; organizational problems tend to be intertwined; and changes in funding streams often affect multiple aspects of a nonprofit. Loss of support for a particular program or service, for example, may also mean a reduction in administrative funds or ineligibility for a different funding source. Understanding each program’s true costs and financial contribution can be empowering. Data, no matter how discouraging the story they tell, often pinpoint decisions that can no longer be postponed. If most discussions in an organization end by circling back to the same complex issues, it’s time to unravel them.

We know from our personal behavior that maintaining a healthy heart takes effort and discipline; so too with nonprofits that want to be healthy. But just as there are websites and coaches for personal fitness, there are great resources on the internet to help nonprofits stay healthy. One of the best is the site you’re on now, www.nonprofitsassistancefund.org. Another of my favorites is The Bridgespan Group,  especially an article written for the Harvard Business Review, Delivering on the Promise of Nonprofits, that includes a useful matrix for analyzing mission relevance and financial contribution or cost of each program.

About Carol Berde

Carol Berde has worked with nonprofits for 30 years from both sides of the desk: a long career at The McKnight Foundation and, more recently, as a consultant to nonprofits and foundations. She can be reached at carolberde@comcast.net.