Finished Reading Pallotta
By Arnold Kling
Bracing diagnosis, disappointing prescription. Having finished Uncharitable, I have that capsule review.
As I see the diagnosis, donors evaluate non-profits on criteria that are not related to results. The big one is “percentage of donations that go to the cause.” You can probably anticipate most of the problems with this measure if you think about it.
Once we decide to evaluate non-profits on process rather than on results, it is easy to predict what happens. We get process, not results!
Anyone who has worked in a large organization, including profit-seeking enterprises, is familiar with the problem. Managers run their departments with “seat of the pants” approaches. They measure activities, not outcomes.
When I was at Freddie Mac, senior management tried to implement Operational Planning to overcome this. We were supposed to think in terms of KRAs and IOPs (key results areas and indicators of performance). It’s a good discipline. It may not work in practice quite as well as in theory, but it probably works better than going with seat-of-the-pants.
There is a saying in organizations that “what gets measured gets done.” The thing is, as Garett Jones said, most of us are building organizational capital, not widgets. Organizational capital is harder to measure. That is what makes it hard to come up with the right IOPs.
So, whether you are talking about a for-profit or a non-profit, if management is going to be results-oriented, you have to be able to come up with good IOPs. In the operational planning methodology, this is a negotiation between senior managers and middle managers.
But who manages the senior managers, to make sure that they stay focused on KRAs and IOPs? In the for-profit sector, the decentralized processes of consumer choice and competition force the issue.
In the non-profit sector, it is up to donors to provide discipline. But donors, I would argue, tend to be interested in expressive philanthropy rather than in results.
What Pallotta proposes is a big national effort to evaluate charitable organizations. The criteria would be complex, including both results and organizational capabilities.
I doubt that prescription would work. You might just as easily propose a national effort to evaluate middle management at for-profit businesses. But I believe that such an effort would fall apart because of lack of local knowledge. Fortunately, we do not need such an effort for the private sector, because we have market discipline. It’s far from perfect, but it is much better than a remote national agency.
I am inclined to think that with non-profits, you get what you pay for. With donors caring about expressing themselves, the non-profit industry is bound to evolve toward satisfying donors’ desire for self-expression. That does not mean that it will produce no good results. However, it will not produce results as well as it might if donors were single-mindedly focused results.