I read an outstanding article today from the Stanford Social Innovation Review about the real costs of running a non-profit organization. In short, overhead = capacity to deliver the programs that serve the organization’s mandate. Without investment in these costs, organizations are hamstrung and aren’t as effective as they can be. Since arts organizations are often non-profits, this absolutely applies. I can’t help but think about the creativity we could foster if we could (and would – we often restrict ourselves in this area by thinking that putting every penny we can “on the stage” will make us the most successful) make these types of investments not only in our artists, but in those who support them on the administrative side.
If, as some say, non-profits should act more like businesses, why is it that some donors don’t allow them to? And why do we keep buying in to this argument ourselves?
The article says it much better than I do, especially the paragraphs about the results organizations get from investing in capacity.
Bravo to the Stanford Social Innovation Review for publishing the article, to Julie Brandt for writing it, and to Ray Musyka for linking to it on LinkedIn.
Bravo also to Dan Palotta for making similar arguments through his TED talks.
Nonprofits are driven by mission, but they too have financial targets and other performance metrics to meet. In the private sector, we see that companies with high-quality training and development programs generate 26 percent more revenue per employee and realize 40 percent less voluntary turnover than their peers. What if we translated this to the nonprofit sector? If we invested in the training and developing staff who deliver these critical programs, would we see 26 percent or more impact per staff member? Would nonprofits achieve greater success because they could focus their people, time, and money on mission-driven activities rather than covering the cost of turnover?
The belief that nonprofits that minimize investments in overhead deliver higher-quality services or better results has deprived many organizations of the resources they need to serve their communities. Leaders of nonprofits need flexibility to invest in recruiting and sustaining the best talent, training and developing employees properly, and building a strong pipeline for succession. Expenses like this are not frivolous; they’re smart.