Knowledge Letter, Summer 2008    
 


Friends of the Bridgespan Group,

For nonprofit leaders and their funders, putting every possible dollar into programs is as instinctual as putting a child’s oxygen mask on first would be for parents. But whereas travelers are reminded every time they fly to attend to their own needs first, nonprofits and their funders seldom get this advice. In this issue of Strategies for Social Impact, that message comes through loud and clear. “Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations and Pressure to Conform” makes the case for “good overhead”: investments in the people and processes required to support and sustain good programs. Our audio screencast on “Effective Organizations Achieve Superior Results” underscores the point.

We have been making just such investments ourselves, this past year, in order to further Bridgespan’s mission of helping nonprofits achieve breakthrough results. The first fruits of these efforts will be visible this fall, when we re-launch www.bridgespan.org. Designed to provide a variety of new tools, resources and discussions, the expanded site could not have been created without the expertise of a new digital team headed up by our new partner, Katie Smith Milway, who will be taking on responsibility for this knowledge letter in the fall.

We hope that Bridgespan’s expanded capacity will help you create greater impact in your own organization. As always, we invite your comments and welcome your suggestions at feedback@bridgespan.org.

Nan Stone
Knowledge Partner

The Bridgespan Group

   

 

IN THIS ISSUE

Bridgespan Perspectives
Audio Screencast: Effective Organizations Achieve Superior Results

Getting Replication Right: The Decisions That Matter Most

Building Blocks Post Quake for China Charities

Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform


Data Point
The Reality of Indirect Costs and the Unrealistic Expectations of Funders


From Bridgestar.org

Nonprofit Job Seekers: Finding the Right Fit for You

 

 

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BRIDGESPAN PERSPECTIVES


   


  Building the Organization
 

Audio Screencast: Effective Organizations Achieve Superior Results
Kirk Kramer

 


Bridgespan and Bain & Company proprietary data reveals that effective organizations achieve superior results. Our analysis reveals that high performers realize that effective organizations are about more than structure alone. In this audio screencast with Kirk Kramer, a partner with The Bridgespan Group, we discuss what makes for effective organization and where nonprofits typically face barriers as they seek to increase their effectiveness.

   

 

   

 


  Propelling Growth
 

Getting Replication Right: The Decisions that Matter Most (PDF)

Kelly Campbell, Mandy Taft-Pearman, and Matthew Lee

 


Expanding a nonprofit organization by replicating its programs is a challenging prospect. The decisions you make today will heavily influence the impact your organization will be able to have down the road. But which decisions matter most? And how should you approach them?

Survey results, coupled with Bridgespan’s experience, suggest that the most important replication decisions are straightforward in theory and come with a host of conventional wisdom. They include selecting a legal expansion structure, determining where to open new sites, choosing new leaders, and deciding how to maintain quality. But the reality is more nuanced – and making the decision will lead you to consider finely tuned differences in choosing new sites, decision making roles, and more within your organization.

     
     
    Developing Strategy
 

Building Blocks Post Quake for China Charities
Susan Colby and Nan Stone

 


This article appears on Forbes.com

For a country without a modern history of philanthropy, China has been generous in the aftermath of its recent earthquakes. People with poverty fresh in their memories quickly donated some $186 million in just days, according to the Ministry of Civil Affairs. The Chinese Red Cross Foundation's Web site was so besieged by givers that it had to be closed. The current focus of aid efforts is clear, but it’s not too soon for Chinese charities to consider their strategies post quake. Bridgespan partners Susan Colby and Nan Stone share our perspective on just how nonprofits can develop strategic clarity around their theory of social change and the impact they seek to create.

     
     
    Managing Performance
 

Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform (PDF)

William Bedsworth, Ann Goggins Gregory, and Don Howard

 


Donors tend to reward organizations with the “leanest” profiles. They also skew their funding towards programmatic activities. Nonprofit leaders, in turn, feel pressure to conform to funders’ expectations by spending as little as possible on overhead—and by under-reporting overhead costs.

These behaviors describe a vicious cycle that has already been recognized in the nonprofit sector but which persists nonetheless. This article offers steps towards breaking down the cycle, based largely on in-depth profiles of four youth-serving nonprofits that have managed to expand their capacities in critical ways despite the cycle’s pressures.

     
     


Click on chart to enlarge
 

Data Point: The Realities of Indirect Costs and the Unrealistic Expectations of Funders

When nonprofit organizations are able to make needed investments in staffing and infrastructure—“overhead”—they are better able to carry out their missions. However, many nonprofits are challenged in doing this, as they come under pressure from individual donors, government sources, and foundation funders to direct as much funding as possible to the services they provide--and not to the staff and systems that support them.

While individual donors might limit funding based on program ratios (proportion of overall expenses going to program-related activities versus indirect expenses), government sources and foundations generally do not. However, they often limit the amount of a grant that can be used for indirect costs (those costs not directly applied to program activity).

We’ve noted the indirect cost allowances of four foundations with assets greater than $1 billion, as well as the typical range illustrated by Foundation E, in this Data Point. Generally 10 to 15 percent of each grant allocation is earmarked for indirect costs. While nonprofits typically report 10 to 15 percent overhead, the reality is often much higher. The four organizations we studied in the article “Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform” had actual overhead rates of 17 to 35 percent. The article explores the vicious cycle of overhead costs, including misleading reporting (made possible by very vague IRS reporting standards), unrealistic funder expectations, and pressure to conform.

Read more about the vicious cycle and discover strategies for breaking out of it in "Nonprofit Overhead Costs: Breaking the Vicious Cycle of Misleading Reporting, Unrealistic Expectations, and Pressure to Conform".
     
     
    Nonprofit Jobs
 

Nonprofit Job Seekers: Finding the Right Job for You
This article appears on Bridgestar.org – an initiative of The Bridgespan Group.

 


Job seekers often make the mistake of assuming that determining whether or not a particular job is a good fit for them is largely the responsibility of the potential employer. As a candidate, you have an important role in assessing fit, particularly at the senior leadership level, and especially if you are making a career change from the for-profit to the nonprofit sector. Organizational cultures in nonprofits are often quite different from corporate cultures, and it is important to try to gauge whether the new culture will be a rewarding change for you or simply too much of a change.

Through Bridgestar’s talent-matching work and a set of in-depth interviews with senior nonprofit managers, including both long-time sector leaders and those who have recently bridged from the for-profit into the nonprofit sector, we have identified some practices that consistently seem to increase the chances of finding the right job fit. These practices can be applied in two categories: learning about yourself and learning about your potential employer.


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Copyright 2008 The Bridgespan Group, Inc. All rights reserved. Bridgespan is a registered trademark of The Bridgespan Group, Inc.