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What we learned about Leadership Development & Strategic HR at Taproot Foundation

09/09/2013 in

While at the Taproot Foundation my team developed, launched and ran a consulting practice in Leadership Development & Strategic HR. This provided an opportunity to work with national experts in those domains to adapt established best practices to meet the needs of smaller nonprofits, and to work with some great nonprofit leaders as we provided nearly 100 consulting engagements.  We conducted focus groups with dozens of nonprofit leaders to understand their needs, and spoke with dozens of nonprofit and human resources experts as we wrote white papers and journal articles. Here is some of what we learned:

 

The Need and Opportunity is big

When we conducted focus groups with nonprofit leaders we heard time and again about shortages of needed talent, managers who did not know how to manage, succession gaps in key roles, cultures that did not reinforce performance or accountability, and, most importantly how these operational challenges had interfered with the ability to achieve mission goals. 

Beyond our direct experience, there is a rich literature on the nomprofit leadership crisis with good work from Compass Point and Bridgespan pointing to the lack of a pipeline of developing leaders ready to fill the forecasted needs in the years ahead.

Tom Tierney, Chairman of nonprofit strategy consulting firm Bridgespan, has weighed in, saying that strategy is at most accountable for 10% of a nonprofit's success, with implementation making up the remainder and most of that resting on leadership and organizational effectiveness capabilities.

Research in the corporate and public sectors shows a strong correlation between strong human capital management capabilities and strong outcomes, whether financial in the corporate sector or on student educational achievement in schools.

 

Best Practices Work but need to be Adapted

We found at Taproot that best practices honed and proven in corporate setting can provide similar value but need to be deftly adapted. For example, one corporate best practice is to reinforce a culture of high performance though compensation structures often called "pay-for-performance." This phrase may resonate in corporate settings but is discordanant in nonprofits where many people are willingly accepting less pay in order to further missions they are passionate about. In fact, beyond the rhetoric, pay-for-performance can even undermine peoples' intrinsic non-financial motivation.

Performance management, another great practice, can also work in a nonprofit setting but has to overcome several challenges unique to nonprofits. First, to most nonprofit staff performance management does not mean a process for working with staff to set goals, coach for achievement, and conduct performance reviews - rather it means a process for establishing, managing towards and measuring organizational programmatic metrics. Second, is that unlike in corporate settings where HR-driven performance management process can latch onto a rich set of organizational financial and operational metrics, those measures at nonprofits are often less robust and less timely.

Nonetheless, best practices can be adapted. At Taproot we found that the impact of Leadership Development & Strategic HR consulting engagements were routinely higher than the services offered through our strategy, marketing or IT practices. Jim Collins wrote an effective small addition to his book "Good to Great" designed to show how to adapt his approach to organizational effectiveness to the unique needs of nonprofits. Several of the largest nonprofits and foundations have recruited senior corporate HR executives, who, after some period of time to better undstand that sector's distinct needs, have been able to effectively adapt and implement strong human capital management practices.  

There are Important Barriers to Widespread Adoption of Best Practices

  • Perhaps the biggest challenge is that higher performance - greater missions results at lower cost - does not lead to increased revenues and creation of additional profits for investment and growth. Further, organizations that do not produce the promised impact, or that do so but at a higher cost than alternatives, do not naturally decline. So there is no strong market mechanism for rewarding the best nonprofits, and consequently rewarding nonprofits for making strong ROI investments such as in their leadership and organizational effectiveness. Nonetheless, there is a strong  desire on the part of nonprofit leaders to do more for less, and there are some donors who are more analytical and outcomes ROI-focused. (We are natural supporters of the organizations seeking to reform the philanthropic marketplace.)

  • Another related financial challenge is in the ways that nonprofits receive revenues, often with limitations on so-called “overhead” which would naturally include even high ROI investments such as in information technology or human capital. Some of this is emotional -- it feels better to know that all of your donation is going directly to provide needed services, and part of it is a misguided effort to capture effectiveness -- assuming that low overhead translates into efficiency in the delivery of impact.

  • While nonprofits are not uniform, another barrier to adoption is in the culture present in many nonprofits. This culture tends to: (a) be reluctant to hold underpaid employees and volunteers accountable for results, (b) be reluctant to make investments in capacity -- even if they produce more impact in the long run -- because there are always urgent and immediate social needs, (c) find it difficult to differentiate among employees -- rewarding the best for example. These very understandable human tendencies run through the business world as well, but more so among nonprofits.

  • One consequence of these three prior bullets is that nonprofits tend to be undercapitalized -- most have only enough cash reserves and other assets to fund a handful of months of payroll. So even high ROI investment opportunities get squeezed out.  

  • Another barrier, I have found, is in the language in which words that mean one thing in the corporate world -- such as performance management -- mean entirely different things to most nonprofit leaders. To most nonprofit leaders HR is simply the administrative process of payroll and benefits administration. Its easier to close easily identified understanding gaps than it is to untangle situations where everyone believes, incorrectly, that they’re talking about the same thing.

These are other barriers make the challenge steeper, but none is a deal-killer and not all affect each nonprofit to the same degree.

 

There are Factors that Support Adoption

The structure of the nonprofit sector provides some offsetting factors that make adoption of leadership development best practices easier.

  • Nonprofits can gain access to human capital management expertise for free, by bringing experts on to their boards. So even while an Executive Director might lack the skills to provide rich coaching to her Vice Presidents, she and her team can receive free coaching.

  • Strong organizations that produce and then spin off high performing-high potential talent are not, one can argue, losing leaders to competitors, but are rather most often strengthening partners who share the same or similar mission. So even if talent leaves, it furthers the organization’s mission. The fact that cadres of related organizations often share some of the same funders creates really interesting opportunities to fuel collaboratively created careers paths for high potential leaders.

  • Education and workforce-development nonprofits are “in the business” of investing in talent, and they very intuitively get the rationale for investing in talent.

  • The Salesforce Foundation has given away its software to more than 10,000 nonprofits (or discounted prices by 90% for larger nonprofits) and is being followed by other software providers in the talent management space such as Cornerstone OnDemand. The human capital software as a service (Saas) suites not only automate functions, they provide scaffolding that architects an experience and culture, and in addition supports users with just-in-time guidance. There’s every reason to believe that such software, once tailored to nonprofits’ needs, could make a profound impact, particularly if providers take Salesforce’s lead and give it away.  

 

What have you learned about what’s needed, what’s worked and what’s not worked? We’d love to hear from you!