A recent article in the Stanford Social Innovation Review gives an overview of what authors Goggins Gregory and Howard refer to as the “nonprofit starvation cycle.”
This cycle is defined by a nonprofit feeling pressure to reduce their overhead to the point where it begins to erode the organization’s basic ability to function by cutting too far back on investments in both people and technology. The article posits that this cycle is an artifact of the fixation that many funders have with keeping the percentage of dollars spent on overhead low.
This focus on overhead is understandable, as the percentage is a marker of “efficiency” more readily attained than other more slippery or subjective definitions of programmatic success.
Regardless, the consequences, as outlined in the article, are grim, and are tantamount to a hollowing out of infrastructure in the nonprofit world. In closing, the authors call for a shift of focus from overhead to outcomes in the funding world.
At least one foundation has heard this call and is taking bold steps to refocus on outcomes and bolster operating support. The Boston Foundation announced recently that they will now be emphasizing “unrestricted operating support” as their primary funding strategy.
The move is being heralded by social entrepreneur Dan Pallotta as the nonprofit equivalent of “the fall of the Berlin Wall.” In addition to the shift to unrestricted funds, The Boston Foundation will be absolving grant term limits, and removing deadlines so that nonprofits can operate on their own timetables.
For more information on the Boston Foundation’s new funding strategy, read Dan Pallotta’s article in Harvard Business Publishing or visit The Boston Foundation’s website and read the press release explaining the organization’s new strategy.
-Cary Lenore Walski, MCF web communications associate
Join the Conversation: Do you see The Boston Foundation’s shift as a harbinger of a new trend in philanthropy towards increasing operating support? What other grantmakers do you know who are employing similar strategies to improve outcomes?