Efficient Market Still Eludes the Sector (Part 1)

Fast Company issued its 2008 Social Capitalist Awards this month and, as usual, the recipient list is a great who’s who of the social entrepreneurial segment of the nonprofit sector.

This year for the first time the organization I run, GivingNet, applied for the award [but was not selected], which gave us more insight into the criteria for analysis and perhaps selection. Our discerning donors will be happy to hear that the application places heavy emphasis on business management principles that are crucial for a better performing nonprofit sector:

1. Accountability in numbers of clients/users/people served. Significant emphasis is placed not just on how many people are served or influenced by the company, but on how effectively measurement systems are used to prove it. There is a strong emphasis on third party verification of metrics (something we, like many nonprofits, assume we are too small to warrant).

2. Measuring impact. Respondents were expected to demonstrate their measurement systems for determining whether their work is making a difference. Again, third party verification appeared to be emphasized.

3. Segmenting types of capital sources. Questions about capital sources were sophisticated, requiring the organization to delineate working capital and “patient capital” as well as plans for future sustainability.

4. Scale. Growth trajectory and ways to manage the growth are explored extensively.

Knowing the people at Monitor Group, which partners with Fast Company in the management of the award process, I’m sure they hope their awards program will be known not only to recognize high performers, but also to become a benchmark for performance measurement. In the case of our organization, completing the application represented a rigorous self-assessment, and I knew we were weak on scale and third party verification of metrics before we submitted it.

I’m sure the Monitor gang is also banking on the fact that creating a benchmark for performance measurement will take the sector one step closer to the elusive “efficient market,” where capital sources (donors) are connected efficiently with high performing capital uses (nonprofits). Unfortunately, a “donate now” button for the winners on Fast Company’s web site is unlikely to move the dial.

More on the latest on the elusive “efficient market” for the nonprofit sector Monday.

Carla E. Dearing