Study Calls for Greater Flow of Information in Philanthropic Sector

Each year, individuals, foundations and businesses in the U.S. give more than $300 billion to more than a million nonprofit organizations. But are these gifts going to the most effective organizations?

A recently released study by consulting group McKinsey & Co. for the William and Flora Hewlett Foundation urges that if nonprofits, foundations and donors want to increase their social impact, they need a more robust marketplace of information about charitable activity. The study sought to discover what information donors need to make smart decisions about giving and how the philanthropic sector can meet those needs to ensure the most effective nonprofits get the resources they need.

The study is based on exhaustive research that included surveying recent articles, books and research papers on U.S. philanthropy; examining hundreds of nonprofit and for-profit Web sites; reviewing lessons learned from Hewlett Foundation grants; conducting more than 50 interviews with donors, nonprofit leaders, foundation executives and others in the nonprofit arena; holding working sessions with key opinion leaders; and developing numerous case studies.

It offers three key suggestions for specific ways nonprofit organizations can improve the use of information and effectiveness of the nonprofit market:

1. Set goals and use performance metrics and tools to plan, execute and reflect.

"Setting clear social-impact and organizational-performance targets, and managing against them is critical to measuring success and refining strategies," the study advises.

This strategy doesn't require expensive tools or complex measures. Use simple tools that track activities, outputs and outcomes. Integrate performance management into day-to-day activities.

The study does note the need for standards for performance assessment that are accepted across the nonprofit sector, and better tools and frameworks for tracking and supporting nonprofit performance.

2. Share information about social impact and organizational performance. Gathering the right kinds of information is important, but it's not enough.

"Nonprofit leaders need to use that information to drive performance and make decisions that lead to greater social impact," the study notes, recommending that organizations share their "theory of change (or impact model)" and outcomes. This can "create a richer, more honest dialogue around performance."

If your organization lacks outcomes data, then having information on your mission, strategies and goals, quantitative data on inputs, activities and outputs, and beneficiary and staff feedback — even if it's negative — is a start.

3. Educate donors about how to assess nonprofit performance. Engage donors as partners and educate them on what your organization is trying to achieve and why it's important. Share goals and activities, and let them know how you measure your organization.

"As the information gap starts to close, nonprofits need to be ready to answer more questions about how they are doing, welcome these inquiries and have a system for responding," the study advises.

It also offers suggestions for ways individuals, foundations and intermediaries can help create transparency and greater flow of information in philanthropy — for example, suggesting individual donors adopt more of an investment mindset, and seek and demand performance and impact information.

To view the study in full and engage in online discussion of this topic, visit www.givingmarketplaces.org.