Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector

The nonprofit sector has never faced more difficult challenges — or had the potential to create greater impact — than it does today, argue William F. Meehan III, director emeritus of McKinsey & Company, and Kim Starkey Jonker, president and CEO of King Philanthropies, in their new book, Engine of Impact: Essentials of Strategic Leadership in the Nonprofit Sector. But for nonprofits — by 2025 projected to need up to $300 billion more annually beyond currently expected revenues in order to meet demand — to benefit from the largest intergenerational wealth transfer in U.S. history (an estimated $59 trillion expected to change hands between 2007 and 2061), they will have to "earn the right to expand [their] role and maximize [their] impact" in what Meehan and Jonker refer to as the coming "Impact Era."

Drawing on a number of surveys, including the 2016 Stanford Survey on Leadership and Management in the Nonprofit Sector; a variety of Stanford Social Innovation Review articles, business and nonprofit management books, and Meehan's course on nonprofit leadership at the Stanford Graduate School of Business; and Jonker's experience overseeing the Henry R. Kravis Prize in Nonprofit LeadershipEngine of Impact outlines the challenges nonprofits currently face — lack of impact data, transparency, and sustainable operational support; donors' tendency to give impulsively to well-known organizations rather than high-impact ones; ineffective boards — and then explores a number of tools that nonprofits can use to address those challenges. They do not include venture philanthropy or impact investments, which Meehan and Jonker, somewhat "controversially," are skeptical of. Instead, they urge nonprofits to embrace the "essentials of strategic leadership" — mission, strategy, impact evaluation, insight and courage, funding, talent/organization, and board governance — which, when brought together thoughtfully and intentionally, create an engine of impact that drives organizational success.

Quoting liberally from business management expert Peter Drucker, Ashoka founder Bill Drayton (an early mentor of Meehan's), Good to Great author Jim Collins, and other luminaries, the authors illustrate each component of strategic leadership with concrete examples often drawn from the work of Kravis Prize winners such as the Afghan Institute of Learning (AIL), BRACLandesa, and Helen Keller International. And while they concede that some of them may be obvious, they are quick to note, based on survey results, that they are not all well understood or effectively implemented.

They emphasize, for example, the importance of a well-crafted mission statement, and caution organizations against mission creep, even if avoiding the latter means saying no to a new funding source. Indeed, saying "no" seems to be a critical part of strategic leadership, in that the urgent need to achieve maximum impact in a time of enormous challenges and limited resources is too important for nonprofit leaders to be distracted by non-mission-aligned activities — or by debates over semantics (e.g., "theory of change" vs. "logic model"): "if you ever find yourself caught in a debate about these terms' usage," Meehan and Jonkers write, "we suggest you leave the room immediately. We do."

One somewhat puzzling note is Meehan and Jonker's warning against setting up a straw man in the debate over quantitative vs. qualitative data while seeming to do just that — as if nonprofit and foundation leaders in 2017 are all either purely "analytics" or "poets" and don't recognize and value, to some degree, both types of data, as do Meehan and Jonker, who urge their readers to make all impact measurements "quantifiable" but to only "count what counts." It's also important, in their view, to invest in evaluation — the sooner in the process the better — in that such investments create feedback loops that can drive improvement and advance strategic thinking. Alas, according to the Stanford survey, few funders require (or fund) impact measurement, and only 57 percent of nonprofit executives and staff regularly use findings from evaluations to refine their theory of change or adjust their overall strategy. Taking such a step, as well as making unpopular decisions and saying no when necessary, requires insight and courage, write Meehan and Jonker — qualities exhibited by the likes of successful social entrepreneurs such as Drayton, Landesa founder Ron Prosterman, and AIL founder Sakena Yacoobi. Indeed, they are the kind of essential leadership qualities that "even inexperienced" funders can recognize, the authors write, and as such they should be included in funders' grantmaking criteria.

Once an organization has built its engine of impact, that engine needs fuel, which is where talent, funding, and board governance come in. Meehan and Jonker argue for a "team of teams" model that "emphasizes decentralized autonomy, meritocracy, and a sense of partnership"; minimizes bureaucracy; maximizes talent development and leadership opportunities; and, they believe, will become "the new standard for nonprofits, foundations, and even for-profit global businesses." They also urge organizations to get "the right people on the bus, the wrong people off the bus, and the right people in the key seats before [figuring] out where to drive the bus"; to compensate high-performing leaders well; and to see succession planning as the "inherently difficult" but important function that it is.  

The board plays a critical role in all of these areas, as it does in ensuring that mission-focused goals, strategies, and impact measurement systems are in place. Therefore, boards themselves must be designed for transparency and efficient decision making, while board members must bring their "work, wisdom, and wealth" to bear on the organization's efforts. The latter, in Meehan and Jonker's view, is no minor detail: "board members should give at a personal stretch level and should prioritize [their] organization within their charitable giving" — a reasonable, if somewhat audacious, demand. 

"Audacious" also is what strategic nonprofit leaders need to be when it comes to securing funding. After their own board members, the authors advise, nonprofit leaders and development staff should target individuals, who account for the bulk of charitable giving in the U.S., rather than foundations, whose grants typically are project-based and more often than not fail to cover the cost of evaluations, leadership development, and capacity building (especially in the area of fundraising). Meehan and Jonker focus on what they call "plutophilanthropy," the kinds of major gifts from ultra-wealthy donors that have long benefited colleges and universities, medical centers, and high-profile cultural institutions. Social service providers should invest in educating and cultivating donors with the wherewithal to make such gifts by engaging their families and networks, developing individualized cultivation plans, and, for younger philanthropists, fostering a strong sense of community.

So, how many U.S. nonprofits are ready to follow Meehan and Jonker's advice and "tune" their impact engine with the aim of scaling their efforts? Believe it or not, only one in ten (11 percent). Not sure where your organization falls? The book offers a "readiness-to-scale matrix" (supplemented with a diagnostic on the book's website) for assessing whether an organization lacks a well-built engine and fuel ("Scale Jail"); has a proven engine but needs to secure a good fuel source ("Field of Dreams"); provides a specific service to a specific population and thus has no reason to scale ("Small Is Beautiful"); has a poorly built engine but receives significant funding "because the leaders...excel at creating the kind of buzz that fills the atmosphere at social sector conferences" ("The Waterfall"); or has "earned the right to scale their impact by creating a well-built, proven impact model and by finding the fuel they need to sustain growth" ("The Promised Land"). Cute labels aside, the authors showcase options for increasing an organization's impact without increasing its size, measuring its cost-efficiency, and leveraging technology to expand service delivery — if not necessarily increase donations.  

As the repeated use of the phrase "earn(ed) the right to scale" makes clear, Meehan and Jonker believe that only nonprofits that can demonstrate, through quantifiable measurement, their impact and capacity to maximize it, should — and will — thrive in the Impact Era. What's more, their sense of urgency is palpable throughout the book. While none of the concepts they present are revolutionary, they have been reinvigorated and realigned for this moment. Which makes Engine of Impact an energizing, if sobering, read for nonprofit leaders, board members, and funders alike. If the book elides the fact that donors rarely base their giving on impact data ("[W]e hope that situation will soon change"), it is nevertheless an optimistic book whose authors are confident that "in a nation and a world divided...a nonprofit sector poised to bring unprecedented resources and, for the first time ever, a set of robust tools that will support the fact-based decision making that maximizing impact requires" will succeed in creating the change the world desperately needs.

Kyoko Uchida is PND's features editor. For more great reviews, visit the Off the Shelf section in PND.