Is there an app for common sense?

Got an iPhone? Want to make a donation to a worthy nonprofit via an app that the charity provides? No can do.

What? We're in an era where just about everything except using the toilet is migrating to smart phones and you can't donate from your phone? What's that about?

Well, ONLY if your smart phone is an iPhone, according to this article from the New York Times posted yesterday. An Android phone is fine. Hmmmm, and I thought Apple was always on the cutting edge of awesome.

This is ridiculous, and good for Beth Kanter for spearheading a movement to get it changed.

Mulling about legacies

At the end of the year, a lot of us review the past 12 months (think of all those holiday newsletters you get), read lists of "ten best" this of 2008, "best of" that for the year, etc. We get ready to set our goals/resolutions for the next year.

On a more mundane level, if we're on a calendar fiscal year, we also have to deal with work plans, budgets etc for the coming year. All of us as individuals think (at least briefly) about any tax planning we need to do before the end of the year.

All of this is pretty normal, customary; the usual.

But this year, I've been thinking a LOT about an email I got from someone I recently met in Florida. He sent out the copy of an obit whose last line was:

"He leaves behind approximately 6.5 billion people worldwide."

Funny, on first look, and certainly original. But it got me thinking about legacy, what we leave behind us, about how we help those who come after us do better, live better, be better than us.

Nowhere in our society is leaving that legacy more important than in the nonprofit sector. No one has more of the job of building better, fairer, more just communities, of educating, protecting, caring, healing, enthralling more than nonprofits. Its the core of what we do. Its mission.

And while most of us are justifiably concerned with helping here and now, what really happens if we foment effective change is not just improving things now, we improve them for the 6.5 billion others---and their children, and their grandchildren. So, should I change my idea of good stewardship? Should it be not only for today, for this year, this decade, but for beyond my lifetime? I think so, and I'm still sorting that out.

What do you think?

Admin Percentage is a Dumb Metric

The March issue of the Mission-Based Management Newsletter is available. This month's topic is on Administrative costs. Regular readers know my feelings on this, but here's the Management Tip from the newsletter:

"Get ready. This is a subject that makes me almost literally froth at the mouth. So, straight to the question: Are Admin costs Important? Yes, but they shouldn't be. Administrative costs are a stupid and ineffective metric by which to value or even worse, compare, nonprofits.

Can you hear me now? The nearly obsessive emphasis on this one statistic drives me nuts. Comparing nonprofits by admin % is like comparing 5 cars you might buy by weight. It's interesting, but not of much value. And, it indicates laziness to me. If you want to find out what's going on from reading the financials, you have to drill down and do the work More on that later.

First, NO ONE can tell you what a "good" admin percentage is, although that hasn't stopped people from showing their ignorance by declaring that 12% or 13% is good and anything higher is bad. Nonprofits are so diverse, have such varying capital structures, that declaring one number the right one is....how do I say this nicely? Naive. Of course, we compound this error with the prevailing assumption (particularly among funders and large donors) is that less admin is always better.

Or not. The National Center for Charitable Statistics has a great brief "Getting What We Pay For: Low Overhead Limits Nonprofit Effectiveness" , which talks about the damage low overhead does. Why would a nonprofit cut overhead to a damaging level? Because every funder harps on this and the ED and board simply follow the funders' guidelines. And it hurts organizations, sometimes to the point of killing them. Read "How I Cooked the Books", if you don't believe me.

I see this damage all the time in my work. And, as we transition from Boomer ED's to GenX ED's over the next ten years, we'll see more damage--our admin costs are held so low that we have no management "bench", no cadre of mid managers who are being groomed for top spots. What else gets cut in the quest to meet the admin % expectations of funders, press and public? Leadership development, training, continuing education. Sounds like a formula for crappy services to me. I recently was told of a community foundation that sponsored (and posted on their website) a contest to see who could have the lowest admin costs. A race to the bottom if I ever heard of one.

Anyone think that FedEx is poorly run? No, they are a lean, profitable organization. How about Southwest Airlines? One of my MBA students ran a comparative analysis on FedEx's financials, and found that FedEx's "admin costs" were over 30%, and that Southwest's were 31%. Hmmm. And why is it that this admin obsession pertains only to smaller nonprofits? Most universities have admin % add-ons of over 100% on research grants, and the feds OK them without blinking...again: Hmmm.

If you think I'm exaggerating about the witch hunt mentality about admin costs, try this. Go to Google, type in the search string "Nonprofit Administrative Costs" and hit "enter". What do you see? Ads for "Find The Best Charities", and "100 Best Charities". Why? Because these online watchdogs use admin costs as a key metric in their rating system. Here's another fact: CPA firms don't all account for admin the same way...yet another reason that using admin to compare the effectiveness of different organizations is like comparing apples to watermelons.

One more thing. When I talk about administrative costs I am not talking about fund raising costs. That's a different measure, and usually more valuable, if it's used with full disclosure on how it was calculated.

Am I contending that admin costs are always a bad measure? No, not in one particular case: Year-over-year data for the same organization that is measuring admin costs the same way, is a good metric, if it is used as a gateway to deeper examination. I use this with my clients regularly. If I see four year's of data and admin costs as a percentage of total revenue go way up or way down, I raise my hand and ask why. I do the same thing with an organization that I want to donate to....I examine three year's 990's and look for any big variations in administrative and other costs. But absent this one use (which is, as I say, a good warning flag) I'm much more concerned about quality of services, or increased output of services, etc. than I am about an artificial percentage that may or may not indicate something amiss.

Remember, good quality usually requires more training, more infrastructure, etc. Such valid expenditures add to admin costs just as much as the much taunted "Excess executive pay". Finding the real cause requires a little work to drill down to examine the actual contributors to the total administrative line.

NOTE TO THE PRESS, PUBLIC, DONORS AND FUNDERS: Think, and do your homework before you rant about an organization's "ineffectiveness" because its admin % rises to the unbearable level of 13.2735%."

Stupid, stupid, stupid

I was reminded again last night how dumb it is for our sector to have "administrative costs" as its primary metric of goodness.

My class at Kellogg was on Organizational Development, and, of course, part of any good OD program is regular training for staff. But, as one student with experience as a nonprofit staff person said, "That adds to our admin costs...and that's the biggest no-no we have."

Another student chimed in...."You had us read on the need for better health care benefits, and I agree staff want them, but it adds to our admin percentage, and thus it will never pass our management council."

I kind of went off a bit, telling the students that grading a nonprofit based on its admin percentage is like grading a car based on its weight. Interesting, but meaningless.

Of course, the funders disagree with me, since admin is easy, sounds important, and seems to reduce non-mission spending. But there has never been a direct (mission) cost that didn't have an associated indirect (admin) cost associated with it. By hammering on admin, by setting silly percentage targets for the entire sector, we are hurting the sector in very real ways.

Whatever happened to "capacity building"--wasn't that all about building administrative (and mission) capacity?

One exception to this rant-measuring admin year over year at the same agency has some management value. But to say (as I have heard from foundation people) that an admin percentage higher than 12% is unacceptable is....idiotic. For starters, agencies vary widely. Second, I'll guarantee that the foundation's admin % is higher than that, third who picked 12%.? My guess--someone picked it out of the air.

Anybody think FedEx is well run? Nordstrom's? How about the "great"companies in "Good to Great"? I'll bet serious money that their admin percentages are way higher than 12%.....

Hmmm. That's a good task for my Kellogg students.....

On strike

No, not me, but I did love the op-ed piece by Robert Eggar about this very subject in the current issue of the Chronicle of Philanthropy. Eggar (and his organization, DC Kitchen) has acted on what I’ve been saying for years and years and years. We in the nonprofit sector enable our own under-funding by saying "yes".

What I mean by this is that by agreeing to continue to do mission when we are more and more grievously under-funded, over regulated and generally dumped on, we act like any other enabler: we feed the beast. Eggar had had enough and went on strike.

My son Adam recently bought his first (used) car. He researched, shopped and focused on a 3-year-old sedan offered for sale at a used car lot. Adam negotiated hard, and got the price down. But does anyone believe that the car dealer sold Adam the car for less than they paid for it? Of course not. That would be suicidal for the business.

Soooo, what about us? Why do we so happily (or at least willingly) hop on the slippery slope of saying “yes” year in and year out to government, foundation, or corporate funders no matter what the reimbursement level is? Is it because we ourselves sacrifice time, talent and treasure to work or volunteer in a nonprofit, so that if the organization has to sacrifice as well it’s OK? Or is it that we believe so strongly in what our mission does that we think the world will end right here, right now if we cease a particular service?

I am well aware that there are other customers for a used car, and often only one customer (read: funder) for a particular service. But one of the reasons we can be pushed around by that one funder is that we never, ever, seriously push back. We whine, we moan, but only among ourselves. We form state associations to lobby for more government funds, but when did you ever hear an official of those associations preach actual peaceful resistance? Where are all the boomers who resisted and protested everything?

Why am I so passionate about this? Because the steady decline in level of funding in relation to actual costs, the assumption that nonprofits can and should be perpetually poor (unless they are universities or large medical facilities) is insulting and demeaning to the people and the causes we serve.

So, go read the Eggar piece, and think about saying no more often. There's a lot of power in that word.

Addicted to Admin Costs

Over the past few years, I've watched more and more funders, regulators, media and online watchdogs become more and more addicted to admin costs and admin percentages as the preferred (and sometimes only) measure of nonprofit excellence, competence, or even morality.

I've seen senators ask nonprofit execs about their admin costs. I've talked with reporters who focus on that number. I've read funding requirements that push the allowed admin costs down, down, down.

Now we have accounting firms who are helping nonprofits adjust and move costs around to make their admin costs come within the "preferred" range.

Ugh.

OK, let me be clear:

Using admin costs as a metric is dumb. It doesn't tell you anything of value, unless you look at the number over time for the same agency. Comparing your agency to mine on the basis of admin percentage is meaningless.

Using admin costs as your only metric is really dumb. As I said to an audience recently, it is about as good as deciding whether to buy this car or that one based on the weight of the vehicles. What do you learn? What do you ignore?

Pushing down admin costs with no idea what a good number is, is ignorant. I have yet to have anyone tell me what a "good" admin % really is, have anyone define how to calculate the % consistently, have anyone be able to defend their choice of a good admin % at say 18% or 25%. What's FedX's admin cost? Or Southwest Airlines? They're unarguably well run organizations. What are their admin percentages? Take a look -- they're more than 18%....

My observation is that most nonprofits are under-administered, not over administered. The relentless push to lower admin costs is resulting in less and less management hiring, overworking senior managers who are leaving the sector....and this is a good thing? How? I hear from execs constantly that they would love to do x or y, but can't since it will raise their admin costs above the allowed percentage....

This is weakening the sector. It is not making better, more effective organizations.

The reason people focus on admin costs is that it is quick, easy, simple, does not require a lot of differentiation and thought. But its worthless as a measurement of goodness, of efficiency, of good stewardship. Even in franchise nonprofits like the YMCA's or Easter Seals, one organization is different from another. Moreover, there is no really accepted way of measuring these costs. So apples to apples? Ha.

Enough on this for today. It makes my head hurt.

Strategy: chase the money

Our class this week at Kellogg was about strategy in nonprofits. It was a well-discussed issue, with the NFTE (the National Foundation for Teaching Entrepreneurship) as the case.

I loved the discussion, but the next day on a plane to Sacramento, I was thinking how far too many nonprofits have the following strategy: Chase the money, and rationalize that this enhances the mission. Really. When you look at many nonprofit organizational charts, you see three, four, five, even ten different industries that they are in, all wrapped around an issue (hunger, homelessness, disabilities), and many of these services are provided adequately, but not well.

I fully understand that issues like homelessness can't be solved just by providing shelter, and that in the quest to go after root problems, some expansion of mission is pretty common. But there is so little careful consideration of whether or not a new service can be done well, right from the start. The lure of the grant/contract, and of growth overshadows quality nearly every time. When was the last time your organization turned down money on the basis of poor quality? Do you do everything, really, really well?

Don't the people we serve deserve to be served better than just adequately?