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Measuring Effectiveness
A Distinction Between For–Profit and Non–Profit Sectors
Increasingly governing boards of non–profit institutions are questioning their organizations' operational effectiveness. Their sincere and intelligent questioning is based on their fiduciary responsibility and stirred by media reports of management abuses in the non–profit sector. Often such questioning is followed by ways to measure operational effectiveness from a business–like perspective – – applying business metrics, business principles, and incentive–based compensation. This is well–intentioned perhaps, but seldom leads to reliable and constructive outcomes.
Measuring operational effectiveness of a non–profit organization can be a valued exercise when guided by observations made by Jim Collins, author of the popular publication Good To Great and the Social Sectors. In this monograph, the author offers the following observation:
The confusion between inputs and outputs (in measuring effectiveness) stems from one of the primary differences between business and social sectors. In business, money is both an input — a resource for achieving greatness — and an output — a measure of greatness. In the social sectors, money is only an input and not a measure of greatness.
The author goes on to state that the critical question in the social sector is not "How much money do we make per dollar of invested capital?", but rather "How effectively do we deliver on our mission and make a distinctive impact, relative to our resources?"
How are you measuring your organization's operational effectiveness?
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Gary PhillipsClick here for a printable PDF version of this document.
