Letting the Humanitarian Sector Lead

Harvard Business Review: Stop Giving Donors What You Think They Want


The Harvard Business Review reposted an excellent article from Dan Pallota's blog, in which he pointed out the importance of letting organizations in the non-profit sector decide their operational procedures. The relationship between these organizations and their donors is markedly different from that of profit-making companies and public consumers. Nonetheless, given that donations are scarce resources that provide little positive impact to the lives of the donors themselves, third sector organizations have had to adopt the "competitive market perspective" with regards to funding. So we see that in order to appease these donors, many of them have gone so far as to alter their operations or even shed their core values based on what they believe donors would want. Although increased external stakeholdership and monitoring technically increases a company efficiency, for the third sector, this results in the lowering of the organization's true potential and the loss of welfare to their target clientele.


In most private companies in the market whose investors and stakeholders also play an influential role in deciding the corporations' targets and operations, final decisions are made from a small spectrum of options, largely from an economic point of view e.g. profit maximization, increased market share etc. In the event of uncertainty with regards to what investors might want, top-level executives can seek refuge by taking these considerations into mind when choosing the next steps. However, things are rarely this clear-cut in the non-profit sector, with three key differences.


Firstly, although donors have a say in non-profit organizations' missions, targets and procedures, their money does not return them dividends like private shares do. They are therefore more irked by high staff salaries and short-term operational failures, especially since it fosters the feeling of "investment wastage".


Secondly, the goal of a profit-maximizing corporation is market survival, and that is achieved by prioritizing long term economic goals such as long-run profits, which can be benchmarked and calculated. Non-profits however place emphasis on moral goals such as maximizing client welfare, results that are very much intangible and open to debate.


Finally, the majority of private investors are either employees from the companies themselves, industry experts, or people who did the transaction via knowledgeable middle-men. In other words, they are informed investors, who know about the industry and how it goes. Non-profits have to labor to provide industry information to their donors, many of whom have little to no relevant experience.


Instead of competing for donors' attention and short-term funding by succumbing to their assumed desires, nonprofits should stop thinking about how to cut overheads and instead focus on results. A successful nonprofit is one who attracts funding by showing donors what it needs to achieve its goals, even if it means publicly announcing hard truths when requests are not met. Donors on the other hand, should consider the positive impact of a nonprofit before making a decision to fund it or not, eventually weeding out the inefficient and ineffective ones.