Sunday, December 18, 2011

Leadership and Performance Metrics

I have been doing some strategic advising for a couple of not-for-profit corporations. It has been quite an experience for me. There are special challenges, not the least of which is that some have no paid staff; only volunteers.

Generally speaking, measurement of performance of for-profit corporations is easier than for not-for-profits; there are more "hard" tangibles in the for-profit area. The quid pro quo environment is one of "pay for work done." In addition, the interests of all stakeholders are more closely aligned: greater profit, higher dividends, etc.

For not-for-profit corporations, there are more "soft" intangibles. A great deal of work is done by volunteers; thus no "pay for work done." The volunteers must receive non-monetary satisfactions for their labors. And, the interests of all stakeholders are not as closely aligned. Nevertheless, performance measurement (in both quantitative and qualitative terms) is no less important for the not-for-profit; it still has to be done.

A couple of factors can make development of metrics on performance in a not-for-profit easier. They fall under the purview of the governance and management areas of the organization. The first factor is operation plans that are tied tightly to a well-defined corporate strategy contained in a strategic plan that is constantly under review. The second factor, critical to the measurement process, is a deep understanding by the leadership of the internal strengths and weaknesses of the organization. This deep understanding is a prerequisite to the organization's being able to deal successfully with the inevitable changes in external conditions of threat and opportunity facing the organization. The bottom line is that if the corporation cannot manage its internal challenges it won't be able to handle external challenges.

Some
not-for-profit organizations are funded by dues paid by members of the organization. In this sense, dues-paying members are the analogue of stockholders who have made an investment in a for-profit corporation. Thus, in a not-for-profit corporation, the members can also look at the dues they have paid as constituting an "investment." Members have the right to ask the organization what the rate of "return on investment" is on those dues. This is aside from the fact that the organization has legal and fiduciary relationships with its members.

To succeed, the organization needs well-conceived strategic and operations plans based on clear statements of organizational vision and mission coupled to an effective leadership model (and the requisite resources.) These, taken all together, will allow the organization to provide materially better services to all classes of stakeholders in the organization. The evidence of these high levels of service will be reflected in the metrics ("the proof in the pudding") as it were. Over time, it is continuing evidence of benefits of this sort that will provide a significant part of the motivation for stakeholders to support the organization, financially and otherwise.

Implementation of any performance measurement must start with the top leadership (Board of Directors) of the corporation. Without sufficient emphasis by leadership on the building of the infrastructure of the organization as a whole, there can be no reasonable hope for it to be successful in carrying out its mission. Without well-functioning human and financial sub-systems within the infrastructure system, there can be no reasonable hope of growing the capacity of the organization to conduct its operations, now or in the future. These sub-systems are interdependent. Without the one, nothing much can be done with just the other.

The U.S. economy is becoming increasingly fragile due to its being intertwined with economies elsewhere that are even more fragile. Government, private industry and the academy are cutting back in many areas. If the organization is to have any impact, it will have to learn how to do more with less, even as its margin for error is being drastically reduced. To accomplish this, the leadership of the organization will have to bring people with strong supporting skill-sets onto the board and into executive positions. A good leadership model and rigorously applied performance metrics will provide people with what they need (critical infrastructure) to function properly. They will also provide the kinds of nourishment necessary for the people to build a corporate culture that will contain the elements necessary to sustain the critical infrastructure of the organization.

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