HAWAI'I'S NONPROFITS
No simple way to size up nonprofits' performance

By Kelvin H. Taketa

I know an incredibly generous woman who sits at her desk each December sorting through a 2-foot-high stack of mail she has saved from nonprofit organizations asking her for contributions.

"They all seem to have such worthy causes," she would tell me. "But how do I know which ones to support?"

It used to be that it was enough for these organizations to plead their cause and focus on the issue or problem they were trying to solve. Now, organizations must learn to demonstrate their effectiveness with greater clarity and transparency. The public demand for accountability has increased for several reasons.

First, scandals over the past decade involving the poor management and financial controls of nonprofits have changed people's perceptions and diminished the good will that the field enjoyed for so many years. While a vast majority of organizations are undeserving of such suspicion, a few bad apples have made people wary.

Second, competition for scarce resources continues to grow. Nonprofits are operating in a more sophisticated environment for donors, lawmakers and others who are starting to ask for more results.

In the Hawai'i Community Foundation's Hawai'i Giving Study 2002, people said one of the top three reasons they give to particular groups is that they believe the organization is best suited for the job. With an estimated 6,000 nonprofit organizations in Hawai'i and the possibility of more state budget cuts on the way, the message here is simple: To survive, nonprofits need to convey clear missions and demonstrate the value they bring to the communities they serve.

Lastly, the amount of information about nonprofit organizations has increased tremendously. Technology has made the gathering and dissemination of information about an organization's budget, board, mission, programs and tax returns more readily available. And the media, in recognition of the size of the industry and its impact in the community, have devoted increasing resources to cover the field.

This transformation toward greater accountability and demonstrated results is ongoing, but it demands deeper understanding and, to some degree, patience on the part of donors and the public.

While many people believe that nonprofits should adopt more business practices from their for-profit counterparts, these are still decidedly different entities. For-profit businesses exist to make a profit — a clear and constant measure of success. Nonprofit organizations don't always have such a clear yardstick.

Although 80 percent of nonprofits in Hawai'i have some form of strategic plan, many continue to struggle in terms of measuring performance, a 2001 Hawai'i Community Foundation study found.

An organization focused on helping the homeless can count the number of beds filled or meals served, but what about the assistance it provides to those individuals once they leave a shelter? For some organizations, by virtue of what they do, the story is in the numbers; for others, it is not so tangible.

As part of the growing public scrutiny, we have seen a number of publications and Web services try to rank or evaluate nonprofits. The problem is that they often use metrics that focus on numbers and efficiency as the principal means for evaluation. The cheapest delivery of services by non-profits does not mean the best or even the most cost effective.

For example, many rating systems look at the ratio of money spent on direct services against overhead. But they neglect to consider that retaining capable staff through adequate compensation, training and career paths, especially in a sector that employs one of the highest number of entry-level positions, can tremendously improve the quality of services.

It is important that donors develop a relationship with an organization and understand its mission and strategies. In turn, nonprofit organizations must improve their systems for measuring their effectiveness to demonstrate their value and adapt to changing circumstances.

Kelvin H. Taketa is president and chief executive of the Hawai'i Community Foundation. E-mail him at kelvin@hcf-hawaii.org.