Capacity to Implement Performance Measurement in Small Nonprofits (original) (raw)

Performance measurement (PM) has long been applied to public and private organizations with varying degrees of success (Berman and Wang 2000; Julnes and Holzer 2001; Wang 2010). The dominant feature of PM in the private sector is financial, which is inadequate for nonprofits. Although many nonfinancial measures have been developed in the public sector, lessons learned in implementing these measures may not be completely appropriate for many small or midsized nonprofits (hereinafter SMN) that have a fluid customer base, diversified service structures, unstable funding sources, and "intangible, bundled, and difficult to measure" inputs and outputs (Speckbacher 2003, 269). While researchers generally agreed PM is a useful tool for performance improvement and accountability in nonprofits, empirical evidence on the implementation is very limited, particularly among SMNs (Lynch-Cerullo and Cooney 2011; Stone, Bigelow, and Crittenden 1999; Thomson 2010). This study fills this gap by providing a detailed description and lessons learned by a team who designed and implemented PM systems in SMNs as part of a nationwide experiment funded by the Corporation for National and Community Service (CNCS). Adopting a capacity-building approach popular in public sector PM research, this action research provides empirical evidence that leadership buy-in, technical competency, staff expertise, and institutionalization are key factors for success in performance measurement implementation in SMNs. This study examines two specific questions: What strategies may improve the implementation capacity of PM in SMNs? How do these strategies work? Framework: A Capacity-Building Approach In this study, PM is defined as a "managerial tool used by organizations to improve performance through describing, monitoring, understanding, and evaluating organizational performance" (Wang 2010, 12). With an overall goal of improving accountability and service delivery, an effective PM system often focuses on outcomes to achieve desirable goals that align with the organization's mission. While PM systems have been implemented primarily in the public and private sectors, these systems can be useful for management and decision making by leaders within nonprofit organizations. In the last decade, the nonprofit sector has increased the use of PM primarily because more funders are requiring extensive monitoring and reporting of performance information to fulfill the nonprofits' fiduciary responsibility (Benjamin 2010; LeRoux and Wright 2010; Ochs 2012). Carman (2007; 2009) discusses internal and external factors leading to the increased reliance of PM, specifically detecting fraudulent behaviors, discovering and tracking funding sources, and improving service delivery. Despite the need for PM, only a small number of nonprofits implement the system; most only report output, not outcome, data. Others find themselves overwhelmed with data that lacks a connection with strategic decision making (Carman 2007; Carman and Fredericks 2010; Poole et al. 2001). Implementing PM by SMNs appears particularly challenging despite these organizations' prevalence in service delivery. With over 1.1 million registered 501(c)(3) nonprofits in the U.S., small to midsized organizations dominate the sector; nearly three quarters of all registered nonprofits report less than $500,000 in gross receipts (Scope of the Nonprofit Sector 2013). Small nonprofits filing IRS Form 990-N are primarily younger with limited experience in management and operations (Roeger 2010). Several organizational characteristics make a case study of PM implementation in SMNs unique. First, these nonprofits have limited financial resources and a weaker financial condition compared to larger nonprofits. SMNs tend to rely on unstable funding sources (i.e., external grants), which often fluctuate with the grant agency's financial conditions. Lack of financial resources makes it difficult to hire full-time performance managers and purchase equipment for PM systems (Miller 1998; Taylor and Sumariwalla 1993). Second, frequent leadership turnover and little board oversight may make it less likely to adopt PM systems, which often require relatively large investments for long-term impact. Lastly, these nonprofits provide different services that address a variety of community needs. Therefore, an effective system must account for multiplicity of service delivery. Of all the challenges to effectively adopt and implement a PM system for SMNs, the greatest appears to be the lack of political, financial, technical, and managerial resources in these organizations (Carman and Fredericks 2010; Connolly and York 2003; Stevenson et al. 2002; Taylor and Sumariwalla 1993). Moreover, lack of resources suggests poor implementation even if a system is adopted. Indeed, sustaining PM requires sufficient resources (Carman and Millesen 2005). In this context, the term capacity refers to the ability of organizations to develop political, financial, technical, and managerial resources in order to carry out their missions and achieve their aims (