What are the big challenges facing non-profit or third sector organisations?

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What are the big challenges facing non-profit or third sector organisations?

We have a shiny new government. It is ready to give the voluntary sector the big bear hug of an embrace and the big wet kisses of an over-enthusiastic relative. The government also has its own agenda of the ‘big society’. But before we get carried away with the government’s agenda of what it wants to sort out – what are the issues that the sector needs to sort out. What are the big tasks that the sector needs to tackle to move onto the next stage of its development, to become an even stronger force in society today – indeed to play a full role in the big society? The list below is neither definitive nor exhaustive but based on nfpSynergy’s research with both charities and the public.

Challenge 1: Growing income

Raising funds and increasing income is one of the biggest challenges for the sector as a whole. There is hardly an organisation which does not want to grow its income; which could not do more if it had more money. Our ‘State of the Sector’ survey completed by CEOs and managers from a breadth of organisations in 2009 put this as the top of the list of challenges that organisations faced. Put at its most simple, there are three ways that organisations can raise more money. They can be given it (voluntary donations), they can earn it (through delivering public services or running shops or social enterprises) or they can be given a grant (of the kind that BIG specialises in).

The real challenge in raising funds is to develop income streams which do not suffer from the ‘fallacy of composition’, as development economists’ call it. This is a solution that works for one organisation but is no good if everybody does the same thing.

So how will charities continue growing in size over the next 10-20 years is my first challenge for the sector?

Challenge 2: Small charities struggle to keep up

Charts 1 & 2 below show the average total income and voluntary income growth rates of small (up to £2m), medium (£2-£10 million) and large (over £10 million) charities over the last 30 years. Contrary to popular convention it is not medium-sized organisations that struggle but small ones. The question that this data raises comes in two parts. Firstly why does it happen? And secondly what can be done about it?

The difficulty that small charities have in growing is probably a bundle of factors. They can less afford to take risks because they don’t have the reserves if things go wrong. They don’t have the brand names that persuade people to give. The trustees probably are less comfortable with the type of professional fundraising that will raise income. Most sources of funding for small organisations are for restricted income, and so on.
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As for the solution, these are even more guesswork (as we have never researched this kind of issue at nfpSynergy) but one survey we did a couple of years ago offers some clues. We asked smaller organisations how much unrestricted income they would trade if somebody had offered them a grant of £1 million in restricted income. In other words how much more valuable was unrestricted income compared to restricted income? A substantial minority of organisations would have accepted £400k of unrestricted income instead of £1 million in restricted income. The higher the percentage of restricted income that an organisation has, the less freedom it has to develop its unrestricted sources or to innovate and grow its brand.

Challenge 3: Demonstrating impact

Ask yourself a simple question. Which charities are doing a good job or even a great job? When you have settled on a few chosen organisations ask yourself what evidence you have for that. And when you think of organisations doing a great job do you have specific facts and figures in your head or just a general warm rosy glow about them?

In the numerous sessions with live audiences where I have asked these questions, the responses are always the same. People name a breadth of organisations, but when I press them on how they know that organisations are doing a good job, they tell me that they hear about them a lot in the media or that their newsletters had some really good facts and figures. And when I then ask for a specific fact or result that underpins their belief that a particular charity does a good job, just about nobody can give one.

So if we want people to support charities with their money, time, goodwill or energy then we have to help charities get better at measuring and communicating their impact.

Evidence of impact is our insurance policy against crisis of trust and confidence by the public. Evidence of impact is also the thing that reassures people that a donation is well spent.

Challenge 4: The public know very little about how modern charities work

If there is a striking feature of our public awareness tracking for charities (we measure what the public think for around 50 charities) it is that the public have very little idea about how modern charities work. For example:

  • The public overestimate how much is spent on fundraising and administration. They believe an acceptable amount to spend on admin would be around 10% of income and around 20% for fundraising. They think what actually happens is that around 35% of income is spent on administration and around 35% on fundraising.
  • The public have little idea who is paid and who is unpaid in charities. While they think that volunteers are unpaid (phew!) they are more likely to think that trustees are paid than fundraisers. A substantial minority think that presidents are paid while far less think that patrons are paid.
  • Over half think that £60k is too much to pay a CEO while nearly a quarter think that £20k or less is sufficient for a CEO to be paid.
  • Few members of the public realise how big modern charities are, nor their sources of funding. Some of the biggest medical charities are very likely to be thought to have high levels of government funding – while both in fact receive next to no government funding.

The list could go on and on. Again and again we see the public perception of charities is seen through a rose-coloured fog of ignorance. The public trust charities but that trust is based not on evidence but on warm feelings.

Challenge 5: Where can charities do the best job in delivering public services?

The debate about the delivery of public services by charities is a mixture of ideology interspersed with occasional nuggets of evidence. The reality is that those who advocate more public service delivery and those who argue against it rarely hold evidence-based policies. Indeed they appear to have decided what they think and then search for the evidence to support it. This is a shame.

Charities have a role to play in the delivery of public services but not all public services. We need a better understanding of where the charity ethos and structure can deliver better value than the commercial or public sector ethos, and where it cannot.

It does nobody any good to have public services delivered by anybody other than those who can do it most effectively. As Deng Xiao Ping loved to say “It does not matter if the cat is black or white as long as it catches the mouse”. We need to have a much better understanding of who can catch the mouse most effectively in public services.

Challenge 6: How and when do infrastructure investments make a difference?

There has been substantial investment by the government and by the lottery bodies in developing the infrastructure for charities, social enterprises, community organisations and sports clubs. However the clarity about what works and what does not in developing the strengths of the sector is at best patchy. Government data from the citizenship survey shows that levels of volunteering have been flat for the last five years. This is despite hundreds of millions of pounds being invested in promoting volunteering.

If we want to develop the sector as a whole, we need to understand how we can make that investment in a way that will make a difference. One of the difficulties is that the bodies who are taking those funds are going to be the last ones who are likely to share any data that they may have on impact, unless it shows what they want it to show.

Over the last decade we have grown used to increasing investment by government in the sector. We have grown used to government solving problems with money not ideas. We are now moving into an age of austerity and the money will at best be reduced and at worse disappear. So we need to be clearer about the need for new ideas to solve our challenges and not just money. That is not to say we won’t need investment from government but we may need to make it work much harder and demonstrate more impact than we have done in the past.


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