In order to effectively achieve their mission to increase the impact of philanthropic resources invested in nonprofits, they must leverage more than dollars. In an article in Harvard Business Review, authors Michael Porter and Mark Kramer assert: “Foundations can create still more value if they move from the role of capital provider to the role of engaged partner, thereby improving the grantee’s effectiveness as an organization. The value created in this way extends beyond the impact of one grant. It raises the social impact of the grantee in all that it does and, to the extent that grantees are willing to learn from one another, it can increase the effectiveness of other organizations as well.” It essentially takes the nonprofits currently being “fed” and teaches them to fish, thereby significantly improving local nonprofits strength and longevity (perpetuity being a major piece of the mission of foundations).
Once foundations accept that capacity building is essential to the success of the sector, and that they are best positioned to implement capacity building consistently and effectively, they still must determine how to implement such a large-scale change. There are essentially three ways this can be done (and each has been used and is still in practice somewhere):
The foundation can oversee capacity building itself, by hiring professionals and implementing it directly with their own staff. The biggest challenge with this evolves in large part around the inherent imbalances of power between foundations and nonprofits. These power balance concerns manifest in many technical ways: for instance, community foundations that also operate capacity building programs must be careful to build appropriate “firewalls” between their grant-making and capacity-building functions. Otherwise there may be not only ethical problems, but also a practical reluctance of nonprofits to use the foundation’s capacity-building service, which typically requires them to be candid about their operating problems and organizational shortcomings. This reluctance by nonprofits can lead to “the assurance of a mediocre approach.” In addition, foundations that handle capacity building in-house have higher operating expenses that are passed on to the donor. Community foundations must keep their fees as low as possible in order to compete with the for-profit National Advised Funds (NDAF) such as Schwab, Fidelity and others.
The foundation can build relationships with local professionals whom they then hire to train and consult nonprofits. This, however, takes significant oversight which will mean higher overhead and higher donor fees, and does not create a sufficient “firewall” to allow nonprofits the comfort to provide information about their weaknesses and get the most out of their capacity building activities.
The foundation can partner with one or more intermediary organization cations (also known as management support organizations) who handle the capacity building audits, trainings and consultations requested by the foundation, while still maintaining a separate status. Intermediaries can be for-profit or non-profit, and are the most common vehicle for capacity building activities. The intermediary would apply for grant money to implement capacity building, so the foundation could keep overhead costs down and maintain a healthy distance allowing nonprofits to fully open up to the olintermediary ensuring the best possible outcomes.
All three of the options above are currently being used by foundations around the country. Most, however, have found that option 3 (partnering with an Intermediary) seems to have the least number of challenges and allows foundations to concentrate on their other activities.