Lessons for not-for-profit organisations

Friday, 01 August 2003


    A not-for-profit organisation had a mission to have recent graduates teach the disadvantaged for two years. The initiative failed because, as Jerry Hauser* points out, they couldn’t differentiate between their mission and their business.

    Lessons for not-for-profit organisations

    A not-for-profit organisation had a mission to have recent graduates teach the disadvantaged for two years. The initiative failed because, as Jerry Hauser* points out, they couldn't differentiate between their mission and their business

    The achievement gap between rich and poor students in the United States has confounded educators for decades. Wendy Kopp posed a novel remedy in her Princeton senior thesis: persuading hundreds of graduates of top US universities to spend two years teaching disadvantaged students before starting careers in investment banking, medicine, and the like or continuing in education.

    Teach For America, as her non-profit organisation came to be known, would train prospective teachers intensively over the summer and then place them in the classrooms of low-income communities across the country.

    Kopp believed that in addition to boosting the students' achievement by enlisting bright, energetic teachers for schools that find it hard to attract them, the organisation would turn the recruits into lifelong advocates of educational reform.

    That was in 1989. Within a year, Kopp had created a skeletal group of recent graduates, raised $2.5 million, and persuaded 2500 college seniors from universities such as Harvard, Spelman, the University of Michigan, and Yale to apply for 500 teaching positions.

    Six school districts, from New York City to rural North Carolina, eagerly awaited the new teachers. Before long, news organisations such as the New York Times and the Public Broadcasting System were carrying laudatory stories about them.

    Yet five years later, Teach For America was on the verge of collapse. The organisation was more than $1 million in debt, and Kopp was scrambling to find $200,000 every two weeks to meet its payroll.

    Applications for teaching positions were dropping and would soon be down by almost 40 percent. To make matters worse, an influential expert blasted Teach For America in a leading academic journal, thereby spooking donors and eroding already low staff morale.

    What had gone wrong? Like many non-profits, Teach For America focused exclusively on its mission — and on the relentless pressure to meet short-term financing needs — and shortchanged its organisational development.

    Employees were spread too thin. Basic management structures and processes, such as staff recruiting, performance evaluation, and annual goal setting, were neglected.

    In short, the organisation itself wasn't nearly as strong as the program it had created, though that too had room for improvement. A crisis that jeopardised the entire mission was needed to make the group rethink its strategy.

    Ultimately, Teach For America reversed its downward spiral. The story of its near demise and dramatic turnaround shows how non-profit leaders can pursue their visions while building enduring organisations. The lesson: the mission and organisational capacity must go hand in hand.

    Many experts had counseled Kopp to start with a small pilot project, but she thought her idea would succeed only if it were launched as a national movement that could capture the imagination of her peers.

    Creating a large organisation from the ground up made for a rocky first year: applicants waited weeks to hear their interview results, teacher trainers were inadequately prepared, and fund-raising was a constant distraction.

    Yet by June 1990, 500 new graduates, or "corps members," had gathered for eight weeks of intensive teacher training. The following year, a successful word-of-mouth campaign, combined with major news stories, attracted 3000 applicants for 700 positions.

    The budget jumped to $5 million, and prominent corporations and foundations gave the fledgling organisation their imprimatur.

    Emboldened, Kopp and her team tackled a series of related educational problems by launching two new organisations under the Teach For America umbrella. For a while, the energy and success of the early years masked the start-up's organisational deficiencies. But these could not be kept at bay indefinitely.

    One problem was an inadequate organisational structure. Kopp was consumed with fund-raising and had little time to manage the staff members who reported to her. Decisions were made by consensus during Monday night meetings that stretched into the early-morning hours. Disagreements over strategy and growth plans were fierce.

    During the summer of 1991, the entire staff threatened to quit unless Kopp allowed everyone to vote on important organisational decisions. Ultimately, she declined to do so; though no one left, discontent simmered on. Despite the staff's long hours and hard work, the chaotic environment and operational crises continued, eroding morale.

    Financially, moreover, Teach For America was on a similarly shaky footing, relying on too few large foundations and individual donors. Like many non-profit executives, Kopp soon learned that most leading national foundations grant three to five years of start-up funding; few provide operating support in perpetuity.

    When some of the original funding dried up just as the organisation was expanding, Kopp and her team found that they were operating on a payroll-to-payroll basis, a problem that lasted for most of fiscal years 1992 to 1994.

    As the first wave of funders began to end their support, other foundations noticed the organisation's increasingly wobbly finances and began to reconsider their own contributions.

    Organisation should matter to non-profit groups and profit-making businesses alike. But though non-profit leaders zealously build programs and raise money, they often neglect the organisational structures and management processes that form the base of enduring institutions.

    Part of the problem lies in the funding environment. Although some philanthropists are beginning to recognise the importance of building organisational capacity, foundations and other large donors give money mainly for specific programs or capital projects rather than general administrative expenses. Charities therefore routinely publish their overhead-expense ratios to convince donors that money won't be "wasted."

    Non-profit leaders themselves share some of the responsibility for this problem. Internal management structures and processes can seem less rewarding than programs that fulfill an organisation's mission; the link to performance is harder to see. And, like the leaders of Teach For America, many find that operating on shoestring budgets and tight deadlines leaves little time or energy to think about the nuts and bolts of good management.

    Ultimately, Kopp and her colleagues came to realise that the development of effective management systems and efforts to achieve financial stability could no longer be put off, for these goals were as important to the success of Teach For America as the ability to put great teachers in the field.

    After considering the idea of closing down the organisation in early 1995, its leaders instead decided to overhaul it from top to bottom. They then implemented a plan to build a diverse and sustainable funding base, to concentrate on core activities, to introduce much-needed management processes, and to strengthen the culture. This experience provides a guide for other non-profits on how to build a stable, thriving organisation.

    Teach For America's financial situation required a radical shift in thinking. Instead of calculating the organisation's expenses and then trying to raise enough money, as in the early years, Kopp and her team now started by figuring out how much money they could raise sustainably and then trimmed the budget to fit.

    After analysing their fund-raising history and prospects, they decided that an annual budget of $6 million would be feasible — but this meant cutting expenses by $2 million, or 25 percent. Painful choices had to be made: programs were ended and 60 staff members — nearly half the total of 130 — were laid off.

    But by 1996, the organisation was operating comfortably within budget and the days of struggling to meet its payroll were over.

    Building a broader funding base was another priority. Kopp and her colleagues taught the heads of the organisation's 13 regional offices to cultivate local benefactors and helped each office set concrete fund-raising goals. By 1997, the regional executives were meeting those goals — and supplying half of the budget. Teach For America went from 275 funders in 1993 to more than 1400 in 1998.

    By early 1995, the leadership team concluded that Teach For America was suffering from "mission creep." Although improving the ability of school districts to train new teachers and developing innovative school models were important tasks, they were not part of the original mission of Teach For America, and to succeed it needed to sharpen its focus by spinning off TEACH! and The Learning Project.

    Meanwhile, the group realised that it needed solid, quantifiable performance goals. During the early years, Kopp and her team had tried to manage by specifying processes, not end results.

    This approach led to countless meetings about planning and to tedious micromanagement by senior leaders, while frustrated staff members were sometimes unclear about, and unaccountable for, the outcome of their work.

    By setting goals and making specific people responsible for achieving them, Kopp improved the organisation's results and morale and freed up more of her own time. Staff members, in turn, were happier in their jobs and better understood how they should spend their time.

    The first step in fixing Teach For America's crumbling organisation was to create a formal senior-management group. During the early years, hierarchy had been rejected in favor of egalitarianism and consensus.

    About 50 staff members reported directly to Kopp, and all earned roughly the same salary: $25,000 a year, about what a new teacher receives. Kopp had been overwhelmed by management duties; given the fund-raising and operational demands on her time, she couldn't devote much of it to staff development.

    The structure also meant that staff members rarely worked without her direct involvement and that she had the last word in most decisions. Not surprisingly, dissatisfaction with such arrangements proliferated.

    Kopp's remedy was to create vice presidencies for program activities, fund-raising, communications, staffing, and finance and administration. This step allowed her to balance her time between strengthening the program of Teach For America and building its financial and internal capacity.

    As original staff members moved on, she took the opportunity to recruit new leaders, many with significant professional experience and expertise, from outside the organisation and from its alumni base. Today a formal talent pipeline helps senior managers keep tabs on promising corps members, alumni, and external contacts.

    Many leaders, whether of nonprofit or for-profit organisations, dismiss culture as a soft management issue that has little impact on results. But Teach For America found nothing soft about it.

    Idealism, entrepreneurialism, and ambition were Teach For America's original strengths, enabling it to persuade bright college graduates to postpone lucrative careers and join the organisation instead. But by 1995, it had grown too large to transmit these values informally. As operational and financial stresses mounted, morale began to unravel. Negativity and infighting were common.

    At the nadir of the crisis, Kopp jotted down a list of core values that defined the way members should work. The list called upon them to take responsibility for the success of the entire organisation, to strive for ambitious goals and overcome obstacles along the way, to engage in constant learning, to maintain a positive outlook, and to write clearly and think critically.

    After long discussions with the whole staff, the list was revised. Unexpectedly, this process proved to be a turning point. The decision to spell out how staff members were expected to approach their work set a new tone, and gradually the atmosphere became more upbeat.

    Since then, the core values have been woven into everything from performance evaluations to new-staff induction processes.

    Change didn't happen overnight, but by 1997, Teach For America was a different place: it had covered its operating expenses for three years running, retired its long-term debt, and built a small operating reserve fund.

    Staff members felt more committed to their jobs and responsibilities and sought feedback from their managers. Performance goals were set and reviewed annually; teacher-recruitment and teacher-support programs were strengthened. The staff began to view Teach For America as a well-run organisation.

    During the spring of 2000, it kicked off an expansion plan. Among the goals: to enlarge the corps to almost 4000 members (from just over 1000), to improve the training and support of each, and to harness the ability of the 7000 alumni to foster educational reform.

    Meanwhile, the staff continues to build the organisation — but now in a sustainable way. Teach For America is increasing its budget (to $36 million), building an operating reserve, strengthening its management team, and upgrading its technology.

    In the fall of 2003, the 3400 corps members will reach more than 250,000 students. The organisation has developed a management tool to gauge the ability of its teachers to raise the achievement of their students. A new academic study has found that these teachers outperform other new ones, and the alumni are striving to improve education in low-income communities.

    Even excluding several large nonrenewable expansion grants, the ongoing revenue base has grown at a compounded rate of 30 percent, from $12 million in 2000 to $21 million in 2002 (with $28 million anticipated in 2003), and the operating reserve now stands at almost half of the annual budget.

    But Teach For America isn't taking its current success for granted; Kopp and her staff are well aware that conditions could again deteriorate.

    So everyone in the organisation, from Kopp down, continually asks two important questions: Are the members and alumni of the corps truly expanding educational opportunity, in the short and long run? And is the organisation building the internal capacity to realise its goals, today and in the future?

    * This is an edited version of an article in the

    McKinsey Quarterly, 2003 Number 2. AICD runs

    regular courses for not-for-profit organisations.

    See your state manager for details


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