Transparency and going beyond the Overhead Myth

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01 Mar Transparency and going beyond the Overhead Myth

As I moved towards getting Individual health insurance before the close of the Open enrolment period, I couldn’t help but reflect on the Innovation impacting that industry. It had been a laggard as compared to retail, banking and telecom so far, but not anymore. Now, a surfeit of transparency tools have mushroomed, to let individuals know about the cost of any medical procedure, to know their average out of pocket expenses, to be able to compare providers on metrics related to quality, successful outcomes etc. …, a far cry from times when you just bought based on your broker’s recommendation or whichever ad seemed most compelling.

I contrast this with the Open letter written to the Nonprofits of America late last year, highlighting the need to end the Overhead Myth – the misconception that financial ratios are a proxy for overall nonprofit performance. The letter was eloquent in its need to focus on the results of how nonprofits meet their mission.

Great thought – The means should justify the end! Financial ratios have long been thought to guide donors in their decision making process. In my experience of understanding donor behavior, it’s become a hygiene aspect where donors now check that there’s no gross mismanagement; instead they like to focus on mission outcomes. Unfortunately most nonprofits continue to focus on providing the financial ratios; much at the expense of emphasizing mission outcomes/community impact.

The other interesting parallel to the healthcare sector is the presence of third party recommendation entities. First time donors have a limited research span, just like prospects looking for individual insurance. However, multiple information aggregators in the healthcare sector now make that task of comparison a no-brainer for insurance shopping individuals. Unlike the healthcare sector where multiple such sources exist now, the nonprofits sector isn’t as evolved. There’s also the fact of whether there are credible sources that provide cause-based comparison of peer nonprofits.

In my opinion, there’s not enough out there yet. You have GlassPockets, an initiative by the Foundation Center. It profiles foundations who have voluntarily furnished information to the Foundation Center. This captured information focuses on 23 practices categorized under finances, grant making, performance, staffing policies et al. Sure, there aren’t too many entities covered as of now. But is this something ahead of its time? Definitely not!

As I harp on my Innovation in nonprofits theme constantly, I feel it’s just a question of time when recommendation engines for easy comparison across peer nonprofits will be ubiquitous. There will be peer pressure on nonprofits to comply providing all sorts of information not just on their websites but to third party entities like the Foundation Center; to aid the prospective donors in decision making. Failure to do so, could lose them potentially new donors or existing donors shifting to better performing peers.

Completing my healthcare insurance shopping turned out to be a cinch thanks to the transparency/comparison tools available. Sure, I had to do some research but knowing that it was an ‘Informed Choice and Decision’ made me feel a lot better about the process. Ditto for nonprofits. Tell your Donors who you are, be transparent and emphasize the impact you make in the larger community. This is the best way to attract potential donors and also develop a longer term relationship with them.

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