VFM, the “law of non-profit complexity”, and partnerships in fragile states

A recent exchange about VFM issues related to the overheads of INGOs and their partners reminded me of the potential relevance of what Anheier describes as the ‘law of not-profit complexity‘ to the value for money debate. He argues that the management of non-profit organisations tends to be “more complex than business firms of comparable size”. This obviously raises important questions as collaboration and competition between private sector and non-profit organisations increases in a paradigm where there is great emphasis on demonstrating and measuring value for money. Anheier argues that non-profits are more complex management propositions than businesses because they have multiple stakeholders, pills accountabilities and bottom lines.

 

There is a lot of interest in the paper and some might find his tent and palace metaphors familiar and useful for stimulating debate about organisational VfM policies. He describes palace type organisations that tend to develop bureaucratic management systems that privilege predictability over improvisation; accounting over goal flexibility and experimentation. By contrast, a tent organisation places emphasis on creativity and initiative and leans towards a ‘muddling through’ type management style. Anheier goes on to ague that organisations “valuing efficiency and permanence are likely to develop into palaces, while those favouring effectiveness and temporality are likely to emerge as tents”.

 

Relationships with Partners

When I first read the piece it resonated as I was working with organisations struggling to develop financial management systems that could meet the varied needs of official donors, managers and auditors. (Yes, these 3 were distinct!) However, I felt he didn’t go far enough in looking at the particular management accounting challenges faced by local NGOs, who unlike their international partners, often have to survive trying to sustain organisations on often fairly restricted unpredictable project based funding. This makes it extremely difficult to generate ‘unrestricted’ funds required to maintain core competencies such as monitoring and evaluation staff, obviously of increasing importance in the age of demonstrating results.

In several organisations I worked with, instead of investing time in ‘progressive learning’ about if how and why what we were doing was valued by poor people and making a difference in their lives, we found ourselves involved in more ‘regressive learning’ of financial reporting rules of different donors. At the same time huge effort went into developing management accounting systems that could translate what a bunch of restricted projects with different start and end dates and cash flows meant in terms of our overall financial situation and ability to meet payroll each month. Finance staff often deemed ‘incompetent’ by programme staff unacquainted with the complex demands of non-profit financial management were occasionally physically ill due to the stress. At times we had to engage in ‘resistance learning’ and find creative ways to use restricted funds to maintain M&E staff or talented programme staff during gaps between different funding phases of donor programmes, without breaking rules.

Recent work with NGOs working in fragile states reminds me how important the law of non- for profit complexity is today and the possible risks of trying to drive down ‘management costs’ or not investing in the development of partners’ financial management capacities. Non-profit complexity is not only a problem for small organisations operating on a shoestring. It also appears to be a concern for local organisations operating in fragile states with charismatic leaders that make them ‘donor magnets’. It is remarkable that these small organisations seem to undergo a period of rapid growth and then get into trouble with international partners. This is often not because they have done anything dodgy, but rather because they simply have not been able to deal with the law of non-profit complexity and develop the necessary financial systems able to meet donor, auditor and internal management needs.

Over the years, many like minded INGOs wanting to pursue solidarity type relationships have overcome these challenges through working together to provide basket rather than project funding. They have also invested in helping local organisations develop both donor reporting and management accounting capabilities in partnership with organisations such as Mango. I am sure for many this continues to be a favoured way of working. But I also wonder whether any of those managing relationships with local actors are concerned that the current emphasis on value for money and efforts to reduce certain kinds of costs, together with a move towards more project type financing that enables measurable results may inadvertently place new pressures on partners and have adverse consequences?