Of Lasting Value

This article takes a close look at certain internal dynamics that generally accompany "capacity-building" activities. I draw on my experience, over two decades, designing, managing, and evaluating programs aimed at increasing the organizational health of nonprofit arts organizations. Both my work in the arts and a prior career as a family counselor inform my understanding of the ways that the thought processes of nonprofit managers change when capacity-building programs are successful and have an enduring impact.

"Capacity grantmaking"
"Capacity" is a term that many foundations have adopted to refer to the connection between a nonprofit's organizational health, competence, and durability on the one hand, and the effectiveness of its mission and service delivery on the other. In this context, for a nonprofit to "have capacity" means that it possesses the right skills, the right attributes, and sufficient resources to accomplish its mission at each developmental stage.

Although only recently pegged with the term "capacity," many foundations have for years made grants that aim to strengthen the overall functioning of an organization through investments in management, staff, governance, finance, systems, marketing, planning, or other aspects of the organizational infrastructure. "Capacity" grants are often distinguished from "program" grants that aim to further arts programming and related services. Usually these are not "either or" investments. In the best of circumstances, foundations make both program grants and capacity grants.

Grantmaking to build capacity generally takes one of two forms:

• Individual grants made to single grantees for specific and individualized improvements, such as strategic planning, board training, strengthened development and marketing functions, audits, and upgrades of financial systems.

• Programs or initiatives designed to strengthen and improve the operating performance of a cluster of grantees. These programs offer a customized but “wholesale” approach to strengthening nonprofit management, staffing, structure, or operating methods. The value of such programs is their ability to improve organizational performance — both individually and collectively — in specific areas that have been identified either by the grantees themselves or by the foundation.

Organizational change
Although the explicit goal of capacity-building programs or initiatives is to strengthen a nonprofit's organizational competence and performance, the programs generally have something else in common. They are about organizational change. Granted, the degree of change may vary from program to program and from grantee to grantee. However, by their very nature, capacity programs seek to induce a better way of operating, which means at least small internal changes and, more likely, a larger set of changes in both the organization's actions and in its thought patterns.

It is curious that capacity initiatives don't advertise themselves as “change” programs. Indeed, one of the most profound moments in any consulting engagement or foundation-sponsored capacity grant program occurs when participants realize that the consultancy or grant program will actually require them to change longstanding practices and beliefs. “I didn't know how much we would have to change!”

Few of us, organizationally or personally, walk willingly down the path of change. So maybe it's better that capacity-building programs aren't explicitly about change. We all like the familiar, and nonprofit managers engaged in capacity-building programs are no exception.

With this article I mean to focus on the internal dynamics of capacity-building in order to both elucidate and honor the depth of change that some organizations undergo as a result. The lessons presented, although not necessarily everyday concepts in the philanthropic world, are, nonetheless, well-grounded in the literature and theory of organizational and personal change. They resonate, as well, with my own observation and experience.

Neither organizational capacity nor organizational change comes without cost. Although foundation support can be essential to strengthening nonprofit capacity, the internal cost paid by grantees in making the required change must be acknowledged as well. No matter how generous a funder's support, or how keen our interest in “building” nonprofit capacity, organizational capacity is, and always will be, a dynamic internal to the organization.

The following four behavioral dynamics generally accompany sustainable organizational change.

Internalizing the ability to learn and change
The ability to internalize insights and learning is among the most important requirements of effective capacity-building. In the vernacular, to internalize is to “get it.”

As fundamental as it may seem, a nonprofit manager's ability to understand the importance of increased organizational capacity is critical not only to the success of the specific capacity-building grant program, but also to the overall success of the organization. Through the years I've learned not to take the ability to internalize for granted. Indeed, as early as possible in my work with them, I try to determine the likelihood that participants can internalize the changes inherent in the program's methods. To this end, it is important that the program be “theirs,” not mine or the funder's.

Assuring that nonprofits “own” the program can be easier said than done given their traditional reliance on foundations and other donors for financial well-being. Indeed, alleviating this dependency is sometimes a key reason that foundations adopt a capacity-building approach to grantmaking. The question of dependency is a tricky one, however, since contributed income (grants and donations) is integral to economic assumptions underlying the nonprofit sector. For example, studies show that contributions from foundations and other donors represent 40 percent or more of the annual income of the nonprofit arts industry. It's no wonder that nonprofits become psychologically as well as financially dependent on grantmakers and other donors!

But leaving systemic dependencies aside, we can predict grantees' ability to make the grant program their own and to internalize what they learn if we understand what behavioral psychologists call their locus of control.

Locus of control is a clinical term, borrowed from organizational behavioral psychology, that is used to describe where the control of an organization is felt to be located, that is, who do people think is in charge of their lives.

Organizations with an internal locus of control feel responsible for and in charge of their own destiny. They view their organizational well-being, performance, and results as dependent on themselves and not controlled by outside forces. They see a strong relationship between their own actions and what happens around them. They perceive themselves as independent achievers and they approach the world in this spirit. This does not mean that they act without influence. Rather, when faced with a problem or opportunity that requires them to change, they feel compelled to rise to the challenge no matter what pain it may entail. They know that change is their own idea, and they are secure in their ability to reach a generally positive outcome.

From a consultant's perspective, organizations with an internal locus of control are “dream team” participants in capacity-building programs. They come into the program with a fairly accurate self-assessment, an understanding of what the program can do for them, and a clear expectation of how the program's resources can further their self-defined journey toward higher performance and overall effectiveness. Nonprofits that are self-reliant will generally get results from capacity-building programs quite quickly. If they are already in tune with where they are in their organization's life cycle, the capacity-building programs will be supportive investments to take them where they need to go next.

Nonprofits with an external locus of control are another story. These groups believe that someone else controls their destiny — and, generally, that “someone else” is a funder.

Externally-dependent nonprofits are often unsure about how to influence their future, they feel their well-being is outside their own control. Many also operate with unconscious thought patterns that may once have worked for them but that now reinforce their dependency. These patterns form a kind of “default mind-set.”

A vivid example of externally-dependent nonprofit thinking can be found in a study, Financial Health of Minnesota's Nonprofits, that my firm designed about ten years ago and that continues in use today. In addition to collecting financial data about Minnesota's nonprofits over time, the study is meant to capture nonprofits' perceptions and attitudes about financial topics. One survey question asks, “Who is most responsible for the financial success or failure of your organization?” Respondents are offered four possible answers: a) board of directors, b) executive director, c) development/finance director, and d) other. Every survey year, without fail, several nonprofits check the “other” category. Since “other” generally refers to a person or force outside the organization, the responses are classic expressions of organizations with an external locus of control.

A central challenge for any capacity program is to help externally-dependent participants become internally-dependent, self-determined organizations. This is what I mean when I speak of internalizing a program. Indeed, internalizing the program's lessons and methods is the only way it will have an enduring impact.

Sometimes helping nonprofit managers take charge of their own well-being is simply a matter of education. They may not consciously realize that control is in their own hands. Some know it on one level, but have not stopped to examine the incongruities between their thought patterns and their behavior. They may have spent so much time “on bended knee” that they live out a pattern of unconscious, unhealthy dependencies on their funders.

Many psychologists would argue that anyone needing to be told they're in charge of their own destiny is far from having an internal locus of control. My experience proves otherwise. With the right investment (generally in management and board development, or in learning activities with peers), many nonprofits can shift to a self-defining mind-set more quickly than one might expect.

I could give you many examples of programmatically sophisticated nonprofits operating on inaccurate organizational information. For example, they (and their board members, in particular) sometimes mistakenly think that a nonprofit organization cannot have surpluses, or that foundations won't give them money if they don't occasionally run operating deficits.

When otherwise smart nonprofit personnel learn from reliable sources that their “facts” are incorrect, many can make the necessary course corrections on their own steam. Nothing substitutes for solid information delivered through training programs, capacity-building initiatives, and learning circles among peers.

Identifying an externally-dependent mind-set
Encouraging internally-motivated nonprofits to adopt new behavior patterns that increase their capacity is generally just a matter of pointing them in the right direction. To do the same for more externally-dependent groups, we need to take a deeper look into their organizational thought processes — their mind-set.

By “mind-set” I mean the way we think. It is simultaneously a cognitive and an emotional process, a system of conscious, logical thought patterns mixed with unconscious and frequently illogical thoughts, working together in a self-fulfilling manner. Transforming externally-dependent organizations into self-directed entities starts with an examination of the organization's prevailing mind-set, a set of internal messages that form the organization's collective mentality, and consequently shapes its performance and behavior.

The mind-set of an organization doesn't stray far from its key individuals. As the individuals within the organization think, so does the organization. Organizational mind-sets frequently function on “auto-pilot.” Once a mind-set is programmed, the organization goes through its motions without conscious regard to the mind-set's effect. Many psychologists believe that to change behavior — personally or collectively — we must first understand the nature of the default mind-set.

Understanding the default mind-set requires first listening for the subtext of what's being said. Sometimes what an organization says is very different from the way it thinks and behaves. This is particularly true in competitive situations, where a proposal is required to win a grant or enter a training program. Too frequently, a development officer writes a proposal that beautifully links the organization's needs with the intention of the grant program but is out of sync with the organization's mind-set and historical performance. Once interviewed or accepted, the discrepancy becomes obvious.

Foundations and consultants involved in capacity-building programs should listen to an organization's words on three levels: to the text itself (what's being said), to the hyper-text (do the needs of the organization match the intention of the initiative?), and to the sub-text (does the organization understand how much it will have to change to take advantage of the program?). It is the sub-text that reveals the prevailing mind-set.

Some would argue that nonprofit capacity can be increased by requiring certain behavior — regularly submitting financial statements, operating “in the black,” attending program-sponsored seminars or board development sessions. Indeed, these things can substantially improve the capacity of internally-driven organizations. But for externally-dependent organizations, prevailing thought patterns often must be reframed before such requirements will “take.”

Reframing a mind-set to be internally-dependent
At least two steps are critical to changing, or “reframing,” an externally-dependent mind-set. In describing them I offer the caveat that it is much easier for outsiders (consultants and funders) to grasp intellectually what steps must be taken than it is for arts groups (or anyone else, for that matter) to put them into practice.

• Understanding the purpose a mind-set serves within an organization's reality. Often a mind-set of external dependency involves self-preservation and was set in motion by some legitimate rationale once necessary, but now counterproductive. The key to reversing such thought processes lies in helping an organization examine and “own” this thinking, and then to see how the unconscious message of dependency, in fact, limits its future. This realization is not apt to come in one “big bang,” though. It often takes repeated efforts, exploring the same questions over and over.

• Visualizing with an arts group what its capacity might be if it were organizationally healthy and believed it could affect its own future in positive ways. What would it be like to be well-managed, appropriately governed and staffed, and financially healthy? What would it take to get there? As part of capacity-building, strategic planning can be helpful in visualizing higher performance.

These steps raise the question of readiness, which is frequently a concern in capacity-building initiatives. While it might be easy to accept only organizations that are “ready,” some groups actually may not be ready for change until they have been in the program for a year or two. Whether ready or not at the outset, the sooner an externally-dependent mind-set can be changed, the more likely the change is to be sustainable. If the mind-set changes only at the conclusion of the program, the organization is not apt to benefit from the reinforcing support programs that are fundamental to most capacity initiatives.

Creating new habits
A long-running debate in psychology has been whether a change in mind-set must precede behavioral change, or whether consistently reinforcing behavioral changes will lead naturally to a change in thought patterns. In other words, do people have to “get it” before they can “do” it? Behavioral psychologists believe that if you reinforce certain conscious or unconscious behavior long enough, a change in mind-set will follow automatically. The day will come when we — grantmakers and consultants committed to increasing capacity — will have enough experience under our belts to engage in this same debate.

Today, organizational behaviorists emphasize that changing habits, rather than changing single behaviors, is the key predictor of sustainable personal and organizational change. Habits are behavior patterns developed through frequent repetition.

One of the most approachable works about changing habits was written by John D. Adams, whose “six dimensions of sustainable habit change” are included here with his permission.

As tough as it is to analyze and “own” a prevailing mind-set and then to dislodge and reframe it, changing behavior and habits is much, much harder. How many times have you tried to quit a bad habit? You know in your mind that it's bad for you, but all the cognitive understanding in the world does not necessarily result in the ability to stop smoking, overeating, biting our nails, or whatever. I once read a definition of maturity that states: “Maturity is doing what you should, even when no one's looking.” Likewise, changing a habit means repeating positive, self-actualizing behavior over and again, until it becomes ingrained, basic to a mind-set and behavioral repertoire, even when no one is looking.

Organizations commonly “slip” now and then as they change habits and increase capacity. These slips, whether unconscious missteps into old behavior or conscious temporary disengagement, are normal and predictable aspects of change. Old habits die hard. Effective change creates confusion and sometimes a temporary sense of disorientation as old behavior and thought processes are discarded in favor of new ones. Multiple-year capacity initiatives give organizations time and breathing room to try on new behavior, practice and modify it, and figure out how to sustain it when the program ends.

Organizational habits are rooted in the mind-set and behavior of individuals, and a central role in changing habits is often played by an individual change agent — a “path-maker,” to use Robbins and Finley's term. The path-maker's role is one of confident persuasion, helping others see the promise of the future from the reality of the present, and providing a practical, even inspirational map for getting from one to the other.

But one person cannot shoulder the entire responsibility for internalizing sustainable change and increasing organizational capacity. A change in capacity requires a complex dynamic. Many individuals with a stake in the organization must work together to weave support for changes that they agree on. This is why programs to increase capacity frequently include peer support and multiple-person teams. The value of a peer approach is that, no matter how ready participants are when they enter the program, they can benefit from watching each other adapt their thinking and behavior over time. As one participant put it, “If so-and-so can change, I guess I can too. He's even more stuck in his ways than I am.”

Creating sustainable change is much harder than facing an occasional crisis. To make lasting change requires an internal acknowledgement that things need to be different and a collective and public commitment to making it so. The efforts of a whole organization are needed, not just of one heroic superstar.

To summarize, the internal and behavioral dynamics that accompany sustainable organizational change include these processes: internalizing the ability to learn and change; understanding and reframing an externally-dependent mind-set to be a self-reliant one; and creating new habits. Singly and together these dynamic processes work to ensure that capacity-building initiatives foster changes in self-awareness alongside increased organizational competence. At the end of the day, the benefit of skill and will together will ensure sustainable change and lasting value.

Bibliography

Adams, John D. “Six Dimensions of a Sustainable Consciousness.” Perspectives on Business and Global Change. 2000. World Business Academy. Vol. 14; no.2.

De Vries, Manfred F.R. Kets and Balazs, Katherina. “Transforming the Mind-set of the Organization.” Administration and Society. Beverly Hills. Jan., 1999.

Reik, T. Listening with the Third Ear: The Inner Experience of a Psychoanalyst. International Universities Press. New York. 1951.

Robbins, Harvey and Finley, Michael. Why Change Doesn't Work.
Harper and Row. 1996.

Stevens, Susan Kenny. Nonprofit Lifecycles: Stage-based Wisdom for Nonprofit Capacity. Stagewise Enterprises, Inc. Long Lake, MN. 2001.

The Stevens Group. The Financial Health of Minnesota's Nonprofits. The Minneapolis Foundation/Community Loan Technologies. Minneapolis. 1990, 1994, 1999.

Weick, Karl E. “Organizational Change and Development.” Annual Review of Psychology, 1999.

Susan Kenny Stevens is executive principal of LarsonAllen Public Service Group, formed by the merger of the Stevens Group with the nonprofit division of LarsonAllen in 1998. She is a Ph.D. candidate at the Union Institute and University, and is pursuing a doctoral degree in organizational psychology and behavior. This article is excerpted from Stevens' latest book Nonprofit Lifecycles: Stage-based Wisdom for Nonprofit Capacity. Contact Stevens at sstevens@larsonallen.com.

LarsonAllen manages the Working Capital Fund, the Warhol Initiative, and Arts LAB, and evaluates the Cleveland Foundation's BASICs Program, the James Irvine Foundation's Cornerstone Arts Organizations Program, and the Bush Foundation's Regional Arts Development Program.