Permanently Failing Organizations: Navigating Success and Survival in Nonprofits

Join us for an engaging conversation with Kevin Fee, a veteran in the nonprofit sector whose insight into the challenging dance between mission fulfillment and organizational survival is nothing short of revelatory. As my colleague Peter York and I, Ken Berger, sit down with Kevin, we pull back the curtain on the concept of 'Permanently Failing Organizations.' Unlock the secrets of how these entities, consumed by the pursuit of growth, may inadvertently drift from their founding missions, and discover what it truly takes for nonprofits to stay true to their cause while ensuring their longevity.

We navigate through the murky waters of growth motives versus mission-driven incentives, recognizing a trend within nonprofits that raises eyebrows – the possible overshadowing of purpose by organizational expansion. This episode offers a critical lens on how the prestige and compensation tied to nonprofit growth could lead to inefficiency and a departure from core values. Kevin, Peter, and I grapple with the complexities of success metrics in nonprofits, debating whether a focus on measurable customer outcomes could be the compass that guides these organizations back to their intended path. The dialogue opens doors to potential solutions that could rectify the troubling phenomenon of organizations that persist without effective goal achievement.

The final piece of our discussion turns to the rapidly evolving world of technology and its implications for the nonprofit sector. With the advent of quantum computing and artificial intelligence, we stare down the barrel of potential disruptions and opportunities, weighing the benefits against the risks for organizations mired in bureaucracy or hampered by legacy systems. Kevin's expertise leads a poignant analysis on the dichotomy faced by nonprofits: the empowerment that technology can provide versus the peril of trailing behind in a fast-paced digital landscape. Tune in for a deep dive into the future of nonprofits as we grapple with the urgency for the sector to adapt, innovate, and thrive amidst technological evolution.

Transcript

Speaker 1: 0:07

Welcome to the. Nonprofit Fix a podcast about the nonprofit sector where we talk openly and honestly about the many challenges that face the sector where we will discuss current and future solutions to those challenges where we explore how the nonprofit sector can have much more positive impact in the world.

Speaker 2: 0:26

A podcast where we believe that once we fix the nonprofit sector, we can much more dramatically help to fix our broken world.

Speaker 1: 0:39

Hello everybody, ken Berger here along with my colleague, peter York, for the latest episode of the Nonprofit Fix, and today we're excited because we're doing something new for us.

Speaker 1: 0:53

We're going to have our first guest who's an expert in a particular field, and his name is Kevin Fee. Kevin is someone that I've known for gosh it's well over a decade a couple decades, I don't even know how long and we've had various attempts to work together on various things, and so he's a very smart and knowledgeable guy on some very interesting topics. And also he's somebody who I think has a unique perspective and, as you've heard from us before, part of our goal here at the Nonprofit Fix is to look at the sector as a whole and some of the challenges and problems and what to do about it, and Kevin has some thoughts on those subjects that are very relevant to that focus we have. So I think the best person to tell you about the background of Kevin Fee beyond that would be Kevin himself. So it's my privilege to pass the mic to Kevin to tell us about his background and what brings him here today.

Speaker 3: 2:00

Well, thanks very much, ken, and nice to be here. Thank you, nice to see you, peter. Well, listen, my career started in 1970. I got out of college and was fortunate enough to be offered a position as an accountant in the exciting field of artificial Christmas trees and Venetian blinds. But despite the excitement I felt, I was delighted to have an opportunity only a year later, in 1971, to apply for a position as an accountant trainee at a brand new government office in the city of Philadelphia called the Philadelphia Office of Mental Health, Mental Retardation and Substance Abuse.

Speaker 3: 2:49

And that was my beginnings in human services, and I've worked in that field in one realm or another ever since. So I have about 52 or so years experience. The first 25 years I spent largely as a CFO of organizations that did things like children's behavioral health, substance use disorder programs and developmental disabilities, and then the second half of my career has been different. I've actually worked as a broker focused on facilitating business combinations in areas of human services really across the country things like child welfare, developmental disabilities, behavioral health, alternative schools, special education and juvenile justice and I've worked both with for-profit companies, including publicly traded companies, privately owned companies, private equity platforms and, most recently, for about the past 10 years, I've focused all of my attention on business combinations of non-profit organizations that are involved in human services, largely working for what are labeled for lack of a more precise term acquirers rather than sellers. So my business background is exclusively really in human services and heavily focused on finance.

Speaker 2: 4:24

Nice. Thank you for that.

Speaker 1: 4:25

Yes, thank you for that. So then, you have written a fair amount about the sector, and there are a variety of articles that we took a look at in preparation as well as having a preliminary conversation with you, and there are a couple of things that we wanted to highlight today in some of your writings and thinking on the subject of nonprofits, and the first is what you refer to as your theory of permanent failure in the nonprofit sector. If you could describe that to our listeners, what that means and how it applies to nonprofits.

Speaker 3: 5:07

Well, ken, I have focused in the course of my career and put a bit on issues associated with financial distress and bankruptcy, and I happened to come across, about two years ago, a book that is amazingly somewhat amazingly out of print, and the book is called Permanently Failing Organizations and it's written by two professors, one from Penn and one from USC, and it was actually published in 1978. And I thought this book absolutely brilliant, and I thought that in part because I saw an extraordinary applicability to the nonprofit organizations that I've worked with for so many years. Essentially, here's what occurred these two professors took a look at the world about them and they said to themselves you know, the economic theory that is predominant in our country is one that asserts that superior performing organizations survive and that poor performing organizations do not. But all of us, I think, in our day to day life can see that that's not actually how things work. We all come across organizations that are not, in fact, exceptional performers, and many of them have been part of our daily life for generations and, as a result, they evolved a different theory about how, in fact, organizations come to thrive, and their observation and their research suggested to them that often organizations sustain themselves, in part because their primary goal is actually not performance and profitability, as economists would suggest, but rather sustainability. So they actually value their survival over performance, and the illustrations of this are numerous.

Speaker 3: 7:27

The authors identified government agencies, nonprofit organizations, for-profit companies that actually have been in business for very long periods of time while not and obviously not achieving the mission for which they were created, whether that be profit or some social purpose or can, in other instances, particularly related to family businesses.

Speaker 3: 7:59

Organizations have to sustain themselves because they simply don't have as a primary objective earning profits. So I thought this was an innovative kind of concept about how the economy actually works and, somewhat ironically, ken, the book was published at a time when I don't think there was an environment that was accepting of this possibility. Keep in mind that the book was published in 1978. In 1976, michael Jensen and the well-known Harvard professor had published his thoughts about agency theory. Michael Milken was creating the high yield bond market and, in many respects, creating the intellectual foundation for private equity. And, of course, in 1980, ronald Reagan was elected an advocate of aggressive capitalism. So this book published that said hey, look, a lot of people and a lot of companies are not actually guided by the goal of maximizing profit just wasn't published at the right moment, and so it's one more illustration of how so many things in life are just luck.

Speaker 2: 9:22

Along these lines. If I can ask a quick question, and I'm curious about how you would see this differently, for for profit compared to non-profit. As you note, profit is a factor for a lot of growth and kind of the competitive free market economy model that we have in terms of the private sector. And does what you're saying apply the same way to the nonprofit sector? And I ask that question because when we think about I almost think of it as analogous to in the private sector there are companies that want to grow profit, they want more investment capital, they want to be able to expand scale, whatever the case may be.

Speaker 2: 10:10

But there are also businesses in the for-profit sector that are family businesses or businesses that are local community businesses that don't have the same economic aspirations. Where they are they're surviving in the sense that they're not growing but they have enough profit to be able to kind of address the community needs. How might that? If you transfer that to the nonprofit sector, what are the implications? Where there are a lot of organizations in the nonprofit sector that may not grow, they may be getting good results. In some cases that it's safety net services, which is very important. How does that kind of fit into the model that you're describing.

Speaker 3: 10:59

Peter, it's a great question, and allow me to say that these authors had a very creative observation about how permanent failure occurs and it's unrelated to a call it tax status or the specific mission of the enterprise itself. They believe their theory applies to for-profit and non-profit and government agencies equally. And here's the reason why and how it works, Peter All organizations over time evolve a series of constituencies, stakeholders perhaps, and over time in some instances, and a growing number of instances over time, stakeholders tend to co-opt the power and the position of those that might be legally placed in positions of authority. So in a for-profit company, often the shareholders, of course, are nominally in charge they're the owners of the company but stakeholders in the form of employees, government officials, customers over time these groups, in an uncoordinated way, take steps that start to limit and constrain the ability of owners to pursue profit For and in non-profit organizations, the same sort of thing occurs and the constituencies start to constrain the ability of management to pursue their social mission. If I may, Peter, let me give a concrete illustration.

Speaker 3: 13:07

In my experience my experience is included working in congregate care, institutional settings that took care of people with developmental disabilities.

Speaker 3: 13:19

Over the course of the past 50 years, a preference has evolved in the community generally and amongst professionals for community base care as opposed to institutional type care.

Speaker 3: 13:35

But what has often been observed, in fact, is that, while lip service might be given to the preference for community base care, many family members who might have had brothers or sisters or children placed in institutional settings for extended periods might actually have determined that, relative to risking the possibility of disruption in the lives of their family members, they actually prefer institutional settings. And, as a consequence, while the management might prefer to close an institution and disperse clientele into an assortment of communities, not infrequently board members, some of whom might be parents, have a different preference and start to effectively restrict the ability of management or others public officials to actually implement a policy intended to advance the mission. So that's how this sort of process can occur, where the mission, be it profit or social or whatever, is over time thwarted by other constituencies, and the ability of these constituencies to actually alter actions directed at advancing the mission can do increase as organizations get older, larger and more complex.

Speaker 1: 15:06

So if I could interject there and this may ultimately be a question first a statement and then maybe segue into a question on this, one of the concepts that I've talked about over the years is that, in theory, in the for-profit sector, the profit motive is supposed to be the driving force and, in theory, in the nonprofit sector, what I refer to as the mission motive is supposed to be the driver and purpose of the organizations.

Speaker 1: 15:44

Moving aside whether or not for-profits do the profit motive, let's put that to the side for a moment.

Speaker 1: 15:49

But when I look at nonprofits, what I have seen over the years is that in more cases than I'd like to think about, in fact in many cases, what replaces the mission motive is what I would refer to as the growth motive, and the reason that the growth motive in my experience, is a driver is it's not just management being thwarted by other staff, it's management being incentivized to grow, because in a nonprofit, the way that you're going to get awards, the way you're going to get accolades, the way your salary is going to increase over time, is driven in part by your growth.

Speaker 1: 16:36

And so the bigger you get, the bigger your salary, the bigger all of the awards, the attention how wonderful you are. And then, of course, to your point as well the bigger the dinosaur, the bigger the and bloated the organization, as parts are inefficient and maybe get rolled off or perhaps they just malinger indefinitely. The bigger you are, the more likely you are to survive indefinitely, mission or not, good or bad, the bigger you are the better. So that's sort of the way I have thought about it historically, but I think you have a more nuanced and a somewhat nuanced view of this, and I think that gets to where we segue into what I think you see as some of the proposed solutions to the problem of permanent failure. So perhaps we can now shift to your thoughts on that, with the proviso that Peter gets to say something for yeah, along those lines.

Speaker 2: 17:38

And also I want to make sure, kevin, that you have a chance to respond to Ken's comments, but to go a little to pick you back on his growth comment. I want to clarify or propose some distinctions that I think are important. When we say mission in the nonprofit sector and I'm coming at this from on almost 30 years as an impact evaluator, right evaluating social programs when I think of mission, I think of the key stakeholder is the customer and the key mission success metric is outcome, the positive outcome. I've done work in child welfare, psychiatric care for kids, outpatient, inpatient, other types of settings, schools, et cetera, and at the end of the day, if we had a, if we really clarified that the key stakeholder is the customer and the key metric of success were outcomes I don't know that the community based comparison to the institutions, if we actually had those metrics which, quite frankly, is still not apples to apples and out there yet enough, although I think we're moving further on how to measure impact I don't know that.

Speaker 2: 19:01

I think the jury is still out, so to speak, as to whether a community based organization that was holding themselves accountable for outcomes would necessarily be better or worse than an organization that is more institutional or more scaled, if you will, and so I mean I just put that out there because I think I wanted to clarify, most importantly for the conversation, that when we talk about stakeholders, I think it's important to distinguish between the employees, managers and board of a nonprofit organization as a stakeholder group that has a very different driver on the mission piece compared to the customer.

Speaker 2: 19:39

And I think the customer as the stakeholder, the ultimate stakeholder of impact, which, in a model where profit is not the driver, it's not associated with that. I think it's just an important distinction to this, because as we start to talk about this and we think about what's the right model, so that we're getting into the transition to the solution what's the right solution that really starts to get at the true outcomes, because I think part of the problem we've had is whether it's growth or local community based, and the debates about permanent failure or sustaining for good hinges on a metric of success that I think does depend upon customer outcomes.

Speaker 1: 20:17

Peter, I think my question was more rudimentary than that. I think that's a whole additional layer which I think we're going to get to, because I certainly think that where we need to end up is that the sector needs to have the outcome motive to your point and measurable outcomes. But for now, for this initial question, I was just trying to get to a general issue of growth and that being a general incentive, and just using that as a segue into a more general answer to get a general answer from Kevin with regards to his thoughts on the solution to the problem of permanent failure. Very good, okay, back at you, kevin.

Speaker 3: 21:12

Well, a solution. Okay, several comments, I think I can, and then I will shoot for the solution. Part, ken, in your comments about the inclination perhaps of managers to focus on growth because of private considerations, essentially their compensation might be enhanced. That's a management, of course, is one of the stakeholders, and the instance where managers might behave as you suggested is, I think, one illustration of how a stakeholder group, in this case management, might actually be able to impose their interests and thereby constrain the advancement of the institution's mission in a fashion that will benefit them instead. I do want to mention parenthetically with regard to that, ken, that while I've actually seen precisely what you have seen, I've actually seen the opposite far more frequently.

Speaker 3: 22:27

It's quite often the case that nonprofit organizations have substantial resources in excess of what they're deploying, and let me describe the measurement of that. I gather audit data on almost 500 nonprofit organizations over an extended period and, more often than you would like to think, organization the ratio of revenues to net assets. So one way of looking at that ratio would be the amount of work we do measured by revenue relative to the amount of resources we have available, measured by net assets, is actually quite modest and, as a result what economists call slack resources that are not actually deployed to the mission are quite substantial, and often I think the reason for that is that, rather than risk available resources with the possibility that the investment might not actually pan out, management's prefer to keep excess resources in reserve, because then, if something goes wrong, the organization's sustainability is nonetheless insured and with it their employment. So there is that kind of issue. Now, with regard to the solutions to these kinds of problems, there are basically three that are often proposed. One has to do with restructuring. A lot of times, management's that are thwarted by one or another stakeholders who are, in the management's view, impeding the achievement of mission, will restructure the company so as to, for example, if the company was delivering child welfare services and also behavioral health services and also developmental disability services, and perhaps the parents on the developmental disability side of things were imposing themselves and interfering in the conduct of the affairs of the institution, they might actually create three affiliates, one dealing with developmental disabilities, one with behavioral health and one with child welfare, with the intent of at least isolating the problem to one segment of the business.

Speaker 3: 25:00

So restructuring is one alternative. A second one that sometimes is an attempt, that is outsourcing. Maybe we can outsource aspects of the business and thereby eliminate the influence of a problematic grouping. And then finally, ken, is the realm and where I'm most experienced, and that is merger, acquisition kinds of activities where perhaps it's possible, if the organization becomes essentially stymied from taking any effective action because the assorted stakeholders are pulling it in multiple directions, then perhaps sometimes combining the organization with another nonprofit or for profit, as the case may be can sometimes make sense.

Speaker 3: 25:48

I will mention Ken, though it's somewhat discouraging, perhaps, that the authors of the book permanently failing organization believe that ultimately all organizations fail and that the mechanisms available to thwart the process that I've described are successful only rarely. Now, ken, there is an exception to that rule, as seems to me, and one is family owned businesses are often prepared to go on for generations and generations, or there are family owned companies that are four and 500 years old, and then nonprofit organizations can, to date at least, have worked in a very benign environment. There aren't radical changes and, keep in mind, the services that they're providing are absolutely essential to society. So stakeholders may have different opinions about how they would like the future policies to be altered in any given nonprofit, but almost everyone agrees that its survival is critical and, as a consequence and, by the way, most importantly the government does, because the government, of course, would be burdened with the responsibility if the nonprofit were to cease to deliver service.

Speaker 1: 27:10

It's outsourcing.

Speaker 3: 27:13

So nonprofits tend to rarely, very rarely, go bankrupt. Most often they are in some way reorganized in the worst of all circumstances, thanks being the rare exception, I guess.

Speaker 1: 27:29

Well, and you've heard me say before, it reminds me of the old statement by General MacArthur a slight twist nonprofits never die, they just malinger indefinitely.

Speaker 3: 27:43

And that's. I think that's quite true, ken. And, by the way, peter, with regard to your comment about the institutional versus community based services, the point I was really I was really trying to make, peter, was that not that one was actually in fact preferable to another, but rather that, whether it were or not, there would be perhaps an interest group that would prefer institutional settings for their family members and try to influence management to sustain such programs, whether or not they were better, simply because they but and instead because they preferred them regardless.

Speaker 1: 28:28

One thing I just wanted to want to in terms of something. You said that and I would turn to Peter for this especially. But as a clarification, you you mentioned that you know you had looked at the financials about 500. You had looked at the what did it nonprofits and saw that they had significant assets that they were with with slack because of it. You know I went.

Speaker 1: 28:53

I'm wondering because from my, my anecdotal experience for human service nonprofits in particular, I was not in a business size and type. That hasn't been my experience. Now I point to Peter that way in my picture here because I, you know, I know that he has at this point probably one of, if not the most comprehensive database of nonprofits and it would be a fascinating expert exercise in his spare time to take a look at that assumption. Because I, like if I think of a Harvard or a Yale, I could see your point when I think about some of the nitty gritty community based organizations that I know about. That ain't so. They are lean and, you know, quite leveraged and you know they don't have a whole lot of accumulated assets. So it's just, it's a question I don't.

Speaker 2: 29:46

Yeah, I do think there's a question of size. I think that is true. I also would tell you that the idea that nonprofits don't go out of business or they mullinger, I don't know that that's true. I think there are a lot of, because we have to remember, when we're talking about the sector we're talking about there's numerous small community based organizations that what they do is what I call fade away, meaning they don't generate the kind of revenue and the kind of business model that is going to keep think very grassroots here.

Speaker 2: 30:27

I'm not talking about community based organizations of, you know, a million and a half $3 million, fine, and I'm talking about all those under you know, a quarter of a million dollars. So organizations are not, they aren't lingering in business for years and years. They may be continuing to submit forms and have three people who are interested in doing a couple of volunteer events each year, but I just think it's important to remember that that's a huge swath of the sector. I mean, I would probably hazard a guess, it's two thirds of the sector right is really there. So what we're really talking about here are those that are in the top 33% right, cause those others are fading away. They may be still paper organizations, but their peaks and valleys never created the kind of sustainability.

Speaker 1: 31:22

I agree with you and I do think we've talked about this before, peter and I which is because it's such a broad and complex sector. Size does matter in these conversations, and so, yeah, I do think it's more a truth for that top 10%, or whatever you wanna call it, that are the larger organizations. But anyway, I wonder if we should move on to the next question. I'm wondering if we should go to the last question, mind full of time, or do we wanna pause for? Do we wanna do the ROI question as well?

Speaker 2: 32:01

Well, I think they're related. I am curious, as we start to talk about this cause, one of the things that we are emphasizing more and more, and I believe that the sector now has the potential to start really getting at the question of outcomes. I think it's been really hard to measure outcomes for many different reasons, for many different challenges, and I think, more and more, there's a lot more focus on trying to bring outcome accountability into the sector. And again, let's talk about the organizations that are a little larger in size. As we start to look at this like, what does the role in the way you're talking about some of the solutions you're presenting, Kevin, what does the role of impact measurement, outcome measurement, what do you see that as playing in terms of even some of these questions? Of when we talk about this?

Speaker 2: 32:52

There's this blanket statement and appropriately so that organizations fail or succeed. Non-profits are failing and succeeding, but ultimately, everybody's asking now the question of results. It's coming into value-based pricing, it's coming into outcomes, cost per outcome. It's coming into all kinds of pay for success, models, other things. So where does the role of outcome measurement, standardizing that and beginning to make sure that we're making even financial decisions, growth decisions and some of the things you're talking about from a solution standpoint really imbue this work with outcome measurement.

Speaker 3: 33:33

Well, I mentioned it early on that my own background is in finance and I make this observation concerning finance. There are, in fact, throughout the economy, but particularly with regard to nonprofits, there are a set of principles, generally accepted accounting principles that are applied uniformly by an independent expert accounting for auditing firms, and there is nothing like that, comparable, but I'll say it, on the service side and quality side. I want to make this observation concerning that. Peter, I alluded to the fact that I am monitoring about the audit reports over a period of seven or eight years of about 500 nonprofits. I'm not aware of any foundation or any other group that is doing that. Are you?

Speaker 2: 34:32

In terms of monitoring the auditing reports of the law no, I'm not aware explicitly. In terms of actually bringing that audited data into this conversation no, I'm not aware. As we start to talk about yeah, so no.

Speaker 3: 34:47

Well, peter, the reason why I mentioned it is that keep in mind what are the principal sources of finance, for an important source of finance for many human service and other nonprofit organizations are foundations. I find it astounding that they wouldn't be monitoring this information. It seems extremely pertinent what it is that they profess to be trying to do.

Speaker 2: 35:14

Let me clarify If they're not.

Speaker 3: 35:15

I wonder how they're going to ever use the kind of clinical performance type data that is being developed but is not widespread use.

Speaker 2: 35:27

at this point, it seems to me so let me clarify something so that and part of this for me and also for the users there's two things we're talking about here. We're talking about the financial audits and using that information and deliberately and that's something that I do think your question I'm not aware. But that doesn't mean I speak more broadly, because I haven't really been in that space. The space I sit in is where philanthropy and government are asking the outcome questions for the services, as you're talking about the clinical services or, more broadly speaking, the services. That's an area where there's lots of work, there's lots of effort, there are funders and philanthropies and government that are pouring a lot of dollars. I mean, there's an industry around being able to measure outcomes.

Speaker 2: 36:14

The challenge we have is it's not standardized so we can bring it together with the financial data to begin to understand the economics of impact. Because if we don't standardize it, we don't determine that there are certain standard metrics of success for a particular type of service, we do run into a big challenge. What's happening now is a lot of one-off evaluations. They're looking at that information. There are plenty of philanthropies that do their due diligence, even on audited financials, as they're making their due diligence process and decisions. But again, I think what's happening is it still is kind of a wild west in terms of where that's at and we don't know how to compare apples and oranges and apples to apples to apples in different service areas.

Speaker 3: 36:58

And for that reason, do you not agree that, in the absence of all that you just described, we are left with the regrettable conclusion that we must use the only reliable, standardized information that we have, which is financial information? So, in terms of performance assessment, it seems to me as though that's where we have to turn, and that, because financial information is published not about services but about companies, that it is companies that probably need to be evaluated, as opposed to services and outcomes, because it's the only thing that can be evaluated, it's the only thing for which there's data.

Speaker 2: 37:47

Yeah, so along those lines, the one thing I would add and, ken, I'll jump right to you, I know you're jumping in here I just want to make this one final point about that. This is actually why what we're starting to look at is the relationship between we are using the 990 data, so some of the work that I'm doing and the research we're doing here at PCT Partners, where we've built this big data platform that brings all the IRS 990 data, but we're combining it with all of the community data from the American Community Survey data, the 3 and 1 1⁄2 million household survey that conducted annually. We know, down to the census tract, where these dollars are going, which nonprofits are the deliverers of those services. We understand where philanthropic government funding is coming from. So what we can now begin to do is roll up the services that are available and accessible to every community and then be able to measure the correlation or the association between how much output programmatic output, say in mental health services is available to communities and be able to track over time what effect that is having on the overall community well-being.

Speaker 2: 38:52

And so we've built in some metrics there. So we're beginning to connect output to community total output, not just one organization, but all organizations providing locally accessible, for example, health services or mental health services, and begin to look at the relationship between that and community impact. As we do that, we're beginning to sew the causal line a little bit back to some of the financial metrics that are going to be key to being able to at least know that those outputs are having a difference. That's one step. It doesn't solve the direct service program evaluation question, but at least we can look at the output to community kind of effect if that makes sense. So if I could just add.

Speaker 1: 39:40

So the information and I go back to the charity navigator information and then I turn to a lot of the wonderful work that Peter is doing. That's taking it to the next level. But, at the end of the day, what charity navigator was doing and I think Peter is doing to a more refined degree is addressing the question of is this organization positioned well, based upon its fiscal health, to go into areas that it's currently not in that may need those services? In the case of what equip is doing and charity navigator, does this organization, on the surface of things, with certain basic metrics, does it look like it's financially healthy? The question that comes up as to what are the qualities of an organization that is most likely to have the greatest impact is, in my opinion, at this point unknown Because, as Peter was saying, number A most organizations are not doing impact measurement.

Speaker 1: 40:49

And B, for that small group that are, we don't have standardized metrics yet. I can tell you from my organization I think my organization is representative of a typical nonprofit, which is we are interested. There's no stick from the outside, from any funder to do anything. But because I work there, I've been driving this process and we're still in the early stages. We're trying to get to the three years of compiled data, an adequate N where we can begin to use the analytics that Peter and others are using for impact measurement. But the point is that the way this should work is that you shouldn't need a stick. But the evidence from what I've read out there is that, more typically, the way that an organization gets to impact measurement is typically because funders are beginning to ask for it and require it.

Speaker 1: 41:45

The other motivator, I think, is that I think we all need to consider is if we as nonprofits don't get ahead of this thing, then those metrics could potentially be imposed on us from the outside, unless it's from the ground up, with community-based organizations participating in defining what those impact measurements should be, at least initially, and then with building on the analytics.

Speaker 1: 42:12

I guess at the end of the day I know that, kevin, you have certain thoughts about and again we'll refer the listeners to some of the things you've written about what the qualities should be of organizations that are most likely to have the greatest impact in terms of their structure and operational qualities and so forth, but at the end of the day, I think we still just don't know. It may turn out that there's a place in the middle where an organization needs to be of a certain size. If it gets beyond that size, it's more likely to malinger and be less effective. Alternatively, it may be to your point that if you don't have adequate capital and investments in scale, you're not going to be able to do what's needed to get there, and we just don't know the answer to that yet. So I want to open it up to your thoughts, kevin, on that.

Speaker 3: 43:11

Well, all of this is, of course, quite fascinating, but there's an ingredient, I guess, that we haven't discussed, having to do with the future and how the future will be so much different than the past. Yes, I mentioned that I've been involved in human services for more than 50 years now. Yeah, during that time, I would not describe the industry as having changed radically. There have been changes. It's certainly evolved, there are vastly greater resources, but there hasn't been radical change. But I think what society more generally is on the cusp of is, of course, technological change that is utterly unimaginable and that will change life on Earth.

Speaker 3: 43:57

Of course, as part of that, all that we're discussing right now, one of the things that inevitably, as a consequence of the technological change, will be that capital will be required in order to acquire and implement it, and so one of the things that I think clearly is the case is that 15 years from now, technology will require much larger institutions.

Speaker 3: 44:37

But I don't invite much larger institutions because the capital investments will be expensive and the cost of them will have to be distributed over very large revenue bases. But, additionally, the technology will be so massively capable that it will only make sense to have very large companies, and so, in some respects, thinking about how the industry will evolve necessarily must take into consideration how technology is going to drive change in ways that probably can't really be anticipated. No one really understands, I guess, what's going to happen with quantum computing, but my understanding is that at this point, relatively small incremental changes in the capabilities of quantum computing will make possible dramatic differences in how life is lived I mean literally. And so I guess, thinking about the future, I just can't imagine that the future doesn't belong to larger companies that are better capitalized and that are probably not nonprofit for that reason.

Speaker 2: 46:08

Along these lines. I'll add just to what you're saying around the technology piece. Living, eating and breathing in the space of AI and machine learning is really where I spend most of my time now, because that's really the focus of our work here, and the work that I do is pretty full on trying to bring the tools of AI, as a way of example, machine learning, into this process. The interesting point I would make is that I see the cost coming down. I see the infrastructure being scaled to a level where we can now localize the kinds of technology advances in ways that we never could imagine before. With the advances of AI, I actually think and I actually know from my own experience I can now leverage the tools of AI and machine learning to reduce the cost of outcome evaluation for even the small local organizations significantly from what they'd have to pay to have that done on a consultative, methodologically very time-consuming process and, in addition, all the stuff that's happening out there with respect to the downside, to some of these big companies owning the infrastructure of AI. At the same time, the upside of it is that scaling is giving everybody a very localized access to technology and the tools of technology that none of us had before. We'd have to hire coders. Ai can code for us. We'd have to basically have all kinds of humans coding in rules to make things work, and now AI is really helping us with these things. So, to your point, I think technology is going to transform everything.

Speaker 2: 48:05

I think the way I'm seeing things more in the areas of AI and ML is just how radically it's going to change even the economics of what these things cost, and I actually think it's going to come down and I'm already seeing it in a lot of the work that we're doing the challenge we actually have is that a lot of government, which is still the big funder of services, the government is so bureaucratically entangled with their data and their infrastructure systems that it's almost like it's going to be this big delayed effect that the cost is going to continue to be too high because the government systems are going to be slow to uptake a lot of what is going to be happening in the private sector and is already happening there to bring these more cost efficient and cost effective technologies to them.

Speaker 2: 48:54

So from that standpoint, I actually think that we're going to have a have and have nots issue, because the nonprofit sectors dependent upon government and as I work with more government systems and data, it is a huge challenge to basically get them to the next generation of what they need to basically be cost effective and cost efficient. Because they got sort of antiquated systems and those systems are so enmeshed in the servicing and contracting it's very difficult to unplug them and fix the system. But once that happens I think we'll see advances. So I'm actually worried about the being left behind on the nonprofit side. Sorry for riffing a little more, ken, on that, but I think that your last point, kevin, I think is is spot on in the sense, the impact potential of technology. I'm not as convinced that the actual cost, if we could embrace the technology, would actually go up. I think it'll come down actually.

Speaker 3: 49:50

Well, I may suggest it's it's. I wasn't really alluding to the course so much as the investment, the investment require, the cost per unit, I daresay is going to come down quite dramatically, I would anticipate, in large part because the capacity, the capabilities of the technology are so staggering, but, by the same token, to obtain those capabilities may require meaningful investments that will be of a magnitude that it would be very difficult for a small organization to generate.

Speaker 2: 50:26

Yeah, I would argue at the government level too, that's going to be the big roadblock on some of this stuff too. You're correct. But take Ken's organization as an example. Where he's at right now he's actually building a system, getting to build a system to gather the data, and a lot of organizations are like Ken's organization. They've reached a scale, but they're so technologically behind, in some ways digitally behind. I should say that what ends up happening is you get to a place where it's actually easier to bring the tools and technologies to organizations like Ken's. The hard ones are going to be the very scaled human services and others that are big contract dependencies on government. I think those are the areas where we're going to see to your point and that's where I would agree with you. I think we're going to see some real struggles there. With respect to the investment needs, there's going to be significant investment needs for those larger, big organizations working with government contracts.

Speaker 1: 51:27

So I just want to insert that this is my last word for today. It's funny. We were talking about setting the time and this conversation is so interesting. We can go on for quite a while.

Speaker 1: 51:42

But one of the things, kevin, you said in your earlier remarks was that one of the possible outcomes here, given the challenges you described, is that we're going to have to become more reliant on for-profits and might see the demise of some or all of the non-profits because of the realities that you described. So I think there is definitely a bias here on the non-profit fix, which is we hope to fix it so that that's not the outcome. But we're both big believers in science and data and we're going to let the data, even though we have a bias, let the data tell us where we'll end up. Hopefully it'll be something where we'll have a really thriving non-profit sector that continues to contribute and has a meaningful role. I hope that that's where we end up, but we will rely upon in the future, hopefully more and more on objective data and science, and we very much respect your views on this. We think they're very fascinating and a lot of food for thought from this conversation. So I want to thank you for this conversation today. It was really great.

Speaker 2: 52:59

Yeah, along those lines, kevin. Is there anything that you would like to kind of conclude with, so that we can, even if it's just being able to summarize some of your key points, or if there's anything else you want to share? Yeah, listen.

Speaker 3: 53:13

I've enjoyed the conversation and where our discussion is about things that we will still be talking about years from now. Thank you so much for inviting me to participate. I enjoyed our discussion.

Speaker 2: 53:29

We did too. Thank you for joining us, kevin. You're the inaugural guest of the non-profit fix, so really appreciate you taking the time, and I think your perspectives, expertise and experience are going to be very valuable to everybody who listens, so thank you.

Speaker 3: 53:44

You're welcome. Thank you so much. Take care.

Speaker 2: 53:48

Thanks, Ben, Don't worry. Kevin H projekt ProductionsPublic yeah.