Organization Capacity – What is it…How do you build it?

This blog post was provided to the Center by Michael Farley, MA, CFRE, a Center faculty member and Partner in Advancement from EMD Consulting Group.

Organizational Capacity is the all-important “infrastructure” that supports and shapes a nonprofit into a force for good. It enables the organization and its leadership to develop competencies and skills that can make the enterprise more effective and sustainable. Capacity building involves taking actions that improve stability, minimize risk, enhance program quality and position the nonprofit for growth. Ultimately, paying attention to those elements that build capacity will also result in supporting the organization’s competitive advantage in the marketplace.

So what are those key elements? Here are five areas that, when taken together, build capacity.

Organizational Structure - As in architecture, form should follow function in a nonprofit’s organizational structure. Understanding that each nonprofit is unique and, while there exists numerous best practices in structuring an organization, there is no such thing as a one size fits all structure. The organization’s unique mission, setting, strategic challenges, and opportunities drive what kind of structure structure best creates and supports a high performing team and organization. 

Governance Structure & Operations - No one structure is best. A large board may be optimal for some organizations, and a small board for others. Efficient and effective board and operational models come in all types and sizes, as do ineffective ones.  Building capacity requires assessing an organization’s governance or operational structure and finding the optimal model and processes that will enhance organizational success.

Performance Management & Measuring What Matters - High performance within nonprofits is necessary because outcomes matter – to service consumers, staff, Board members, funders, and the community. What are the key performance indicators (KPIs) that reveal how well the organization is achieving its key business objectives and hitting its targets? And is the organization equipped to collect the right data points to measure progress? Managing to outcomes supports sound strategic decision-making, planning, and business development.

Financial Strategy - For most nonprofit organizations, financial strategies are paramount in planning their futures. These strategies can be integrated into strategic plans, but can also be far more detailed than is usual in a strategic plan. These can be overall financial strategies or specific ones focused on fundraising, earned revenues, membership, or on financial impacts of capital projects. 

Data Utilization - Many organizations underutilize data of all types, but particularly service outcome and fundraising data. Data can provide powerful information if it is accurately collected, analyzed, and used to improve organization effectiveness. Assessing an organization’s use of program performance, outcomes and fundraising data is a key component to enhancing organizational capacity.  How are program and donor databases structured to support strategic thinking? Maximizing how the right data is collected and used helps boost capacity.

These are the areas that comprise “looking under the hood” of the organization to strengthen the overall capacity to serve its many stakeholders. Capacity building is not a mechanistic exercise. Rather, it is a dynamic, systematic effort to retool an organization’s operating systems to best fit service delivery in a changing marketplace.

Capacity building also implies strategic thinking about the future. Is the nonprofit’s purpose to achieve sustainable health, or to accomplish mission?  These don’t always completely align, and depending on how one answers the question, it can lead to different strategies for the road ahead. Perhaps then, the challenge is not so much creating an organization that is built to last, but rather creating an organization that is built to change.

To request an assessment or support from a Capacity Building Specialist, contact Sean Sweeney, Education and Program Manager at the Center for Nonprofit Advancement.

For Further Reading: 
Barbara Blumenthal, “Investing in Capacity Building: A Guide to High-Impact Approaches,” The FoundationCenter 2003.

Virginia Chandler and Kristen Scott Kennedy, “A Network Approach to Capacity Building,” National Council on Nonprofits 2015. NPOs that are part of a network leverage resources and knowledge to Building Capacity more effectively than those who “go it alone”.

Beth Kanter’s blog post 2-26-2015  20-42pm summarizing two reports on types of capacity building programs
http://www.bethkanter.org/capacity-building-2/  Two Must Read Reports on Nonprofit Capacity Building.

Ruth McCambridge, “Nonprofit Capacity Building for What?” Nonprofit Quarterly, January 4, 2011.
https://nonprofitquarterly.org/2011/01/24/nonprofit-capacity-building-for-what/