Global NGOs Spend More on Accounting Than Multinationals

Benchmark data isn't sexy stuff, but occasionally the numbers reveal surprising findings. Who, for instance, would have guessed that global NGOs spend nearly 80% more to track their finances and employ nearly twice as many finance staff as comparable for-profit multinationals?

This hardly seems right given that multinationals are thought to be awash in money and NGOs have the image of cash-strapped, waste averse organizations — which they are. But the data, gathered in our new study "Stop Starving Scale" and compared against benchmarks from APQC (American Productivity & Quality Center), hint at a little-known story: most global NGOs today struggle to master the complexities of managing efficient, integrated operations in large part due to restrictions placed on them by funders.

In that regard, NGOs find themselves facing the same issues that vexed multinational corporations as they began to master globalized operations several decades ago. While their missions couldn't be more different, the organizational challenges are strikingly similar.

As globalization began to shift into high gear in the 1980s, corporations grew by opening international outposts to access new markets. But they soon realized that dotting the globe with factories and staff led to fragmentation that begged for better integration and coordination. In time, corporations learned to build the administrative and technical infrastructure needed to manage their sprawling operations.

Today, NGOs are struggling to do the same — with one key difference. Multinationals are masters of their own fate when it comes to investing in people and infrastructure. By contrast, NGOs rely on the generosity of funders who, for the most part, restrict their investments to specific programs, leaving NGOs starved for general operating support.

This fixation on program-based funding results in a patchwork of fragmented, short-term engagements across countries and continents. While successful in appearance, it's a pattern of growth that starves the operational core. Like multinationals in the early days of globalization, many NGOs today struggle to grow the essential management capabilities and systems required to effectively manage their operations and growth.

Decentralized, program-focused operations also squander precious dollars. Hence, the comparatively high cost of NGOs' bookkeeping operations. Perversely, funders view such high costs as proof that NGOs already spend too much on administration, apparently oblivious to their role in pushing up the very costs they question.

Overhead Costs for For-Profits vs. NGOs

The absence of efficient financial management systems reflects comparatively low spending on information technology. In fact, the benchmark data revealed that NGOs spent less than half as much on IT systems as comparable for-profit companies, resulting in slower and less comprehensive reporting capabilities at a higher cost.

Just as telling, the NGOs surveyed reported spending one-third as much on program monitoring and evaluation as is generally recommended by evaluation experts. This all but eliminates NGOs' ability to talk about what really matters — impact per dollar.

The path out of this starvation syndrome is easy to see but difficult to tread. Just as multinationals before them, NGOs need to invest in core administrative and technical capabilities to manage global scale.

For funders, this means a change in attitudes and actions. They need to come to grips with the unintended consequences of starving NGOs of the resources needed to invest in leadership, management, program evaluation, and integrated systems.

NGO board members, especially those with corporate backgrounds who understand the importance of investment, must change the mindset that equates success with revenues and views low overhead as a proxy for organizational effectiveness.

And NGO leaders need to stop playing the low-overhead-is-good game and lead the charge for adequate general operating support. "This issue is one of my pet peeves," says Rich Stearns, CEO of World Vision US, the largest affiliate of a $2.8 billion NGO with operations in 97 countries. "Asking about an organization's overhead rate is the wrong question," he continues. "The right question to ask is what impact the organization is having per donated dollar? Because when we ask the wrong question, we punish the organization that's investing enough (in administration) to have real impact."

This entry was posted in Leadership. Bookmark the permalink.

Comments are closed.