As You Sow, So Shall You Reap?

• Author: Lewis Faulk,Mandi J. Stewart
• Date: 01 March 2017
• DOI: http://doi.org/10.1002/nml.21247
• Published date: 01 March 2017

317

N M  L, vol. 27, no. 3, Spring 2017 © 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/nml.21247

Journal sponsored by the Jack, Joseph and Morton Mandel School of Applied Social Sciences, Case Western Reserve University.

As You Sow, So Shall You Reap?

EVALUATING WHETHER TARGETED CAPACITY BUILDING

IMPROVES NONPROFIT FINANCIAL GROWTH

Lewis Faulk , 1 Mandi J. Stewart 2

1 American University , 2 North Carolina State University

Foundations’ capacity-building grant programs strive to bolster performance and outcomes

for their nonprofit grantees. Yet with few outcome evaluations of such programs, we have

limited understanding of whether these capacity-building efforts achieve their intended

result. This study evaluates fifteen years of data for one foundation ’ s capacity-building

grant program to understand whether targeted capacity building for financial manage-

ment and development contributes to nonprofit financial growth. The authors examine

the management–performance link in this context and inform sector leaders who dedicate

resources to capacity-building programs about the outcomes of these efforts.

Keywords: capacity building , foundations , financial management

THE OPERATING ENVIRONMENTS of nonprofi t organizations are laden with internal and

external pressures for eff ectiveness and effi ciency, which have contributed to a sectorwide

emphasis on nonprofi t capacity. Organizational eff ectiveness is relative to who is setting or

evaluating the criteria (Enright 2004 ), but in the context of nonprofi t capacity, it can be

defi ned as “the ability of an organization to fulfi ll its mission” (Kibbe 2004 , 4). Described by

Light ( 2004 ) as “inputs” to organizational eff ectiveness, capacity compels public and donor

confi dence in nonprofi ts, serving as an observable and achievable measure that is expected to

prompt greater mission performance.

All operational elements can be targeted for capacity building. Although nonprofits can

independently engage in these efforts, they are often implemented with external support. In

the grantmaking world, such funding is commonplace, with 77 percent of staffed grantmak-

ers funding nonprofit capacity building (Grantmakers for Effective Organizations [GEO]

2014 ). From a grantmaking perspective, funding capacity ensures that a program will endure

after the foundation ’ s grant support ends (Backer 2003 ; Enright 2004 ). In doing so, founda-

tions take an investment approach with the view that stronger grantees make for stronger

outcomes (GEO 2015 ; Millesen, Carman, and Bies 2010 ). Yet, the evaluation of this logic

and evidence that capacity investments do indeed translate into organizational outcomes are

Correspondence to: Mandi Stewart, North Carolina State University, 207A Caldwell Hall, Raleigh, NC 27695.

E-mail: ajstewa5@ncsu.edu.

 e authors contributed equally and are shown in alphabetical order.

Nonprofi t Management & Leadership DOI: 10.1002/nml

318 FAULK, STEWART

limited (Light and Hubbard 2004 ). Evaluations are often confined to the grant period, mak-

ing it challenging to assess longer-term outcomes. Further, evaluative efforts primarily rely

on self-assessments, focus on perceptual rather than objective measures of organizational out-

comes, and do not distinguish among various types of capacity-building interventions (Con-

nolly and York 2002 ; Linnell 2003 ). With limited prior evaluation, research gaps remain,

particularly concerning whether targeted capacity efforts contribute to objective organiza-

tional outcomes over time.

To help fill this gap, we evaluated fifteen years of financial data for 260 organizations that

applied to a capacity-building grant program of a nationally recognized private foundation

that serves one major US metropolitan area. With 38 percent of the organizations seeking

financial-related capacity support (that is, fund development and financial management), we

evaluated the future financial growth of these organizations to assess the outcomes of targeted

capacity building. The results support the logic that general capacity building relates to non-

profit financial growth. However, financially focused capacity grants do not lead to greater

financial performance outcomes, suggesting that targeted capacity-building efforts may not

fulfill their expectations. These findings lead to several implications for managers, funders,

and future research and raise questions regarding the appropriate role of short-term percep-

tual outcomes relative to longer-term evaluations of more objective performance criteria.

Literature Review

Stemming from what Salamon ( 1999 , 173) described as a “crisis of effectiveness,” the sector has

invested significant resources toward understanding and supporting nonprofit capacity develop-

ment over the past two decades. Foundations fueled these efforts through widespread adop-

tion of capacity-building programs (Kibbe 2004 ) that focused on underdeveloped operational

areas to make sustainable impacts on nonprofit performance (Light 2004 ). As capacity-building

programs developed, they ranged across a spectrum from top-down approaches that focused

on external diagnosis and intervention to an empowerment approach that trained people and

organizations to assess and address issues on their own (Cornforth and Mordaunt 2011 ). This

resulted in diverse capacity-building approaches that have been described by previous research.

Elements of Capacity Building

The literature generally sorts capacity-building approaches along recurring elements that define

the field, including operational targets, level of intervention, duration of the intervention,

level of funding support, and delivery mechanisms. Early research identified several common

categories of capacity development, including mission or goals, strategy, strategic planning,

leadership, structure, control systems, decision processes or communication, board develop-

ment, human resource management, performance measurement, and culture (DeVita, Flem-

ing, and Twombly 2001 ). Others summarized these elements under general dimensions of

nonprofit capacity, including adaptive, leadership, technical, and management (Connolly and

York 2003 ), and differentiated capacity building along other factors, such as whether the inter-

ventions targeted individuals, organizational units, organizations, subsectors, communities, or

the nonprofit sector as a whole (Light and Hubbard 2004 ).

These diverse perspectives led to various mechanisms to support capacity building. Funding

can come from the nonprofit itself, from a collective effort, or from a third party, such as a