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Practically growing with flexible funding

In our last article, I discussed the two reasons for the hesitation, reservation, and aversion towards flexible funding.

Once those reasons are internally addressed, foundations and funders that currently provide no or a limited number of unrestricted or flexible funding awards can transition to bravely integrating this type of funding into their funding strategies.

Discussing how to transition to unrestricted or flexible funding is not novel. In fact, in funder convenings, it is often encouraged, but momentum is lost when converting that conversation into practice. I also hear it discussed in conversations with grantee organizations as a real need, but it still does not become part of their funding requests.

Trepidation certainly exists on both sides, for different reasons. Still, if the value of unrestricted or flexible funding is not regularly articulated, requested, and awarded in a funder-grantee relationship, that relationship will inhibit funders and grantees from collectively and meaningfully shaping a thoughtful flexible funding process.

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Flexible funding is the new kid on the block

Over the past few months, a buzz has been created by the fact that some of the largest philanthropies in the United States have decided to increase their general support awards to their grantee organizations.

Similarly, people have also been discussing Amazon founder Jeff Bezos’s award of unrestricted funding through his Day 1 Families Fund to organizations working to provide shelter and hunger support services to young families across the country. Specifically, they are in awe of the autonomy Bezos has allowed these organizations to retain over the expenditure of the funds; the minimal amount of diligence the Fund required of the organizations; the streamlined application process; that Bezos holistically invested in organizations he did not have a long-standing relationship with as a way to ensure they realized the grant purpose; and that he awarded millions of dollars to these organizations, largely based on trust.

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If you build it, they will grow

Remember the unicorn funding for infrastructure capacity building I wrote about in my last blog post? In it, I described what is needed for a catalytic conversation about funding infrastructure capacity building.

The next step is being brave enough to determine how to fund a nonprofit grantee organization and build its infrastructure capacity. To do so, both funders and grantees need the ability to identify and assess the key indicators that signal that infrastructure capacity building is needed.

Assessing infrastructure capacity building needs often requires a holistic lens. Funders develop this lens when they view grant making as holistic investing in grantees and imprint that value onto their staff and into their work. Holistic investing means that the funder’s approach to grant making depends on the strength of all of its teams, not just program teams. Consequently, the program team should not independently award a grant investment. Instead, the program team must rely on the strengths of colleagues in finance, operations, legal, and grants management, to take a holistic look into the grantee, which includes its structure and operations, to inform its grant making.

This holistic approach similarly applies to grantees when they are determining their own infrastructure capacity building needs and how these needs impact grant funding requests. The grantee should have an internal process that regularly identifies its infrastructure needs so that its proposals for project or general support each take those needs into account.

To identify, understand, and support these infrastructure capacity needs, an assessment should be performed. This assessment should have three primary components: (i) an objective set of questions to describe the organization’s infrastructure; (ii) a relevant model of organizational excellence; and (iii) an analysis of the organization’s infrastructure against the model of organizational excellence.

Below are five core areas that should be assessed to understand an organization’s infrastructure capacity needs and inform grant awards. Identifying needs in each of these areas requires expertise in that particular area. The questions raised below are examples of the kinds of questions that inform infrastructure capacity needs in each area. The assessment should not be designed to overwhelm the assessed organization or the grant process. Indeed, the assessment should significantly improve the grant investment process.

  • Governance. Questions about how an organization’s governance structure supports the organization’s work will reveal its infrastructure capacity. For example, is the organization compliant with its bylaws? Are the bylaws reflective of the work in which the organization is engaged and responsive to the organization’s needs? Are board committees created to strategically support and guide the organization’s leadership and the organization itself? Are board terms respected? Does the board even have terms? These structural questions go beyond questions about board dynamics and interactions, which, while important, can only be considered after the governance structure is deemed to be appropriate, strong, and necessary.
  • Processes. Understanding an organization’s key processes and how they work within that organization is key to understanding infrastructure capacity needs. For example, how does the organization determine whether a process is a key process? Has the organization documented all of its processes? What does creating a process entail? Who has the relevant approval authority? These questions will highlight the organization’s business continuity practices and the status of the organization’s key processes, particularly how they impact the organization’s performance, whether they are followed, how they are mapped, and their efficiency. The responses to these questions will provide insight into whether and how the organization effectively manages its processes. If the organization is unable to easily answer these questions, it will highlight the extent of the organization’s infrastructure needs.
  • Policies. The same questions raised about the organization’s processes are the same questions that should be raised about its policies. It is important to ask the questions separately, however, as they will highlight the strength of decision making in the organization. For example, what are the organization’s key policies? What is the process for adopting each of those policies? How does the organization ensure that staff are complying with its policies? These questions shed light on how the organization adopts policies, if its practices are consistently formalized, how the policies are used throughout the organization, and if policies, in fact, inform the organization’s work. The breaks and gaps exposed by these questions then inform where the organization’s infrastructure capacity should be built.
  • Organizational structure. Many organizations believe their organizational structures are in great shape because they have clear, detailed organization charts (often with different shapes and colors, sometimes shaded). They usually conflate the detail of this chart with the strength of their organizational structures. The chart alone, however, does not adequately address the strength of an organization’s structure. So, questions here should dig past the colorful shapes on the organization chart and inquire into staff roles and responsibilities. For example, what responsibilities comprise each of those roles? How do those roles and responsibilities play out in the space between roles where no one is formally tasked with certain responsibilities? Does each staff member have a job description and a work plan that are regularly reviewed? These questions will provide tremendous insight into the organization’s core strength and efficiency.
  • People. People are the core of any organization. They create and shape an organization’s work and culture, which then inform its systems and policies, and ultimately its infrastructure capacity. Without people, the infrastructure is hollow and will eventually collapse in on itself. So, these questions focus on staff competency and development. For example, how often are staff reviewed and what does accountability for reviews look like? What training is staff required to take annually? What does accountability for training look like? When new policies and processes are introduced, how are the people impacted by those policies trained on them? Understanding the capacity of people and how to build that capacity will be the lynchpin of understanding an organization’s infrastructure.

Although an organization’s infrastructure is certainly informed by its financial management, finance is intentionally not included in the list above. Finance is one of the few areas where funders and grantees invest, know they should invest, or can be more easily convinced to invest money, resources, and time when a funder or grantee believes that a grantee’s infrastructure should be strengthened (how well they do it, however, is another conversation). Moreover, finance considerations will surface throughout the areas listed above.

Grant making without an understanding of a grantee’s infrastructure capacity will not strategically create sustainable change. Grantees need holistic investment to thrive, as does the sector. Deliberately investing in infrastructure capacity allows us to accomplish both.

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Is funding “infrastructure capacity building” the new unicorn?

I have noticed an alarming trend. A nonprofit grantee organization receives funding for its work from several funders, but a cursory look into the organization’s infrastructure reveals that the organization is dangerously fragile, almost subject to collapse; its funding is inconsistent; it is seriously understaffed; its processes are undeveloped or underdeveloped; its leaders are grossly underpaid; it has critical board recruitment and engagement issues; and its organizational oversight and management are inconsistent. In short, its infrastructure desperately needs to be built.

Before providing funding to the organization, a funder may have asked some questions about the organization’s board – its composition, the number and frequency of meetings, and the number of board members who regularly attend those meetings – and finances – is it in the red? The black? The green? Has it somehow created a reserve? Lots of questions swirl around what seems to qualify as infrastructure, but few rarely get close to assessing or funding it, and no real conversation happens about the organization’s infrastructure.

If you ask about this organization in the field, however, many people will tell you how amazing its work is, how its last convening was a game changer, or how its leader is so passionate about the cause and is driving the organization’s mission forward. Coincidentally, those factors are usually the reasons funders fund the organization.

Moreover, if you examine many funders’ strategies, you will notice capacity building as a large part of their funding portfolios. Indeed, many have grant-making programs dedicated to capacity building, going so far as to call these grants “capacity building” grants instead of general support (I know; another conversation for another day). And when you talk to grantees, they say they need capacity, they need general support, and need support for the work they are doing.

So, organizations have expressed the need to build their capacity and a stated desire to fund that need exists. It seems as though the conversation about the desperate need for infrastructure capacity building funding would therefore be moot. It is not, however, because the trend I described above still exists. So, where is the disconnect? Why is funding for infrastructure capacity building not more prevalent throughout the sector? Why are so many grantees still incredibly fragile although nearly all funders say they understand the need for capacity building funding?

I believe the answer to each of these questions is that we are not having the right conversations. Namely, we fail to have productive conversations about funding infrastructure capacity building.

Infrastructure capacity building is a type of capacity building, and is often overlooked. It is focused on designing and strengthening an organization’s infrastructure in order to enable the organization to effectively deliver on its mission. Infrastructure capacity building does not focus on an organization’s external environment, such as raising development dollars, increasing community resources, or examining the ecosystem in which the organization is working or the field in which it exists. It instead refers to the internal skeletal ecosystem that both makes up the organization and supports its programmatic work.

In April of this year, I wrote an article for Philanthropy New York explaining that visionary organizations are only created when infrastructure design is paired with program strategy. The infrastructure design I reference in that article is at the core of my definition of infrastructure capacity building.

From my conversations with leaders in the sector, my own experience working in and with grantee organizations and philanthropies, and working on capacity building initiatives in nearly every region of the world, I believe we need to address several essential components before we can strengthen a grantee’s infrastructure and sustain its organizational capacity.

To that end, I suggest five fundamental elements that need to be present in order to have an effective conversation that leads to consistent provision and successful use of infrastructure capacity building funding:

  • Unambiguity about the definition of infrastructure capacity building. Many definitions of capacity building are floating around the sector. To some, the term means developing the external environment in which the organization sits; to others, it means developing the internal environment of the organization’s programmatic work; and still to others, it means leadership development both within the organization and the environment in which the organization operates. The term, infrastructure capacity building, focuses instead on building governance structures, organizational structure design and controls, and process roadmaps and efficiencies. Infrastructure capacity building focuses solely on the internal, organizational structure and aims to strengthen the interaction and design of various elements of the infrastructure holding the organization together at its seams, so to speak. It is the organization’s backbone and is the area from which some of the most critical organizational risks surface. So, having a clear definition of infrastructure capacity building, which is integral to an organization’s existence and excellence, must be at the core of the conversation about infrastructure capacity building.
  • Appreciation of the benefits of infrastructure design to program strategy. If we are unable to clearly articulate the benefits of how essential infrastructure design is to the execution and sustainability of any program strategy, we cannot have a productive conversation about infrastructure capacity building. After all, why would a funder fund infrastructure capacity building, if it believes infrastructure design has no value to the work an organization does? And an organization will spend time thinking about how to fund or improve its infrastructure capacity, only if it can articulate the value of infrastructure capacity building to its overall work. Indeed, the benefits infrastructure brings to program strategy include improved staff performance and an elevation of the quality of the organization’s work, visibility, and impact. Infrastructure design certainly impacts the way an organization works so it is critical that its value to program strategy be recognized and understood in order to move the infrastructure capacity building conversation forward.
  • Knowledge of sustainability strategies. Whether an organization intends to be around for many years or many months, it needs to know both its program and exit strategy in order to design and build its infrastructure accordingly. And a funder should be clear not only about its own sustainability, but about its grantees’ sustainability as well. With each grant a funder makes or a grantee receives, each should know how that particular grant supports its sustainability strategy. Designing a sustainability strategy is often a complex undertaking, but a necessary one, and it should be deliberate. This strategy then informs how robust an organization’s infrastructure must be to support that strategy. An organization therefore needs to know what its sustainability strategy, needs, and vision are in order to have a successful conversation about infrastructure capacity building.
  • Understanding of programmatic strength. By programmatic strength, I do not mean that the organization simply has an untested, good idea or concept; instead, an organization’s programmatic strength is measured by determining the extent to which the good idea has been tested by the community that requested it and whether the community has already benefited from implementation of the idea. When an organization has programmatic strength, infrastructure design becomes necessary to reap the full benefits of and grow this strength. This programmatic strength clarifies the need to build infrastructure capacity and identifies the type of infrastructure design needed to meet those capacity needs. Without a solid understanding of an organization’s programmatic strength by either the funder or the grantee, however, the conversation about capacity building is unfocused and fails to appreciate the value of or identify the infrastructure capacity building needed. This understanding is therefore critical to having a productive conversation about infrastructure capacity building.
  • Understanding of the human-centered design of infrastructure capacity building. Some incorrectly believe that capacity building happens solely through organizational structures and designs. On the contrary, infrastructure design occurs in both structures and in the people within those structures. In fact, successful infrastructure capacity building must also invest in and build human capacity to allow individuals and teams to successfully operate and innovate within the organization’s infrastructure to ultimately strengthen its program strategy. So, the mindset that is essential for a forward-looking conversation on infrastructure capacity building starts with a profound understanding that this capacity building is not limited to structures and must also occur with the people working in and with these organizations. Ignoring the people in the design will always result in a substandard infrastructure design. Recognizing people’s capacity as crucial to infrastructure capacity building is one of the key components to having a constructive conversation about infrastructure capacity building.

Infrastructure capacity building is critical to enable organizations, often with limited resources, to thrive. It is a huge disservice to provide thousands of dollars to a grantee for project support and fail to inquire about its capacity to adequately support both the project as well as its organizational capacity to survive beyond the project.

It is a grantee’s responsibility to notice the gaps in its infrastructure to do the work and ask for support to fill those gaps. It is a funder’s responsibility to ensure that the organizations it funds have the infrastructure capacity to do their best work.

When either of these responsibilities is absent, grantees have inconsistent impact, funders fund in blind spots, the sector underperforms, and, ultimately, the communities they serve will receive fewer resources. None of us want those results.

We clearly need to have brave, serious conversations about funding infrastructure capacity building. Are you ready?

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