The Odd Capacities of Foundation Capacity-Building Grants

November 29, 2016; Phys.org

After much fretting about (and large investment in planning for) capacity building on the part of foundations and consultants, a research report finds that capacity grants generally work at least in terms of improving financial performance, but how the grants were used may matter less.

Comparing financial trends of nonprofits that got capacity building grants from one foundation over a 15-year period, the researchers report all grew about 10 percent in the three years following the grant. However, it did not matter whether the grants were targeted to improvements in financial capacity or to other non-financial areas such as governance or management, all of the capacity grants seemed to lead to better financial results. The researchers said this finding “should be encouraging news to all those who invest and engage in such capacity-building efforts.”

In the end, it may be the grant itself rather than the specific capacity-building focus that makes the most tangible impact on an organization’s financial trajectory. If so, less burdensome or restrictive cash transfers may go further toward increasing an organization’s capacity development over time than targeted capacity building programs. We encourage further research to disentangle these effects.

The research was conducted because the authors saw a gap in analysis of these kinds of grants. “Foundations put a lot of money into these capacity grants, and usually get reports from grant recipients six or 12 months later,” one of the report authors says. “But we had very little information on the long-term impacts of these grants, so that’s what we chose to look at.” Other capacity building reports or evaluations vary widely but often focus on reporting impressions of participants rather than data about specific changes.

In this study, researchers looked at longer-term financial performance of nonprofits that got capacity building grants for a three-year period following the grant. They compared performance of those groups that got grants for any kind of capacity building and those who got grants for a specific kind of capacity building work. Using this methodology, the study is different from many evaluation reports of capacity building that focus on shorter time frames, narrowly defined activities, and/or collected anecdotal observations.

While the research focuses on the work of only one large foundation, it includes data for more than 400 proposals and 260 organizations over a 15-year time period in a large metropolitan area.

This research is, as they say, nice but insufficient. It appears to support the research that a number of years ago reported that no matter how you tried to improve a board, it would likely improve if you paid some focused attention to it. On this basis, capacity-building grants are probably generally useful. On the other hand, we don’t have comparative information about whether the foundation’s grantees that did not get capacity-building grants also grew by 10 percent over the same period.

The only thing that this research has to tell us is that management systems are so interconnected that if your board manages to improve its performance, there’s a good chance the rest of what goes on at your nonprofit will improve as well. Organizational problems, as we know, are rarely discrete or isolated. It also may be that extra money targeted just for organizational improvement is in and of itself a big step in the nonprofit world of too much need for many restricted dollars.—Kevin Johnson and Ruth McCambridge

  • davidlapiana

    This research study seems interesting, useful, even exciting when you read that capacity-building grantees increased revenue by 10% over three years. That’s a respectable if unremarkable 3.3% a year. But then you get to the fine print and see that there was no comparison group. Isn’t it quite likely, all things being equal, that many other grantees of the foundation in question grew around 3% a year without participating in capacity building activities? After all, that’s a modest growth rate. Without analysis of non-participating grantees a reasonable reader must conclude that there was virtually no revenue growth attributable to the capacity building participants’ unique efforts. Given that reality, I would take any findings the authors report with a very large grain of salt.

    • ruth

      I pretty much had the same reaction.

    • Lewis Faulk

      Actually, if you read the entire analysis, you will see that there is a
      comparison group of organizations that did not receive capacity grants
      and that capacity grants have a positive effect on financial growth even
      controlling for other grants received.