The Nonprofit Operations Guide: Capacity

Image: About a dozen cormorants roost on a small sailboat. This ship is about to exceed its operational capacity.

In the final article in this series, we wrap up by connecting everything you’ve learned about strategy, operating models, and operating systems across early stage, maturing and mature organizations to two different but tightly inter-relating definitions of capacity:

• Strategic capacity is the overall capability of leadership to ensure ongoing health and stability in an organization.
• Operational capacity is concerned with the finite resources that enable and simultaneously act as constraints on service delivery.

Strategic Capacity

Strategic capacity is concerned with assessing whether an organization is meeting the leadership and structural criteria required to provide a stable, sustainable organizational environment. In many respects, it is concerned with organizational maturity, and helping organizations assess themselves against hallmarks of mature and well-run organizations. While there are many different definitions of capacity, it is strategic capacity that most people mean when they say “capacity building” in the social sector.

A tremendous body of knowledge and work has been compiled to support strategic capacity. Like many others, we owe a tremendous debt of gratitude to the Hewlett Foundation’s extensive survey of capacity assessment tools, which provides dozens of different examples of tools and checklists. Many of these, in turn, are based on McKinsey’s OCAT tool, which provides a core commonality across several of the assessment tools.

From a meta-analysis of the available capacity assessment tools listed by the Hewlett Foundation, we have determined that the core questions being answered by these tools are at the strategic and operating model levels. Specifically, the questions are all attempting to help organizations reflect on how they’re progressing toward the necessary preconditions for a well-run organization that can survive to maturity, and how many of the necessary activities for sustainable and adaptable execution over time they engage in.

Should Every Organization Pursue Maturity / Increase Strategic Capacity?

For some organizations — like higher education, k-12, and some quasi-governmental or public sector agencies — planning for the long haul makes a lot of sense. Education is not an activity that has a natural end. Each year there are new people to educate, so long-term stability is desirable. At the same time, the student environment changes constantly, so organizations must cultivate practices that allow them to adapt their offerings without destabilizing the structure.

Many nonprofits, however, were founded to eliminate a particular social ill. At some point, it is hoped, the nonprofit’s job will be done, so the pursuit of maturity may not be considered a high priority when compared to the urgency of program delivery. The wildly dynamic funding and social ecosystems these organizations exist within mean that nonprofits are often pushed away from the activities they need to achieve long-term stability and effective, adaptable execution over time, even if pursuit of maturation is a priority.

We propose thinking about organizational maturity — or the increase of strategic capacity — as the pursuit of practices that ensure the organization is always asking “is this aligned with our mission?” and is willing and able to act on the answer to that question.

In the design world, we call this falling in love with the problem. Nonprofits that fall in love with solving the problem can develop committed leaders who ensure all of the organization’s efforts and resources are laser-focused on potential solutions to the problem. These organizations are constantly testing and demanding proof that the solutions are effective and aligned, keeping what works and discarding what doesn’t.

This mission focus and continuous improvement are the behaviors we see with healthy, dynamic maturity in any organization. For this reason, we believe that all organizations should pursue maturity in their strategic capacity so that they can ensure their organization is well-run, healthy, and able to execute well over time.

Operational Capacity

When the for-profit world talks about capacity, they largely mean production capacity or “throughput.” In dealing with daily social sector operations, this meaning of capacity is often overlooked but every bit as critical for high performing organizations.

• Capacity can be calculated as: (number of staff) × (number of shifts) × (utilization) × (efficiency).
• Utilization is essentially how much of the time period is taken up by productive work.
• Efficiency is how quickly can the staff member complete the job.

The Factors that Enable and Constrain Operational Capacity

Every organization’s operations are defined by the finite resources available that enables the organization to do its work. Managing the trade-offs that come with having more or less of each type of resource is the heart of executing well on any operational improvement project, whether that’s a scale-up, alignment, leadership transition, or any other major change that has significant operational consequences. These types of resources are:

1. Budget — The money available to purchase necessary resources.
2. Time — The time available to execute on a task.
3. Energy or Good Will — The brainpower and enthusiasm that staff, leadership, and the community are willing to put into something.

Each of these finite resources are deployed by leadership to get work done at the desired quality for the desired purpose — which is why strategic capacity is so crucial.

On an ongoing, steady-state basis, the budget and time available are largely dedicated to maintaining the status quo, which has direct implications on the available energy. When a change is being made, all of these resources are taxed. The goal of a most operational improvement initiatives is to find an effective, sustainable balance between budget, time, and energy that can be managed in an adaptive, resilient manner over time.

A Framework To Assess Capacity Holistically

Building on an organization’s strategic capacity and designing operations for immediate improvement and long-term sustainability is what we do at Deep Why, at least in the technology and data realm. So we have looked to the best practices and knowledge in the broader capacity building and operations spaces to create a framework to support integrated operational improvement projects, from systems alignment to leadership transition. These categories below help us orient our clients to the long-term and short-term actions that facilitate sustained success.

(1) Necessary Pre-conditions for a Well-Run Organization that Can Survive to Maturity

Do you know where you’re going, why you’re going there, and is everybody going to the same place, together, legally?

Many OCAT-based capacity assessment questions are focused on strengthening the organization’s leadership and position in the ecosystem. While there are hundreds of different questions that help draw this out, we have put them into 4 very broad core questions for clarity and simplicity:

1. Do you have a clearly stated focus (strategy/mission/goals)?
2. Do you align to that focus when you’re planning and before taking on any new activity?
3. Are you meeting all legal, regulatory, and other compliance obligations all the time?
4. Are your leaders consistently acting with the mission and organizational well-being in mind?

(2) Necessary Activities for Sustainable Execution Over Time

Are you properly resourced for the present and actively protecting the organization against future risks, including the risk of obsolescence? Can you verify and track your answers?

The majority of the remaining OCAT-based capacity assessment questions are focused on building and strengthening the organization’s operating model, which is still at the leadership level rather than addressing tactical considerations. As with the strategy questions, there are hundreds of different variations of questions that help organizations with this activity. We have again identified 4 broad categories of key questions:

1. Do you have a structured way to periodically re-assess the clarity of your focus and the alignment of your activities?
2. Do you have a structured way to plan for and adapt to a constantly changing world, including an awareness of the environment to look for opportunities and threats?
3. Do you have a clear understanding of the metrics that indicate things are going well or poorly, do you manage these metrics, and do you periodically re-evaluate them?
4. Do you consistently ensure that the appropriate resources are available (money, time, staffing, infrastructure) to support all of the above?

(3) Necessary Activities for Effective Day-To-Day Operations

Does everybody know how they relate to the organization and each other and exactly what they’re supposed to be doing, and can management monitor and verify outputs?

Unlike the strategic capacity categories, there are few broad-spectrum models to assess social sector operating system health and capacity. In part, this is because the exact tools and processes that set a good balance between money, time, and energy while allowing for high quality outputs will vary widely. In our experience, organizations that can answer the following questions with backing documentation of some sort and a tie to the operating model tend to have a set of tools, processes, and staff supports that enable high quality execution.

1. Do you create and protect role clarity and process clarity within a functional area and across functional areas?
2. Can you obtain trusted, verifiable reports about key indicators in daily activity from all individual functional areas?
3. Can you obtain trusted, verifiable reports about key indicators that span or unite all functional areas?
4. Do you have clear ownership and monitoring of all critical information hand-offs within and between functional areas?

Summary

Our meta-analysis of strategic capacity assessment tools includes many thousands of individual questions, so it is certainly an over-simplification to say that if you can answer twelve questions across three domains (strategy, operating model, and operating system) then you’ve got a thorough assessment of your capacity. While these questions are phrased as if you can simply answer yes or no, the real assessment work is in understanding the thinking, assumptions, and proof that supports your answer, which can get quite detailed and intensive.

Our purpose in approaching the topic this way is to clear away some of the details and focus more on the core questions. Why do we even undertake capacity building work? How can we ensure we’re speaking the same language about a large and complex set of questions?

Essentially, strategic and operational capacity building assessments, literature and theory are all concerned with helping organizations take a close look at themselves along the three areas that make up the operating layers themselves, by asking each area’s foundational questions:

• Strategy: Do you know where you’re going, why you’re going there, and is everybody going to the same place, together, legally?
• Operating Model: Are you properly resourced for the present and actively protecting the organization against future risks, including the risk of obsolescence? Can you verify and track your answers?
• Operating System: Does everybody know how they relate to the organization and each other and exactly what they’re supposed to be doing, and can management monitor and verify outputs?

For each of the above foundational questions, if you answer no, what are the obstacles? If yes, how can you continue with these effective practices? Both options imply a pathway for success, which is what makes capacity assessment so useful when taking on any type of major organizational change.

This article is the last of a series on Nonprofit Operations that is designed to introduce concepts and language that can be very helpful in understanding common pain points in our sector.

Read the overview here