Do we need more than one major heart surgery center in the greater metropolitan region? Should we have two orchestras? Does it make sense for both Carleton College and St. Olaf to be in Northfield? And why are taxpayers asked to support both the Minnesota State Colleges and Universities and the University of Minnesota? These questions are appropriately raised as community leaders continually re-evaluate needs and resources, and are particularly apt today when money is tight and more people need basic services like food, clothing, and housing.

About a year ago, the Urban Institute, a national nonprofit research organization, held a symposium, “Are There Too Many Nonprofits?” Asked the same question as the title of the event, policymakers, funders, and researchers said it depends upon nonprofits’ effectiveness (more on this in a bit).

As elsewhere, Minnesota is seeing renewed interest in nonprofit mergers, strategic alliances, and back-office sharing. To name a few local examples: the Bush Foundation and Minnesota Philanthropy Partners are moving into shared space, the Courage Center and Sister Kenny institute have announced a merger, and HealthPartners and Park Nicollet decided to merge as well.

But fewer nonprofits do not necessarily mean better nonprofits. Competition plays as important a role in the nonprofit sector as it does in for-profit by driving innovation and effectiveness. Nonprofits may compete for different reasons than for-profits, but their practices are no less aggressive. A burgeoning nonprofit sector also means a bigger pie with more players and better results. Here are the ways that happens:

Competition for grants and donations

Probably the most visible competition that nonprofits engage in is for donated income. Feel that you are being asked for money in lots of new ways? You’re correct. And more nonprofits actually mean more charitable giving; based on IRS data, Minnesotans gave more than $3.6 billion to charities in 2009, even in the midst of the recession.

Competition for customers

Many nonprofits compete head-to-head for customers. Think about the amount of marketing you see from colleges, private schools, hospitals, theaters and other cultural organizations, and health care organizations. Put simply, a nonprofit that isn’t growing its base is not viewed as competitive, and won’t be successful. Minnesota’s often-cited quality of life can be directly linked to our nonprofit educational, health, environmental, and cultural assets. Our cultural participation and civic engagement, as measured by arts attendance, church membership and voter turnout, are well above national averages.

Competition for staff

Employees who develop a strong skill set in nonprofit administration, fundraising, and program management are in high demand. Changing jobs within the sector is common; search firms specializing in the nonprofit sector prowl persistently for employees ready to make a move. Minnesotans are some of the nation’s most respected nonprofit leaders and we regularly recruit top nonprofit leadership from other cities.

Competition to demonstrate impact

Beyond marketing, organizations develop significant competitive status by showing and sharing validated results from their efforts. Increasingly, nonprofits are using third-party evaluation and other external means to identify the impact they have in their field of work. Particularly among corporate and foundation grantmakers, but also increasingly among individual donors, nonprofits need evidence that what they do is useful and important. If one organization’s approach shows better results than another’s, so much the better from a service perspective, but also better competitively. One consequence of the increasing emphasis on measuring impact is the expectation that organizations will reform their practices if they’re ineffective, obviously a helpful development in the sector.

This last point—effectiveness—is the most important for today’s nonprofits. While efficiency is a concern, it’s often not the primary one. After all, if delivery could be efficient, a for-profit model would be a preferable means of getting the product or service into customers’ hands. Often we see for-profit businesses entering the service delivery areas of nonprofits to try to develop efficient markets (for-profit health care or educational organizations, for example). Sometimes this proves possible. Other times, businesses learn just how inefficient the nonprofit “market” is, they lose money and exit.

Instead of efficiency, nonprofit competition today is all about effectiveness. Investors in nonprofits want to know whether the program, product, or service creates community value, solves a community need or problem, or has a civic impact. The return on investment is not a financial; it is the impact on community and the durability of results.

But that impact can be hard to quantify. It requires qualitative evaluation, not just quantitative. A nonprofit’s desired impact is usually change-oriented—alleviating poverty, eliminating racism, improving health, creating business opportunity, or other broadly stated goals that don’t easily lend themselves to statistical analysis. Also, a particular nonprofit’s role in “moving the needle” on a social problem can be difficult to pinpoint among a host of other factors.

Fortunately, nonprofits’ sophistication in evaluating impact is increasing as systems of qualitative evaluation become more widely known and available. As donors more frequently ask the impact question, nonprofits more frequently can answer. That’s a good thing for the quality, efficiency, and impact of our nonprofit community.

So the next time you read complaints about duplication of services or hear questions about whether a specific nonprofit is “necessary,” remember that several organizations tackling a similar problem is not a bad thing, in and of itself. Ask instead whether these organizations are competitive and effective within their scope of work. Competition among nonprofits is a healthy force for change, and results in more effective organizations and a more competitive Minnesota.

Sarah Lutman is a St. Paul–based independent consultant and writer for clients in the cultural, media, and philanthropic sectors.

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