The Business Case for Investing in Talent

Every dollar invested in employee development yields more efficient and effective impact.

Talent Matters Talent Matters Talent Matters is a blog series exploring how nonprofit leaders have achieved real-world results through an emphasis on talent.

The nonprofit sector is known for underinvesting in talent. From low compensation to lack of training, the pursuit of minimal overhead has resulted in anemic spending on human capital. The Foundation Center calculated 2011 nonprofit sector spending on leadership development at $400 million—a mere 0.03 percent of the sector’s $1.5 trillion total annual spending. This equates to per-person spending of $29 in the nonprofit sector vs. $120 in the private sector. Foundations, too, have played a role, allocating no more than 1 percent per annum toward leadership-development initiatives in their grantee organizations over the past 20 years.

Lately, though, we are starting to see a shift in the sector that reflects what we at ProInspire believe: An investment in talent is an investment in a nonprofit’s ability to achieve its mission and meet increasing societal needs.

This idea is gaining traction among nonprofit funders, professionals, and thought leaders alike. There exists both a demand for talent investment and a growing body of evidence that documents its value in increasing social impact.

Demand for talent development opportunities exists at both the individual and organizational levels:

  • A Bridgespan survey of more than 500 nonprofit professionals singled out leadership development and succession planning as their biggest organizational weaknesses—by more than a two-to-one margin.
  • In a 2013 ProInspire survey, 93 percent of managers said they believe leadership or managerial training will increase their effectiveness; 50 percent said they do not have the knowledge, experience, or resources to be successful in their current role.
  • The Evelyn and Walter Haas, Jr. Fund’s Flexible Leadership Award program has grown from a local pilot program to one that supports 50 organizations with long-term, customized leadership support. Between 2005-2012, the Fund awarded $21.6 million in leadership initiative grants.

We know that demand alone will not produce a significant uptick in talent investment; rather, such investment must be linked to organizational outcomes in meaningful, quantifiable terms. Yet calculating return on investment (ROI) is a complex and costly endeavor, and few nonprofit data points exist to demonstrate that return. One compelling example is Boys and Girls Club of America (BCGA), which enlisted McKinsey & Co. to identify and measure the impact of the four leadership traits most critical to BGCA’s mission. More than 650 leaders from 250 local organizations participated in development programs aimed at cultivating those traits. BGCA then compared the performance of participating local affiliates against a control group. The result? Participant affiliates outperformed the control group affiliates on fundraising, membership enrollment, and retention. In fact, the revenue increase attributable to the leadership development program was four to five times the cost of the program—a success by any measure.

The Haas Fund’s Flexible Leadership Awards program mentioned above offers another success story. In its pilot period (2005-2010), 93 percent of participating organizations met or surpassed their mission-advancing goals, and 13 of 14 organizations saw budget increases averaging 64 percent.

Through ProInspire’s work with nonprofits, we find that many organizations underinvest in growing and developing employees. While nonprofits often plan 6-12 months in advance for recruitment of new employees, they often ignore professional development and career growth for current employees until it’s too late—that is, until they need to fill a role and realize they don’t have internal candidates, or until people leave because their growth has stagnated. Our research shows that organizations can employ a mix of strategies to meet different needs and budgets. Two examples of how to prioritize and support growth of current employees come from Communities in Schools and GlobalGiving.

Communities in Schools (CIS), a national, federated organization with a national office staff of about 50 and a budget of $19 million, has made professional development a priority. The organization provides a budget to each employee for professional development. During the annual review process, employees discuss with their managers how they are developing, and their performance, career trajectory, and needs. President Dan Cardinali says, “We believe that investing in our people will enable CIS to achieve greater results, ultimately helping students achieve in school."

GlobalGiving, a charity fundraising website based in Washington D.C. with a staff of 30 and a $4 million budget, has embedded investment in its people into the organization’s values. It employs an electronic feedback tool, provides each employee $1,200 in annual professional development funds, and tracks talent-related metrics. These efforts have paid off: GlobalGiving is managing four times more donation volume than it did five years ago, with only incremental growth in staff and budget.

These success stories show that it’s time to change the lens on talent investment in the nonprofit sector. Instead of viewing sector spending as a zero-sum game between overhead and direct services, let’s reframe it as a win-win, where every dollar invested in talent yields more efficient and effective impact. With the support of funders, organizations, and individuals within the sector, we can strengthen our collective impact through a sharper focus on talent investment.

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  • BY Stephen Bauer

    ON May 8, 2014 06:36 AM

    This is a great piece.  It reminds me of how we need to invest in talent at all times, not just when an organization has a little extra cash.  Investing in talent should not be considered “extra” but rather “essential”.  Having dedicated people who are passionate about your outcomes will take you farther than anything else.

  • George Ho's avatar

    BY George Ho

    ON May 8, 2014 07:52 AM

    Excellent article Monisha! Now that you’ve provided nonprofits with the business case- the next step is developing a common framework for effective talent development. Hopefully that requires a greater presence of HR professionals smile

  • Pat Wilson's avatar

    BY Pat Wilson

    ON May 8, 2014 05:20 PM

    Great post Monisha. Thanks for lending a voice to such an important issue.

  • BY K K Tse

    ON May 8, 2014 07:23 PM

    While I agree with the imperative of investing in talents, especially in the social sector, I have had some frustrating experience when it comes to trainees from NGOs.

    The organization I founded, Education for Good, has been offering training programs (regarded as the best in HK) to the general public, and quite a number of NGOs sponsored their senior staff to attend our courses. We charge them the same fees, and of course NGO-sponsored participants will have reimbursement (80 to 100%) from their organizations whereas the individual participants pay for themselves. There is a huge gap in motivation levels between the two groups. The letter is generally higher by a factor of 5 or more. And the learning outcomes are also immensely different.

    The situation is so discouraging that I almost want to give up on the NGO sector. But I also see the tremendous importance of the NGOs in providing valuable services as well as driving positive social change.

    I wonder if you or anyone could enlighten me on how to create breakthroughs for NGO staff training.

  • BY Monisha Kapila

    ON May 9, 2014 04:43 AM

    Thanks Stephen, I agree with you that this is not an extra but essential.  I think many leaders believe this, but some of the structural forces make it challenging to execute.

  • BY Monisha Kapila

    ON May 9, 2014 04:44 AM

    George, very good point.  I think the lack of HR professionals is an example of how organizations do not prioritize this topic.  In addition, many organizations that have HR professionals don’t leverage them to think about human capital strategy and how that connects to the organization’s strategy.

  • BY Monisha Kapila

    ON May 9, 2014 04:48 AM

    KK Tse, thank you for sharing more about your programs - they look like very good models.  One of the things we have found is that having participants go through an application and selection process helps ensure their commitment to the program.  Even if the organization is paying for them to attend, the individual still has to write an essay about how this fits with their career goals.  It would be interesting to hear what other people have found on this issue as we are still learning too.

  • Lucila's avatar

    BY Lucila

    ON May 9, 2014 06:40 AM

    Thanks for this hopeful article, Monisha. I am especially happy to see the BGCA outcomes: we all know this is what can happen when we invest in talent, but it takes some creativity and effort to tell that story in numbers.

    Another great organization/funder team to highlight is Year Up and Venture Philanthropy Partners. The $4.5M dollar investment partnership into which they entered in 2009 had significant portions of funding allocated to increasing YU NCR’s capacity to serve students by investing in training and internal talent pipelines. This allowed the organization to double the students they serve annually, while maintaining “best-in-class” outcomes. I am looking forward to the case study they are developing based on their investment!

  • BY Monisha Kapila

    ON May 11, 2014 07:33 PM

    Lucila, thank you for sharing the Year Up example.  I am also looking forward to hearing more about their learning and results from this investment in talent!

  • Emily Hsu's avatar

    BY Emily Hsu

    ON May 12, 2014 11:14 AM

    This case on investing in talent adds to the arguments in the “Overhead Myth” and “Starvation Cycle” that have been featured in SSIR and elsewhere. I think we as nonprofits need to continue communicating to funders as well as the public that proper investment in overhead is necessary for an efficient and effective organization.

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