The not-for-profit sector is afflicted by a strange condition known as ‘private sector envy’. This is the unshakeable belief that not-for-profits are inefficient, bureaucratic, and boring, while the private sector is fast-moving, quick-thinking, and innovative. This deep-seated insecurity has worked its way deep into major donors; for example, DFID writes ‘business cases’, worries about their ‘commercial model’, and seeks to ‘maximise their investment’.
This is wrong for two reasons. Firstly, the not-for-profit sector can be hugely efficient. I started my career working for a small NGO in West Africa. With just five staff and unrestricted funding, it was innovative, impact-orientated, and a joy to work for. At a larger scale, the public sector has a long and distinguished history of innovations; the internet is a recent good example. (Thanks, US military!) In turn, the private sector can be quite incredibly inefficient, as anyone who has ever tried to change their gas supplier can testify.
More importantly, private sector envy often ignores the relative constraints and incentives of the public and private sectors. I realised this when I switched from working from large (and inefficient) charities, to private sector consultancies implementing donor-funded projects. Being afflicted by private sector envy myself, I honestly expected the private sector to be more efficient than the public sector, and it was quite a shock to find that it was just as bad.
After the initial frustration had subsided, I realised that the reason was simple – as a contractor, the private sector consultancy was now labouring under exactly the same incentives as the charities. They were risk-averse because the donor punished failure. They didn’t care about monitoring and evaluation because they didn’t want to uncover any negative news which might jeopardise their next bid. The HR department was useless because – well, HR departments are always useless.
When the private sector is more efficient, it’s often because they have clearer incentives and clearer metrics of success. In the public sector, by contrast, incentives are murky and often misaligned. Government bodies often want to spend their allocated budget and satisfy domestic lobbyists or constituencies, charities often want to get more money and expand. There is no simple metric of success which can be agreed on, unambiguously measured, and used to drive performance.
So trying to make the not for profit sector “more business-like” is a mistake. In trying to transplant practices from the private sector into the public sector, you risk getting the worst of both worlds. Management by results is a good example. Although better monitoring, evaluation, and tracking of results is certainly needed, most development projects cannot be managed by a simple dashboard of indicators. Current results management practices risk perverse incentives – encouraging a focus on the short over the long term, for example – and could reduce the intrinsic motivation of many working in the sector.
Instead, we should take inspiration from good practice wherever we find it – whether in the public sector, private sector, or behind the back of the sofa. We should pay attention to the incentives that programmes face, and recognise that these are mixed, ambiguous, and hard to set. We should measure success – but recognise that we can’t always attribute it and use it to drive programme performance. Finally, we should fire all HR departments.