Measuring the difference in not-for-profit strategy

In the realm of strategic planning, not-for-profit organisations face a more nuanced  set of challenges and priorities. Where their for-profit counterparts tend to focus on maximising shareholder value, not-for-profits are driven by a different mandate: to create positive outcomes for the communities and causes they serve.

This fundamental difference in purpose fundamentally alters the way strategic planning is approached in the social sector and one of the key distinctions lies in how success is measured.

Within for-profit organisations, success is often synonymous with financial profitability. However, within not-for-profits, success is more likely measured by the impact created, which requires thinking beyond outputs (such as the number of people served, or targets met) and instead considering outcomes—the actual changes or benefits experienced by individuals and communities as a result of their programs or services.

Over the past decade there has been a growing emphasis on impact measurement by funders, including government agencies and philanthropic organisations. Funders are increasingly interested in understanding the tangible outcomes of their investments, rather than just the activities undertaken by not-for-profits. This shift reflects a broader recognition of the importance of accountability and effectiveness in the social sector.

However, measuring impact in the social sector is not without its challenges. Unlike in the business world, where the link between actions and financial outcomes can be more straightforward, the social sector operates in a more complex environment. Factors such as education, health, and the broader economic context all influence outcomes, and many of these factors are beyond the control of any single organisation.

To navigate this complexity, not-for-profits need to develop frameworks for measuring impact that are meaningful and credible.

One such framework is the Theory of Change – a one-page visual roadmap identifying how an organisation's activities and program, lead to specific outputs, which in turn create outcomes, thus generating the impact you are seeking to achieve.

For example, let's consider a not-for-profit organisation that provides job training and placement services to disadvantaged youth. Rather than simply reporting the number of youth served, the organisation could use a Theory of Change framework to outline how its programs lead to outputs such as increased employment rates and thus outcomes and impacts such as improved economic and mental well-being for participants.

By mapping out these pathways, the organisation can demonstrate its impact in a more meaningful way to funders and stakeholders.

As a leader of a not-for-profit organisation, you should consider…

✚  whether your organisation has a current theory of change and how you are using it… is it a central part of your organisation’s story or is it gathering dust somewhere?

✚  whether your theory of change is still applicable or have there been changes to your internal or external environment that have impacted its relevance?

✚  whether your theory of change is integrated into your strategy and are the measures of success that board members are tracking against the strategy, aligned with the theory of change?

By clearly articulating the pathways to impact, not-for-profits can better understand their role in creating change, which is a powerful tool in any not-for-profit strategy.