"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Thursday, November 29, 2012

Non-Profit Failure

Sarika Bansal has written The Power of Failure in the New York Times (11.28.12), an article about failure in the non-profit sector.  It apparently is a very common occurrence:

Seven years ago, the consulting group Bridgespan presented details on the performance of several prestigious nonprofits. Nearly all of them had one thing in common — failure.  These organizations had a point at which they struggled financially, stalled on a project or experienced high rates of attrition.  “Everyone in the room had the same response, which was relief,” said Paul Schmitz, the chief executive of the nonprofit Public Allies.  “It was good to see that I wasn’t the only one struggling with these things.”

The article goes on to talk about how these many non-profits have dealt with failure, have adopted a stance of openness and transparency; and that this willingness to face, analyze, admit, and rectify faults is the key to reformation and further success.

I can attest to the failure of non-profits in the field of International Development where I worked for over 40 years. Their record in terms of achieving success however measured, is pitiful.  The number of taxpayer dollars that I saw wasted in inefficient, poorly-designed, poorly-managed, and irrelevant projects was staggering. Why did this happen?

First and foremost, American international development projects are funded by USAID, a branch of the State Department.  It is USAID, through a competitive bidding process, which awards project grants to non-profit (and for-profit) organizations.  These organizations in turn manage the projects in the field. The State Department has clear geopolitical objectives for the programming of its money.  The list of the top 20 countries receiving developing assistance is not as one might hope, the poorest countries of the world, but those with which the United States has or wishes to cultivate a positive political or economic relationship.  It is no surprise, then that Iraq, Afghanistan, Israel, Egypt, West Bank/Gaza, Pakistan, Georgia and Jordan feature high on the list. Most of the remaining countries are on the list because of drug trafficking (Haiti), oil (Nigeria, Indonesia, Mozambique), strategic location (Ethiopia), or historical (Liberia) or PR (South Sudan)  regions.

Countries that receive this assistance know that it is an entitlement and that project performance has little to do with the flow of funds. In fact, since in the past USAID grants went exclusively to US contractors who in turn hired American employees and purchased American products and local governments say very little of it, they used every ruse in the book to siphon off what they could.  Usually it was small potatoes, cheating on the number of ‘trainees’ in a workshop, cooking the books on travel and per diem, and operating kickbacks for any locally-purchased products whether imported American or foreign-manufactured.  When the corruption became outrageous, USAID had to sit up and take notice as it recently did in one of its big recipient countries and one of the most corrupt.  A lot of money went missing; but rather than blame country officials and risk their opprobrium, USAID went after the contractor and ruined it.

USAID is so skittish these days about ‘waste, fraud, and misuse’ it has focused its management attention almost exclusively on protecting taxpayer money, not on assuring the execution of successful projects which actually have an impact on the people whom it is supposed to help.

As noteworthy is the fact that USAID must report its success or failure to the US Congress; but Congress is only concerned with numbers.  Targets can be very narrowly defined.  First and foremost, did the contractor spend the money assigned; was the project completed on time; and was the money ‘protected’.  It is very easy for USAID to justify all this because of the entitlement nature of the business.  Congress could care less what development impact a project has in Pakistan, a country considered one of the most corrupt in the world but an ‘ally’ of the United States; but it would care if its money was diverted, misspent, or disappeared.

US contractors, whether non-profit or for-profit are savvy and hip to this game.  They know that if a project in a politically important country is failing, and they make the obligatory public assurances that they have identified the problem and “will do better in the next phase”, the money keeps flowing.  I have a good friend who worked for a well-known non-profit.  When one of his company’s projects kept reporting failure, all he had to do was to draw up a remedial plan for Phase II, III, ad infinitum, submit it to USAID, and the funding kept coming.

USAID is run by bureaucrats; and although there have been some talented professionals who have joined its ranks, most physicians, agronomists, engineers, and food scientists are working in the private sector or for the private companies which execute government contracts.  Given the sorry history of US diplomatic and strategic military misadventures over the past fifty years, it is no surprise that USAID project designers have really little idea about the realities of the countries to which they are allocating money.  Furthermore, these designers are beholden to interest groups and the resultant Congressional earmarks, so projects are not the choice of USAID but of these public or private lobbyists.  The former push agendas like breastfeeding; the latter like American-produced insecticides for treated bed nets.

Once the Request for Proposals (RFP) has been received by a company, a proposal is churned out to fit slavishly within the confines and constraints of the RFP.  While there is a type of project (Cooperative Agreement) which allows non-profits to be more flexible, most prospective contractors are keen on one thing and one thing only – winning.  They are less concerned with inserting their own ideas, even if they know that their proposals are more attuned to local conditions, history, and geography.  A company I worked for had a successful business model – bid on everything, for history showed that using this strategy, and given the wide variations in quality, the company should win one-third of the bids submitted.  Year after year they were proven right.

So project success or failure has always been tied to the original USAID project design, the entitlement nature of the foreign assistance, the focus on accounting and transparency, and on the production of numbers.  Everyone in the business learned very quickly how to gloss over true failures – e.g. few people learned anything in the hundreds of poorly-designed training courses administered – and produce a dizzying assortment of charts showing how many people were trained, where, for how long, etc.

Under these conditions few projects are ever failures.  The only failure for most companies is if they fail to win a bid; or worse, fail to win a follow-on.

In one of the greatest ironies of ‘development’, the World Bank is hosting a look-inward conference to assess their performance:

Some organizations encourage employees to talk about failure in office events that are closed to the public.  The World Bank is holding an internal FailFaire in December, which will be moderated by Jim Yong Kim, the bank’s president. 

Ironic because only one or two countries have ever been removed from the list of worthy recipients; and since the Bank has always behaved like the American mortgage industry – get the money out the door – its projects have performed no better than their politically-driven unilateral donors like the US. In fact, it has become a joke that every so often the Bank will publish a mea culpa in which they admit failure, but since they know what the failure is, they can fix it.  The Bank is not alone:

Others publish their failures for the world to see.  Engineers Without Borders Canada, which creates engineering solutions to international development problems, publishes a “failure report” every year alongside its annual report.  “I only let the best failures into the report,” said Ashley Good, its editor. The examples that are published, she said, show people who are “taking risks to be innovative.”

However, since Bank monies are loaned to countries, it has lost the protective intermediary of trusted European or American contractors. The countries which know that the Bank has to lend, and that few countries are ever cut off, are often low-performing.  Things were better in pre-McNamara days when the Bank was the lender of last resort, loans were developed by countries for projects they really wanted, and who had a vested interest in their performance.

[Some non-profits], instead of trying to constantly dazzle funders, recommend developing long-term relationships that allow for failure and growth.  If a funder is invested in you, he said, he or she will share your sense of vulnerability if a project is not going as planned, and may sometimes help collectively problem solve.

Perhaps in social arenas where private donor funding prevails; but not in government contracting.  Given the above-mentioned concern about waste, fraud, etc., USAID develops and enforces ever more stringent bidding policies to be sure that not even a hint of favoritism or impropriety is suggested.  It would make good sense to develop a collaborative relationship between USAID and its most successful, high-performing contractors; for on this two-way street certainly more intelligent ideas would be available to improve project design, development, and implementation.  This, however, is impossible; and so the cycle of strict bidding on irrelevant projects which are never seriously evaluated continues.

Failure is written in to USAID projects from the very beginning.

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