CHAPTER TWO: LITERATURE REVIEW

2.:1 INTRODUCTION (back to top)

Although nonprofits have been studied for many decades, there is a comparatively small amount of research around the management and growth of grassroots nonprofit organizations.  The existing literature points at two essentials that may influence the growth of nonprofit organizations: nonprofit lifecycles and organizational effectiveness or capacity building.  This research also reviews the last decade’s prominent publications that shed light on factors behind high-impact and growth.


2.2: NONPROFIT LIFECYCLE THEORIES (back to top)

There are several different lifecycle theories for organizations.  The researcher focuses on three primary resources that analyze the nonprofit lifecycle theories in great detail.

These are: Five Life Stages of Nonprofit Organizations by Simon & Donovan (2001), Nonprofit Lifecycles by Stevens (2003), and Navigating the Organizational Lifecycle by Connolly (2006).  Even though they differ in categorization and nomenclature, overall they agree that the lifecycle of nonprofits consists of inception, growth, maturity, and decline stages.  According to these authors, organizations do not necessarily go through lifecycle stages in order, or even reach all of the stages.  Many of them barely get started before they go defunct, or have enormous growth spurts followed by years of decline.  The authors also agree upon and underline the fact that ‘decline and dissolution’ is not considered inevitable, however it can happen from any stage, at any point.

Simon & Donovan (2001) analyze the organizational development in five stages: (1) imagine and inspire, (2) found and frame, (3) ground and grow, (4) produce and sustain, and (5) renew and review.  Among several assumptions upon which this theory rests, one suggests that there are five factors influencing where an organization currently is in its lifecycle.  These factors are: age, size, growth rate of its field, social environment, and its primary leader’s characteristics.  Another assumption is that in each stage, milestones are reached that are necessary for the organization to grow to the next level.  The third relevant assumption suggests that each stage is dominated by distinct factors (pp. 9-10).

Stevens’ lifecycle theory, on the other hand, consists of seven stages of organizational development: (1) idea, (2) start-up, (3) growth, (4) maturity, (5) decline, (6) turnaround, and (7) terminal.  Each stage contains distinct opportunities and challenges that help strengthen the organization and bring it towards the next developmental level (Stevens, 2003).  According to Stevens (2003), a grassroots organization usually begins with strong ideas from which it creates programs and services.  As the organization incorporates as a formal entity, the idea stage ends and start-up begins.  When its programs and services are heavily demanded by the community, the grassroots organization goes into the growth stage and starts expanding its size and scope.  Stevens defines the growth stage as a transitional period between the stages of start-up and maturity.  In the maturity stage, the organization is entrenched, working smoothly, and has a good reputation in the community.

Connolly (2006) identifies five stages of organizational development.  These are (1) start-up, (2) adolescence, (3) mature, (4) stagnant, and (5) defunct.  He states that organizations with annual budgets under $1 million are usually in the earlier stages of the lifecycle, whereas organizations with greater than $1 million annual budget typically are in a later stage.  On the other hand, he proposes that the level, quality, reach and impact of programs are better indicators of the organizational stage than the organizations’ age, budget or number of staff (pp. 2-3).  Even though Connolly argues that some organizations will never reach full maturity before declining, he suggests that any organization that aspires to realize its mission must reach the mature stage and sustain itself there.  With regards to growth and high-impact, Connolly (2006) says that:
Some may argue that certain small grass-roots organizations are most effective by remaining in the effervescent, 'Peter Pan'-like state of perpetual childhood and by avoiding staid adulthood, but these groups are probably not fully tapping their potential. (p. 4)
Although all three theories aim at providing insights to help organizations grow and build capacity, they differ in their diagnostic frameworks.  

Simon and Donovan (2001) examine seven areas in which organizational lifecycles can be described and compared.  These are (1) governance, (2) staff leadership, (3) financing, (4) administrative systems, (5) products and services, (6) staffing, and (7) marketing.  Stevens (2003), on the other hand, evaluates development stages in five dimensions to understand nonprofit capacity and improve organizational performance.  These are (1) programs, (2) management, (3) governance, (4) resources, and (5) systems.  Finally, Connolly (2006) integrates the lifecycle model and the capacity model to explain how the core capacities evolve and change through the typical stages of the lifecycle.  His framework includes four categories: (1) adaptive capacity, (2) leadership capacity, (3) management capacity, and (4) technical capacity.  He states that in transitioning from one stage to another, the organization’s culture, resources, and external environment also influence its capacity.

In sum, these theories shed light on various developmental stages with a diagnostic framework to increase organizational effectiveness.  As a result, they help nonprofit organizations grow to scale by achieving better alignment between their aspirations and capacities.


2.3: ORGANIZATIONAL EFFECTIVENESS AND CAPACITY BUILDING THEORIES (back to top)

In much of the bodies of literature on management and growth of nonprofit organizations, capacity building and organizational effectiveness are either used interchangeably, or are described as one leading to the other.  Grantmakers for Effective Organizations gives a definition of organizational effectiveness that is widely referred to by researchers:
Organizational effectiveness is an organization’s ability to fulfill its mission measurably through a blend of sound management, strong governance, and a persistent rededication to assessing and achieving results.
Existing literature does not focus much on the linkage between lifecycle and capacity building theories.  Instead, it intends to develop a common framework to analyze and assess potential pathways for growth.  Researchers mention different sets of factors while describing how to achieve organizational effectiveness in order to carry nonprofits to the next level.  McKinsey & Company for Venture Philanthropy Partners (2001) has a capacity framework with seven elements, whereas De Vita, Fleming, and Twombly (2001) discuss five key factors that are essential to strengthening nonprofits.  Connolly and Lucas (2002), on the other hand, identify six components that are necessary for high performance.  

McKinsey & Company for Venture Philanthropy Partners (2001) analyzes thirteen case studies that engage in some form of capacity building at the time of their research.  Their work suggests that all nonprofit organizations should focus on achieving the maximum social impact, not just having some social impact, and nonprofits need to grow by building the capacity of their entire organization.  Their “Capacity Framework” defines nonprofit capacity in a pyramid of seven essential elements: three higher-level elements, (1) aspirations, (2) strategy, (3) organizational skills; three foundational elements (4) systems and infrastructure, (5) human resources, (6) organizational structure; and a (7) cultural element that serves to connect all the others.

De Vita, Fleming, and Twombly (2001) state that a healthy mix of the following five factors is essential for any organization to survive and thrive: (1) vision and mission, (2) leadership, (3) resources, (4) outreach, and (5) products and services.  They state that capacity building is necessary to strengthen nonprofit organizations, so that they can better fulfill their mission and have a greater impact.

Connolly and Lucas (2002) suggest that capacity building at any level will have a ripple effect and influence all other levels, eventually shaping civil society.  They define capacity building as the process of strengthening an organization in order to improve its performance and impact, and identify six components of capacity building that are necessary for high performance.  These are (1) mission, vision, and strategy; (2) governance and leadership; (3) program delivery and impact; (4) strategic relationships; (5) resource development; and (6) internal operations and management.

Capacity building and organizational effectiveness have been of interest to donors, nonprofit managers, consultants, as well as the general public, especially in recent decades.  Even though there is an increasing amount of research on this subject, there is little agreement on which factors are common to high-performing or growing organizations that can be used to replicate success.  “Researchers have long recognized that it is easier to describe a high-performing organization than to create one.” (Blumenthal, 2003, p. 27)


2.4: APPROACHES TO HIGH-IMPACT AND GROWTH (back to top)

During the last decade, several significant books and articles were published in order to elucidate the characteristics of high-impact organizations and define the pathway to growth.  The researcher mentions a number of these approaches with the intention to integrate these fresh perspectives into the widely accepted literature.

Unlike the capacity building theories that focus on internal processes, Grant and Crutchfield (2007) discuss six practices with emphasis on organizations’ external impact.  In their recent study of twelve high-impact nonprofit organizations, they observe six strategies that these nonprofits use to achieve large-scale change: (1) serve and advocate (advocating for policy change); (2) make markets work (working with businesses); (3) inspire evangelists (building strong communities); (4) nurture nonprofit networks (collaborating with others); (5) master the art of adaptation (modifying strategies as necessary); and (6) share leadership (distributing responsibilities).  Additionally, Grant and Crutchfield state that high-impact nonprofit organizations continuously move in new directions, have diverse sources of funding, and invest in human resources.  

Foster and Fine, in their article How Nonprofits Get Really Big (2007), highlight the significance of funding to accomplish organizational growth.  They argue that although it is important to have diverse funding sources to ensure independence and stability, it is equally or more necessary to have the right funding source.  They suggest that high-growth nonprofit organizations invest significant time and money to develop their ability to attract and solicit the right kinds of funding.  As they concentrate their efforts, they recruit people with appropriate background and create systems to best pursue that particular funding source.

Bradach, in his article Going to Scale (2003), attributes rapid growth to having replicable social programs.  He argues that at the essence of replication is the ability to take the organization’s programs (or theory of change) to a new location; and in that regard, success is dependent on how well these programs can be articulated and standardized.  He states that “the greater number of elements that can be standardized, the more likely it is that replication will succeed.”  As a result, proven ideas spread and greater social change can be leveraged.

Letts, Ryan and Grossman (1999) elaborate on the importance of adaptive capacity in the expansion and growth of nonprofit organizations.  Adaptive capacity is defined as the organization’s ability to learn, respond, innovate, and motivate.  It enables organizations to continuously create value for the clients and communities they serve and gives power to motivate staff and volunteers.

Combining the latter two approaches, Racine (2003) claims that replication and adaptation are closely linked and that pure replication is not possible without being adaptive.  He says that “replicating effective programs and organizations with the right balance of fidelity and adaptation seems to be an important way to boost the overall effectiveness of the nonprofit sector” (p. 310).

In his book, Pathways to Nonprofit Excellence, Paul Light (2002) concludes that there is no one best way to achieve and sustain strong performance.  Light states that “high performers build upon their assets, be it strong boards, motivated staff, smart leaders, rigorous evaluation, effective fund-raising, or innovative programs” (p. 37).  In Sustaining Nonprofit Performance (2004), Light suggests that greater organizational effectiveness is critical to the survival of nonprofits since it leads to increased public trust and giving.  Based on his approach, organizations that invest in infrastructure and long-term planning are more likely to advance their mission and goals.


2.5: SUMMARY OF LITERATURE REVIEW (back to top)

Existing lifecycle theories help organizations understand where they currently are in their lifecycle, as well as which areas they need to focus on to achieve growth and to avoid unnecessary struggles.  These theories assist nonprofits to better evaluate their performance, and to implement strategies that help accomplish their mission, and overall they agree that the lifecycle of nonprofits consists of (1) inception, (2) growth, (3) maturity, and (4) decline stages.

The literature on capacity building and organizational effectiveness points out that there is no uniform way of achieving organizational growth.  Within the long list of key factors and their different permutations, some are repeated more often than the others and referred to in almost every theory.  These are: (1) mission, (2) leadership, (3) resources, (4) programs, (5) systems, and (6) management.  As expected, they are influenced by the external environment and the internal culture of the organization.

The recent literature on growth mostly analyzes the successful nonprofit organizations that have already reached maturity stage and high levels of performance.  They study the elements that contribute to the transition of high-impact organizations from ‘good to great’ to attain large-scale social impact.  These studies take into account (1) external impact, (2) right funding source, (3) replication, (4) adaptive capacity, and (5) public trust.  

For the purpose of this study, the researcher utilized the lifecycle theories primarily to look at the characteristics of growth, which is referred to as a transitional stage by most of the literature.  Furthermore, she investigated the key components of organizational effectiveness and capacity building theories and their relation to the organization’s life stages to see their impact on early-stage growth.  Finally, the researcher took into consideration the fresh approaches on evaluating high-impact organizations and correlated these with Community Volunteers Foundation and its criteria for success.