After a year of significant and unexpected changes in the overall landscape for international NGOs and their partners, 2016 ends on a note of uncertainty. While humanitarian, political, and funding challenges rightly garner attention, for the InsideNGO community, these challenges also bring into focus the key questions on our shared agenda: How do we maximize the value of essential operational capabilities to support and sustain our programs? How can we do this with perhaps fewer, or different, resources? How do we maintain hard-won gains in operational excellence?
A recent McKinsey article, entitled Maximizing The Value of G&A, offers some insights from commercial entities facing similar challenges in managing general and administrative expenses (G&A) for greater value. This article notes the growing strategic role of operations: “increasingly, G&A functions (such as IT, HR, and finance) house some of an organization’s most important work, including enabling digital innovation, finding and developing key talent, and allocating scarce resources.” The expertise and significant value provided by InsideNGO’s finance, HR, and IT professionals certainly reflect this growing recognition and importance.
Despite this growing recognition of operations’ strategic value, managing the associated risks, costs, and complexity in these areas remains a priority. The McKinsey article notes that “complex structures and processes are the primary contributors to G&A costs: that is, the number of business units in a company can contribute significantly to such costs, and the number of regions where a company operates can contribute, as well.” Compared with international businesses, the inherent complexity of global NGOs can be even higher. In many organizations, multiple programs, geographies, stages of evolution, and donors make the issue of managing complexity especially daunting, especially when combined with the often more limited funding available for indirect costs.
So what can be done? As we work together across our community in our areas of expertise, we have the opportunity to share practices that better align operational capabilities with impact. As the article suggests, one way is to adopt approaches to focus investment on high-value added activities within functions while minimizing costs in transactional activities. Of course, this balance will be different for different types of NGOs. For example, Bridgespan’s earlier work this year on Pay What It Takes Philanthropy highlighted that indirect costs for different types of NGO operating models can vary significantly, depending upon whether the organization is managing international networks, providing direct services to people in need, or doing research or advocacy work.
Operational excellence is grounded on five fundamentals that we know make a difference in good times and more challenging times: understand your operational costs and their drivers; reduce operational and process complexity where possible; manage the balance between high value and transactional activities in operational functions; leverage outside partners and networks for support; and continue to enhance your operational capabilities to meet new needs. Doing this is never easy, but even more essential in a changing environment.
As we look ahead to 2017, we will share the insights, creativity, and innovation from our community in our expert roundtables, senior leader forums and in the online member community. In this time of change, this generous sharing of expertise of the InsideNGO community is even more valuable. Thank you for your many contributions to strengthening the operational excellence across our community.