Nonprofit Capacity: A guide for foundations

Foundations, technical assistance organizations, and government programs often claim to promote nonprofit capacity. But, many times, it’s not clear what they mean. 

Merriam Webster defines capacity as “the facility or power to produce, perform, or deploy.” Nonprofit capacity is the facility of nonprofits to produce, perform, or deploy their resources. It’s not the same as effectiveness. Instead, it describes the ability of a nonprofit to accomplish its organizational goals and mandates. Efforts to improve nonprofit capacity focus on bettering organizational practices and processes.  

Some people mistake nonprofit capacity with revenues or assets. Others use the term generically to refer to any training designed to help nonprofit professionals improve what they do. NNSI research has identified eight essential nonprofit capacities:


Adaptive capacity refers to the way organizations adapt to changes in their environment.
Financial management refers to a nonprofit’s competence in managing their
Strategic planning refers to the creation, follow-through, and evaluation of plans for the nonprofit’s future activities.
External communication capacity describes the ability of nonprofits to engage stakeholders, mainly through publications and marketing.
Board leadership refers to the board’s commitment, involvement, and decision-making within the organization. 
Operational capacity includes the existence and use of documented procedures as well as program planning and evaluation.
Mission orientation describes stakeholders’ common orientation towards the organization’s mission and purpose.
Staff management reflects employee needs for information, training and mentoring, and management’s ability to respond to these needs.


What do we know about the best practices for capacity building? There are five key lessons for foundations.

1) Choose which capacity that you are focusing on when developing programs. Focus your efforts on one capacity at a time. Focusing on more than one capacity will dilute your efforts and make it less likely that the nonprofits you serve will increase any of their capabilities as a result.

2) Recognize that individual learning rarely translates into organizational capacity building. Leaders can and should continue to learn as a result of their professional development (here is a free professional development resource). Although professional development is essential, it’s not the same as nonprofit capacity building.

Nonprofit capacity building requires new knowledge to be paired with new resources and then implemented into the routines of the organization. The most effective foundation programs to grow nonprofit capacity combine technical assistance, training, and small grants to achieve the change. For example, the Fundraising Capacity Building Initiative, a joint program of a local foundation and the Kellogg Center for Nonprofit Management, combined training with a paid coach to work with the nonprofit. Nonprofits who participated were eligible for grant programs to buy the donor management software. The combination enabled the nonprofit to translate the knowledge that professionals were learning in the classroom into actual practices in their organizations. 

3) Assessments are a crucial element of capacity building. They help program leaders identify the areas of greatest need and design programs to address deficiencies in nonprofit management. Foundations we have worked with over the past several months have asked if nonprofits can be trusted to be honest about their capacities, especially when completing self-administered assessments like the nonprofit capacities instrument (available for free here). It depends on how foundations use the tool. If used to determine which nonprofit will receive funding, then there are incentives to make the nonprofit look better on paper than it is. However, if the assessment is used as the baseline for a nonprofit capacity building program to determine the greatest needs, our experience suggests that its a valuable tool. 

4) In one of the few studies of effective nonprofit capacity building, Paul Light finds that nonprofits who spend more time planning tend to be more successful in their efforts. For foundations, this leads us to recommend that foundations require nonprofits to develop a robust plan for capacity building. They should create a proposal, approved by the nonprofit board of directors, to enter the capacity building program. It should have specific and measurable goals and highlight the time and resources that the nonprofit will dedicate to achieving the goal. The process of creating a concrete plan will improve the likelihood that capacity building program participation will translate into measurable results for nonprofits. 

5) Foundations should dedicate resources to measuring their capacity building program’s effectiveness. We don’t mean satisfaction surveys of participants. Instead, program effectiveness needs to be assessed by the concrete outcomes that nonprofits that participate in the program can achieve. Gains in nonprofit capacity should result in increases in outcomes. Staff management capacity should result in higher retention of staff. Financial management capacity should result in higher working capital ratios. When foundations hold themselves accountable for their programs, they encourage their grantees to engage in the same behavior.

Nonprofit capacity building is important. Healthy and high-functioning nonprofits are responsible for many essential services and programs around the world. By being clear about what we mean by nonprofit capacity, being specific about the capability in focus, and following a few clear guidelines, foundations can catalyze nonprofit effectiveness.