European Centre for Development Policy ManagementCentre européen de gestion des politiques de développement

John SaxbyPretoria, South Africa

A note on capabilities thatcontribute to the success of non-governmental organisations

Niloy Banerjee

A case study prepared for the project ‘Capacity, Change and Performance’

Discussion Paper No 57PJuly 2006

Analysis

The lack of capacity in low-income countries is one of the mainconstraints to achieving the Millennium Development Goals.Even practitioners confess to having only a limitedunderstanding of how capacity actually develops. In 2002, thechair of Govnet, the Network on Governance and CapacityDevelopment of the OECD, asked the European Centre forDevelopment Policy Management (ECDPM) in Maastricht, theNetherlands to undertake a study of how organisations andsystems, mainly in developing countries, have succeeded inbuilding their capacity and improving performance.Theresulting study focuses on the endogenous process of capacitydevelopment - the process of change from the perspective ofthose undergoing the change.The study examines the factorsthat encourage it, how it differs from one context to another,and why efforts to develop capacity have been more successfulin some contexts than in others.

The study consists of about 20 field cases carried out accordingto a methodological framework with seven components, asfollows:• Capabilities: How do the capabilities of a group,

organisation or network feed into organisational capacity?• Endogenous change and adaptation: How do processes of

change take place within an organisation or system? • Performance:What has the organisation or system

accomplished or is it now able to deliver? The focus here ison assessing the effectiveness of the process of capacitydevelopment rather than on impact, which will be apparentonly in the long term.

External context Stakeholders

Internal features andresources

External intervention

The simplified analytical framework

Co r e va r i a b l e s

Capabilities

EndogenousChange andadaptation

Performance

Study of Capacity, Change and PerformanceNotes on the methodology

• External context: How has the external context - thehistorical, cultural, political and institutional environment,and the constraints and opportunities they create - influenced the capacity and performance of theorganisation or system?

• Stakeholders:What has been the influence of stakeholderssuch as beneficiaries, suppliers and supporters, and theirdifferent interests, expectations, modes of behaviour,resources, interrelationships and intensity of involvement?

• External interventions: How have outsiders influenced theprocess of change?

• Internal features and key resources:What are the patternsof internal features such as formal and informal roles,structures, resources, culture, strategies and values, andwhat influence have they had at both the organisationaland multi-organisational levels?

The outputs of the study will include about 20 case studyreports, an annotated review of the literature, a set ofassessment tools, and various thematic papers to stimulate newthinking and practices about capacity development.Thesynthesis report summarising the results of the case studies willbe published in 2005.

The results of the study, interim reports and an elaboratedmethodology can be consulted at www.capacity.org orwww.ecdpm.org. For further information, please contactMs Heather Baser (hb@ecdpm.org).

A note on capabilities that contribute to the success of non-governmental organisations

Niloy Banerjee

A case study prepared for the project 'Capacity, Change and Performance'

July 2006

iii

Contents

Acronyms iv

1 Background 1

2 Observations 2

2.1 The overall capacity for survival and sustainability 22.2 Capability for being ‘donor savvy’ 2

2.3 Capability for mapping a growth path 2

2.4 Capability for approaching the funding issue tactically 3

2.5 Capability for acquiring the trust of donors 3

2.6 Capability for fostering legitimacy 3

2.7 Capability for political neutrality 3

2.8 Capability for ‘thinking outside the box’:key innovations 4

2.9 Capability for harmonising diverse group identities and ambitions 4

2.10 Capability for delivering on diverse donor and (national) statutory requirements 4

3 Conclusions 5

References 7

The European Centre forDevelopment Policy ManagementOnze Lieve Vrouweplein 21NL-6211 HE Maastricht, The Netherlands Tel +31 (0)43 350 29 00Fax +31 (0)43 350 29 02info@ecdpm.org www.ecdpm.org

DAC Development Assistance Committee (of the OECD)BRAC Bangladesh Rehabilitation Assistance Committee ECDPM European Centre for Development Policy ManagementGDP gross domestic productGOVNET DAC Network on Governance and Capacity DevelopmentNGO non-governmental organisationODA overseas development assistanceOECD Organisation for Economic Co-operation and DevelopmentPRIA Society for Participatory Research in AsiaPREM Poverty Reduction and Economic Management Network, IndiaVHAI Voluntary Health Association of India

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Acronyms

This paper draws primarily from the experiences ofNGOs in the South Asia region, i.e. medium-sized tolarge organisations with annual budgets of a quarterof a million dollars and above, and employinganywhere between 25 and several hundred people. Itis meant to be a collection of a general – freewheeling– set of observations on what ‘capacities’1 distinguishsuccessful NGOs. It deliberately does not dabble inthe contested ‘definitions’ of success, e.g. size versusnumbers, service delivery versus generalempowerment, impact versus funding available, etc.,but seeks to find some easily discernible features thatcharacterise NGOs that are deemed ‘good’ or‘successful’ in the court of public perception.

This paper also does not go into the complexity ofcontext but makes a link between context and theevolution of capacity. In reality, context is a far morecomplex shaper of destiny an NGO, the exploration ofwhich is outside the remit of this piece. For instance, itwould be pertinent to ask whether the ‘Grameenmodel’ of microcredit services works in a country lessdensely populated than Bangladesh, and to explorethe reasons why/why not.

Finally, this paper makes some broad generalisations.So, for every example cited, there is likely to be anexception in a different setting. There is no pretenceof postulating the next big axiom of capacitydevelopment, but hopefully the paper may providehelpful pointers that fit into a larger effort.

1. Background Non-governmental organisations (NGOs) areincreasingly important actors in the field ofdevelopment. They are diverse, in terms of theirorganisational form, structure and culture, and theissues they address. Correspondingly, the capacitiesthat NGOs need in order to deliver on their mandaterange across a broad spectrum. When asked, NGOsthemselves list an interesting set of capacities thatthey believe make them sustainable and effective.

This paper is a contribution to the wide-ranging studyon Capacity, Change and Performance beingundertaken by the European Centre for DevelopmentPolicy Management (ECDPM) under the aegis of theNetwork on Governance and Capacity Development(GOVNET) of the OECD’s Development AssistanceCommittee (DAC). The wider study, which is groundedin 16 case studies across the globe, aims to provideinsights into how external organisations can bestsupport endogenous capacity developmentprocesses. Through experiences drawn from theindividual case studies, the study seeks a betterunderstanding of the meaning of capacity, of thecomplex relationship between capacity andperformance improvement, and of the processesthrough which capacity is developed.

The analytical framework developed to guide theconduct of the case studies (see ‘Notes onmethodology’ on the inside front cover) adopts asystems perspective, and identifies seveninterdependent dimensions: the external context,stakeholders, internal features and resources, externalintervention, capacity, endogenous change andadaptation, and performance.

This paper is not based on a case study as describedabove, but emerged from research undertaken as partof a broader assessment of capacity developmentacross a wide range of contexts and organisations.The paper looks at NGOs from the inside out – thecapacities that NGOs themselves consider critical totheir effective functioning. With NGOs deliveringapproximately 12% of global flows of aid andtechnical cooperation, it is clearly useful tounderstand their workings and dynamics.

Notes1 This paper uses the terms capacity and capability. Capacity

is used in the general sense of the overall ability of anorganisation or system to perform, whereas capabilitiesrefer to specific abilities that organisations or systemsdevelop in order to carry out their work.

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2 Observations2.1 The overall capacity for survival

and sustainabilityThe capacity for survival is one of the fundamentalcapacities that distinguish successful NGOs. Anorganisation that has to worry about paying nextmonth’s rent is unlikely to be able to fulfil its missioneffectively, but is more likely to suffer from significantdistractions. In a recent paper, a group of NGO leadersfrom around the world put ‘sustainability’ at the topof a list of eight challenges faced by civil societyorganisations.2

The implications for capacity are straightforward. Theleadership must ensure not only that theorganisation survives in the short run, but also that itis sustainable in the longer term. So there is a needfor capacities to execute programmes and to keepbuilding the institution by hiring quality staff,deploying systems and hardware and, therefore,finding predictable and sustained sources of funding.In NGOs, as in other organisations, staff membershave legitimate concerns about their jobs andsecurity of pay. Organisations that cannotdemonstrate positive growth are likely to lose theirstaff, with the best ones usually departing first.Conversely, if the leadership is able to deliver on theabove, the organisation is usually well placed toperform effectively in accomplishing its core mission.

The Dutch international development organisationCordaid, for example, instituted a system of blockgrants for its long-term partner organisations inSouth Asia for up to ten years. Under thisarrangement, Cordaid and its partners agreed onbroad categories of activities for which the fundswould be used. The actual breakdown and sequencingof the use of such funds was left to the implementingNGO on the ground. This arrangement providedwelcome predictability for the NGOs and allowedtheir leadership to focus on being effective. Thepositive correlation between the predictability ofresources and sustainable capacity development isnow clearly coming through in official developmentassistance (ODA) relationships as well. The ParisDeclaration on Aid Effectiveness3 listed thepredictability of ODA flows as a key challenge.

The capacity for survival and sustainability is acomplex capacity, but it is possible to identify some ofthe constituent capabilities that underpin this largercomplex. An indicative listing is provided in thefollowing.

2.2 Capability for being ‘donor savvy’The above example is predicated on an existingrelationship between the resource provider and theNGO(s) in question. The leadership of successfulNGOs often tend to have a reasonable level of contactwith their donors and a relationship of equals withkey staff at donor agencies. This ensures a level ofcomfort on both sides; it is not uncommon to finddonors lining up behind a leader because of this‘comfort’, irrespective of the leader’s managementstyle. Senior leaders of many South Asian NGOs –Sarvodaya in Sri Lanka, BRAC in Bangladesh, MYRADAin India, for example – have long-establishedrelationships of trust and cooperation with theircounterparts in donor agencies. Such relationshipswork to the benefit of both parties. This issue isexplored further later in the paper.

2.3 Capability for mapping a growth pathSuccessful NGOs are distinguished by the fact thattheir leaders have a very clear mental model of theorganisation and its mission throughout its life cycle.This mental model allows them to retain a degree offlexibility to add modules as opportunities arise, i.e. toreap the benefits of windfalls. In India, for example,where the rapidly globalising economy led to theadvent of large numbers of private corporations inthe 1990s, many NGOs have become increasinglyopen to partnerships with the private sector despitemany having had long-standing ideologicalopposition to using private capital. In another genre,NGOs like SEARCH in Bangalore, India, recognised theearly signs that there was an emerging hunger forunderstanding management and capacity issueswithin NGOs. In response, SEARCH – already anestablished NGO – positioned itself as a thoughtleader on issues of management effectiveness. ManyNGOs are now willing to draw on the expertise ofSEARCH to make their own management andoperations more effective.

Notes2 Paper of the Civil Society Group, First meeting of the

Resource Network on HIV/AIDS, Johannesburg, UNDP, 2003.3 Paris Declaration on Aid Effectiveness, OECD, 2005.

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2.4 Capability for approaching the fundingissue tactically

Most donors’ internal policies allow for very littlesupport to grantees for institution building. Somedonors do not provide funding beyond two years.Some do not fund infrastructure. Others do notbelieve in funding a general support endowment. Yetan NGO leader has little choice but to think in termsof buildings (to avoid recurring rents), vehicles,salaries with steady increments (to retain competentstaff), a provident fund (a common staff demand incountries with no state social safety net), accidentinsurance, and so on. Then there is the need todemonstrate a possible career growth path toemployees – again, with the aim of retaining the best.

Such demands require the leadership of NGOs to betactical in seeking donors, hedging risks andspreading costs among donors in a manner that takescare of the ‘unfundables’. Besides these capabilities,the leadership needs to have a good ‘antenna’ forassessing the general funding environment andfinding niches that will enable the NGO to seize toseize potential funding opportunities, So, forexample, many Indian NGOs will consider developingor expanding their urban-focused programmes, asrapid urbanisation with its attendant problems islikely to attract more funding towards that sector.

The above arguments are finding vindicationelsewhere. The emerging literature on the privatesector confirms such a strategic approach to creatingroadmaps for building successful companies. In anongoing research project to determine how ‘greatcompanies consistently outperform their rivals’,Accenture reports that, inter alia,‘High performancebusinesses exhibit remarkable clarity in strategicdirection. They always seem to be in the right place atthe right time. As markets mature, they’re ready withthe next big thing … high performers use theirinsights not just to serve markets but also to createthem’.4

2.5 Capability for acquiring the trust of donorsSuccessful NGO leaders often demonstrate thecapability to convince donors to allow them a certaindegree of flexibility concerning how their funding isused. This could entail, say, the discretion to divertfunds from an established programme in order todeal with an emergency (e.g. floods), or to commitresources to an activity that seems justifiablyimportant although not part of the agreed planbetween the NGO and the donor.

A staff member fell ill with fever that was diagnosedas influenza by the local doctor in the small townwhere the NGO is located. After two weeks ofmedication, the man’s condition deteriorated to thepoint that he could no longer walk. Sensingsomething more complicated, the leader used projectfunds to transport the staffer to a specialist hospitalin a nearby city, where he was diagnosed and treatedfor meningitis. This had a powerful impact on themorale of the organisation and on its programmes,thus balancing out the cost to the project.

2.6 Capability for fostering legitimacySuccessful NGOs have an informal sphere ofcredibility among the constituencies they serve. Fortheir constituents, NGOs embody the optimism thatthe prevailing – often gloomy – status quo willchange. This legitimacy5 comes from demonstratedcapabilities in a number of areas, includingintellectual capability (e.g. PRIA), the capability formass mobilisation and empowerment (e.g. EktaParishad), for challenging the status quo (e.g. EktaParishad, Rachna), for ensuring a stable organisation(PRIA, PREM, VHAI), and so on. Internally, thelegitimacy derived from imagery (e.g. the leadertravels overseas, meets many important people,knows many donors on first name terms, etc.) alsoplays an important part.

2.7 Capability for political neutralityIn India, part of the legitimacy of an NGO as describedabove derives from the capability for maintainingbalance while keeping an equal distance frompolitical parties of every hue, while engaging in workthat is essentially political in nature. There is a caveat,however, in that the need to be neutral is highlycontext-specific. Development-oriented NGOs inIndia, where public scrutiny of neutrality is arguablygreater, need to demonstrate political neutrality.

Notes4 www.accenture.com/findings 5 Among the findings of the ECDPM study is the role of

organisational legitimacy as a factor in successful capacitydevelopment and performance. See the reflection paper byD. Brinkerhoff, 2005. Organisational legitimacy, capacity andcapacity development. ECDPM Discussion Paper 58A.

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Elsewhere in South Asia, as in Pakistan andBangladesh, an element of political dexterity is moreimportant than strict neutrality.

In India, the Ford Foundation went through a long anddetailed process to find a host institution for a centrefor budget analysis that it wanted to initiate. It finallysettled on a well known NGO in Gujarat.Subsequently, the leader of the NGO contested, andwon, an election on a Congress Party ticket that madehim a member of the Indian Parliament. The FordFoundation – broadly reflecting the concern forneutrality – immediately moved the centre for budgetanalysis to another NGO. Contrast this with the factthat NGOs in Bangladesh routinely have politicalsympathies and these are well known to theirconstituencies and peers.

This diversity goes to show how the emergence ofcapacity is context-specific. NGOs in Bangladesh, atleast the large ones, are significant players in theoverall social fabric. They are among the largest non-farm employers, and they command significantresources. Leaders of the larger NGOs are among thecrème de la crème of Bangladeshi society, and theiroutreach to millions of people means that they havetheir own mini-constituencies. Admittedly, these arenot politically aligned constituencies, but they canand do absorb messages that lie at the intersection ofpolitics and development. It is therefore notuncommon for these NGOs to be pushed in adirection where they develop relationships of mutualinfluence with political bodies. In India, where NGOscommand far fewer resources and smallerconstituencies relative to the GDP and thepopulation, respectively, relationships of a politicalnature are less evident.

2.8 Capability for ‘thinking outside the box’:key innovations

Over the decades, for many NGOs, successfulorganisational performance has hinged on a keybreakthrough in either a concept or process.Sometimes it has concerned a novelty in the extent towhich the NGO ‘tweaks’ an existing, and acceptedparadigm, or in some cases turning it on its head.These innovations have then been taken to scale byothers who have adopted the breakthroughs andmainstreamed them.

Some examples that fall in this category include theGrameen Bank’s innovation of lending based on theguarantee of peer pressure rather than on materialcollateral. NGOs in Bangladesh, Thailand and Indiahave used religious leaders to spread successfulcontraception messages. In Brazil, Bolsa Escolaintroduced the innovation of paying mothers thesubsidy for education rather than the school system.

Such innovations also have implications for thelegitimacy of the leader. Often, the leader is the oneto whom the staff turn to when faced with anintractable problem. This pressure has often led topath-breaking, locally appropriate innovations –sometimes with globally acclaimed results.

2.9 Capability for harmonising diverse groupidentities and ambitions

In a number of countries in Asia and Africa, the highlystratified nature of society is reflected among thepoor. The poor continue to have factional, i.e. caste-based, tribal or ethnic identities that detract fromtheir primary aspiration of moving out of poverty.These also create competing interest groups amongthe poor that dilutes their advocacy capacity orcapacity to demand their rights.

The capability to manage disparate group ambitionsand to harmonise them under a general plan formoving out of poverty is a key requirement for asuccessful NGO.

2.10 Capability for delivering on diverse donorand (national) statutory requirements

Successful NGOs are characterised by an amazingdepth of capabilities within their administrativestructures to enable them to deliver on diverse donorand national government requirements.

As in the world of bilateral and multilateral aid,donors who support NGOs impose multiplebudgeting, reporting and auditing requirements ongrant recipients. Within donor agencies, differentdepartments may have different reportingrequirements. For example, a programme officer maydemand that an NGO submits a narrative reportstressing programme impact, the grantsadministrator may require a completed grantutilisation form (usually complex), while the accountsdepartment may require its own financial report.

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Further, different donors have different reportingformats, different monitoring methodologies, anddifferent formats for written reports. What is more,the NGO may not be allowed to use more than, say,10% for administration and overheads. This willinclude the salaries of the accountant, theadministrator, the executive director and programmeofficers. All this is further complicated by ‘evaluation’visits when donor staff and consultants descend onthe organisation to evaluate a particular programme.

National governments also demand that NGOscomply with domestic statutory regulations. In India,for example, this includes preparing and filing anaudited balance sheet, a form for the Ministry ofFinance on grant utilisation (including grants from allsources) to prevent grants being treated as ‘income’and hence attracting income tax, and a disclosure tothe Ministry of Home Affairs specifying the amounts,sources and end uses of all funds of foreign origin.Each of these is a complex exercise. In addition, NGOstaff need to make frequent visits to governmentoffices in order to secure the release of tranches ofagreed grants.

3 ConclusionsSo, what conclusions can be drawn from thisindicative list of capabilities? The desires to surviveand to be effective are presumably the high-end goalsof any NGO. There are capacities that an NGO needs toachieve these goals. It is possible to unravel, albeitpartially, some of the smaller capabilities that add upto that complex of capacities. But tracing correlationsand causal relationships remain outstandingchallenges, for a number of reasons, including factorsrelated to the context, to complex cycles, toexternalities or unintended benefits, etc.

It is possible to flag certain points for discussion,although these need further confirmation fromstatistical and other evidence:

Context plays a significant role in shaping capacities.Successful organisations have an almost Darwinianability to evolve capacities that will best ensure theirprobability of achieving their high-end goals. Thedifferences in the evolved capabilities of Bangladeshiand Indian NGOs provide a very good illustration.While in the Indian context NGOs have to be capableto operate as politically neutral organisations,Bangladeshi NGOs need to be able actors in thepolitical arena.

To support the idea that the capabilitiesdemonstrated by the leadership of an NGO are strongfactors in determining how successful it is, this paperhas highlighted the range of capabilitiesdemonstrated by the leadership of successful NGOs.Successful NGOs and their leaders often mirror eachothers’ personalities – a large number of instances inSouth Asia demonstrate a correlation between astrong visionary leader or group of leaders andsuccessful organisation building.

The capacity issue must be conceived of andaddressed as a cyclical process rather than linearcause and effect constructs. Clearly, as an NGO‘delivers’, it earns trust, and as it does so, that opens itup for more predictable funding, and discretion in theuse of those funds that accords it the space to explorenew ideas. As it tries out new ideas, it may chanceupon breakthrough innovations. As these innovationstake hold, the NGO attracts more interest both fromdonors and clients, which in turn sets it up for

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loops. The more comprehensive the better. The task ofsenior management would then be to steer theorganisation in the direction of virtuous reinforcingloops and avoiding getting trapped in viciousreinforcing loops.

As in many other disciplines, capacity development isoften an outcome in the nature of what economistscall unintended benefits. It is possible to cite manyinstances where capacity development occurs as anunintended benefit of planned organisationalprogramming. Equally, there are many instances ofcapacity development that are intended as a bonafide corollary of an organisation’s plans to move intonew areas of programming. It is fair to say thatcapacity development occurs as a result of bothplanned and unplanned outcomes.

It is often a combination of all of the above factorsthat come together to create a successful NGO.

operations of a larger scale with potentially greaterimpact. So it is not one cyclical strand that makes for asuccessful capacity outcome. Multiple strandsgenerate themselves and come together in virtuouscycles of capacity development that gather speed asthey go along. Although this study has not analysedfinancial data to such end, this gathering of speedmay explain why successful NGOs often go through aphase of explosive growth – a relatively short periodof 5–7 years when they attract considerable resourcesand staff – before they enter a period ofconsolidation.

Such an explanation of capacity would be consistentwith the notion of a positive feedback loop in systemstheory. For the successful NGOs described above afeedback loop would look somewhat like that shownin figure 1. Each of the loops (R) – money, staff(people) and experience (learning by doing) – havegenerated themselves and continue to be fed byreinforcing actions (+). The key capacity question hereis whether such loops can be anticipated, at least inpart. If the answer is yes (and systems thinking isabout anticipating such loops), then it would seemthat a key element of capacity would be the ability toconceive of this complex construct of cause and effect

Figure 1. A positive feedback loop.Source: Courtesy UNDP-Lead International Young Leaders in Governance Initiative

Funds Available

NGO cumulativeexperience

Capacity toAchieve results

NGO achieving results

Reputation

Money R

PeopleR

learningby doing

R

qualityof staff

+

++

+

+

+

+

+

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4 ReferencesBrinkerhoff, D.W. 2005. Organisational legitimacy, capacity and capacity development. Reflection Discussion

Paper 58A. Maastricht: ECDPM.

OECD. 2005. Paris Declaration on Aid Effectiveness. High Level Forum. Paris: OECD.

UNDP. 2003. Paper of the Civil Society Group. First meeting of the Resource Network on HIV/AIDS, Johannesburg.

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The European Centre for Development Policy Management (ECDPM) aims to improve internationalcooperation between Europe and countries in Africa, the Caribbean, and the Pacific.

Created in 1986 as an independent foundation, the Centre’s objectives are:• to enhance the capacity of public and private actors in ACP and other low-income

countries; and • to improve cooperation between development partners in Europe and the ACP Region.

The Centre focuses on four interconnected themes:

• Development Policy and EU External Action• ACP-EU Economic and Trade Cooperation• Multi-Actor Partnerships and Governance• Development Cooperation and Capacity

The Centre collaborates with other organisations and has a network of contributors in the European and theACP countries. Knowledge, insight and experience gained from process facilitation, dialogue, networking,infield research and consultations are widely shared with targeted ACP and EU audiences throughinternational conferences, focussed briefing sessions, electronic media and key publications.

This study was undertaken by ECDPM in the context of the OECD/DAC study on Capacity, Change andPerformance and financed by the Canadian International Development Agency (CIDA), the UK Department forInternational Cooperation (DfID) and the Swedish International Development Agency (SIDA)

The results of the study, interim reports and an elaborated methodology can be consulted atwww.ecdpm.org/dcc/capacitystudy. For further information, please contact Ms Heather Baser(hb@ecdpm.org).

ISSN 1571-7577 The European Centre forDevelopment Policy ManagementOnze Lieve Vrouweplein 21NL-6211 HE Maastricht, The Netherlands Tel.: +31 (0)43 350 29 00Fax.: +31 (0)43 350 29 02info@ecdpm.org www.ecdpm.org