Managing Director & Senior Partner, BCG Henderson Institute Fellow
Related Expertise: Social Impact
Much has been written about how tough it is to pull off a major corporate transformation. But major change efforts are just as challenging for nonprofit organizations—perhaps more so because of the differences in structure, capabilities, funding, and governance. In the public and private sector alike, however, the board of directors often does not fully understand the scope of change, its challenges, and the level of risk. In my experience working with both corporate and nonprofit boards, a simple matrix that evaluates the complexity of and imperative to change can generate valuable discussions and drive clarity into the decision-making process and fiduciary responsibilities.
These discussions are especially useful for nonprofit boards. Unlike corporations, nonprofits often lack deep management strength, clear accountability, and strong financial incentives. Their governance structures also tend to be more complicated, often spanning different countries and cultures and involving networks of national boards that are made up of volunteer directors. Getting alignment among board members and keeping them informed of the challenges and progress is critical.
Having been on both sides of the board table, I’m acutely aware of the need for transparency in any change effort. In my experience, the more transparent the initiative is, the easier it is to focus the board on the most critical issues and risks. The matrix shown in Exhibit 1 is an effective tool for engaging the board and the management team in discussions around three critical questions: What is the imperative to change? How complex is the change? How much risk are we willing to take to achieve the change?
The vertical axis prompts a discussion of the imperative to change. Take, for instance, a proposal for a fundamentally different operating model. For an organization that's failing to achieve its mission or is rapidly losing ground to competing nonprofits, such a transformation might be urgently needed. But for an organization that is doing well, is flush with funding, and consistently increases the impact it delivers, such a fundamental change wouldn’t be urgent at all. The board might rightfully ask, If it’s not broken, why fix it? Because nonprofits are mission-driven, anything not perceived as mission-critical is unlikely to get the passionate backing of board member and management—and will ultimately collapse.
The horizontal axis has to do with how complex the proposed changes are. Factors that add to complexity include the number of dimensions to be changed, the degree of difficulty, the strength and alignment of the leadership team, the number of stakeholders affected, the scale of change, and the target time frame. Continuing with our previous example, putting in place a new operating model would be high on the complexity scale, typically involving new processes, new capabilities, new management, and even new sources of funding. By contrast, a simple cost-cutting program would be less complex and less risky.
But risk goes beyond the number of dimensions that a proposed change effort will affect. Without leadership commitment and focus, even an effort that lacks complexity can lose momentum and have a poor outcome. But the reverse is also true. A complex, highly challenging initiative has a greater chance of succeeding—and is actually less risky—when the imperative to change and commitment of leadership are strong.
Truly transformative change is always complex. But put that change into a global, multicultural, networked organization with a multilayered or federated governance system, and the complexity grows exponentially. It’s not surprising, then, that management and the board find it far easier to evaluate the case for change than the complexity of a proposed solution. That’s why these conversations are so important. As the matrix clearly displays, the acceptable level of change is a derivative of both the complexity of change and the need for change. Is the proposed effort worth the risk? This is what these explicit discussions must resolve. What’s more, undertaking this due diligence at the beginning saves second-guessing and fingerpointing later on.
Once the imperative to change and the complexity of the proposed change(s) are clear, the board and management are in a better position to evaluate how much appetite they have for risk—and whether the current organization and staff members can actually drive a positive outcome. Often, these discussions lead to a rethinking of how best to approach a transformation.
After plotting the proposed initiative(s) on the matrix and gaining clarity on the need for change, the best course of action, and the risks involved, management and board members can either align behind the changes or redirect management with suggestions for how to rethink the change efforts. Once a decision has been made to move forward, I recommend returning to the matrix on a regular basis. The discussions that it prompts should be ongoing, as a way to help evaluate the progress of different aspects of the change effort—and how management is coping.
Once there is full alignment on a path forward, the board should play an ongoing role as a supportive and effective partner to management and should get progress updates regularly. The most effective way for this to happen is for the board’s chair to reserve time in every board meeting for a frank and open discussion of the change initiative. The goal is to create a safe environment for the management and board to be bluntly truthful about the good, the bad, and the ugly. Cultural differences can discourage this degree of openness, but providing a safe, nonjudgmental environment can encourage greater transparency.
I recommend asking the same set of questions in each meeting, questions such as: Is the change on track? How accepting is the organization of the change? How is the change being communicated? Are there capability gaps among management and staff that need to be filled? Are larger implications for our strategy emerging? Is there anything more the board can do to ensure that the effort is successful? At each meeting, management should come prepared to share tools and proof points—such as a change scorecard with goals and milestones, employee engagement surveys, and communication plans. At the same time, the board must continually evaluate its comfort level with the changes underway, its confidence in the management team, and the implications of the organization’s overall governance model.
Whether in the public or the private sector, transformation is a high-stakes endeavor. With the degree of transparency outlined above and a commitment to open, ongoing discussions, the board and management can be true partners in change—and greatly increase the odds of success.