Time to compare apple with orange

Perhaps since the success of the Gates foundation, there has been a lot of voices to call for running a non-profit organization (NPO) like a for-profit one. The rationale behind is that NPOs are usually unaccountable to their financial supporters (i.e. donators) and may well waste a lot of money, a situation that is much better controlled, though not completely avoided, in for-profit organizations (FPO). Yet the synchronization of operation styles between the two may prove difficult because of one crucial difference between them -- the availability of a ultimate performance indicator (UPI).

What is the UPI for a FPO? Without doubt it is the profit they make for their investors. But for a NPO, the answer is much less clear. All we know is that it is not for profit, we do not really know what are they collectively for. The most sensibly answer will be to save the lives of those on the verge of dying and raise the quality of life for those not dying soon but still in need. Unfortunately, such a UPI is neither unique nor measurable.

And it is no good news. A unique and measurable UPI allows comparison of different organizations' performance on the same dimension: you can compare the performance of HSBC and Microsoft (although such a comparision may not be perfect all the time), but you cannot perform the same due diligence on Amnesty International and Oxfam. There is just no single dimension.

Economic theory tells us that when a company perform badly, the capital goes away to more efficient companies, balancing different companies' profit performance and reducing waste of capital. The same will not naturally happen in the non-profit sector. Hence, inefficient NPOs can survive for way longer than their counterparts in the for-profit sector because no one can easily catch their ineffieicncies by looking at their income statements or balance sheets.

A single, cross comparable UPI for NPOs will do great help to resource allocation since inefficient NPOs can be singled out and elminated. And niche NPOs which are making real impact will get more assess to donations, i.e. money does not only go to the big names.

To achieve this, an independent agency with sufficient authority and manpower can replace the role of profit indicator through assessing performance of every NPO, granting a rating/impact indicator to each of them and publishing report regularly on their performance. This is, however, not an easy task.