You have looked at greatness primarily in the business world. How do you define it in the social sector?

For any institution to be great, whether it be a great university, a great public school, a great orchestra, it must have three things that it accomplishes. First, it must deliver great results relative to its mission and ever-increasing positive results relative to its mission. Second, it must make a distinctive impact on the communities that it touches—that if it were to disappear, it would leave an unfillable hole. And third, it has lasting endurance—it’s able to do this through multiple cycles of programs and funding and leaders.

What can donors do to encourage nonprofits to greatness?

Let’s talk first about what they should not do. It’s the wrong answer to come in and say, “As a nonprofit you should run like a business.” The key is to understand that the disciplines of greatness are not about business. There are mediocre businesses just as there are great businesses, and the critical difference is not the difference between business and nonprofits, but between great and good.

You talk about using standards to encourage greatness. Venture philanthropists have been looking for quantifiable results for years now. How would you distinguish the two approaches?

I don’t want to say that I am standing at odds with them, because I’m probably not. The critical thing is to have the discipline when you’re running a nonprofit to be able to say, “This is our output result: artistic excellence” or “It’s how well our kids are reading.” A great company expects more of itself than its investors do. A great nonprofit should expect more of itself than its outside donors do. A culture of discipline means we are so ferociously neurotic about delivering exceptional results that we’re going to measure it. A culture of discipline can only be self-imposed; if you need an external force for discipline, you will never be great.

So how should donors engage in a productive conversation with nonprofits about measuring results?

As a donor, you have to challenge them and expect evidence of results. If somebody says, “Well, we can’t measure artistic excellence,” say, “OK, I accept that we can’t measure artistic excellence, but I still need you to give me evidence.” The key is to realize that all measurements are flawed, even business measurements. But the critical thing is to ask four questions: What do we mean by great performance? Have you established a baseline? Are you improving? And how can you improve even faster? It doesn’t matter whether it is perfectly measurable; the critical term is “trajectory.”

Some philanthropists scale their gifts according to performance, and some give themselves an out if they’re not seeing progress. Is that ethical?

If you think about it like investing, you scale your investment to some extent based on performance, too. There doesn’t seem to be any inherent problem with that. As a donor, I want to be religious about results. I learned this from one of my mentors, Peter Drucker: Good intentions are no excuse for incompetence. And in the end, what matters are results and impact. And if some well-intentioned organization is not delivering, then the critical question is: Do you have the right people running it?

Is employing some type of performance-based funding
an incentive?

You can never use incentives to turn the wrong people into the right people. We didn’t find any evidence [in Good to Great] that executive compensation drives performance. The right people will do everything they can to produce great results because it’s part of their DNA.