F E A T U R E | By Steven A. Reed, Chairman/CEO, Marketing Partners Inc.

HEALTHCARE PHILANTHROPY JOURNAL / FALL 2012

Applying performance improvement principles to healthcare fundraising

A recent confidential study conducted within five major nationwide faith-based health systems revealed that the chief executive officers (CEOs) believe, on average, that they are raising half or less of the money they should be able to raise.

“Those same CEOs expressed optimism about how much their organizations’ philanthropy will improve. All but a handful expect to raise more money in the future — but they provided little rationale for this confidence other than that the need for philanthropy is increasing and the economy is likely to improve.

Hope appears to be their primary strategy for increased success in fundraising.

Hoping for better results doesn’t work. Hospital leadership must invest in building an organization that focuses on high-performance fundraising.

Adopting quality principles

Today, hospitals are embracing process as the key to improving quality, safety and costs, and they are beginning to adopt the quality improvement principles used in manufacturing, such as those employed in Toyota’s “Lean” and GE’s “Six Sigma” programs.

A Lean organization strives to cut waste and increase value for customers by creating an efficient flow of products and services. Six Sigma is a disciplined, data-driven approach to eliminate defects in any process. When you combine the methodologies, Lean Six Sigma emphasizes speed, reduced waste and making the best use of resources through a powerful data-driven system.

Virginia Mason Medical Center in Seattle — which, in 2011, was once again named a “Top Hospital” by the healthcare improvement coalition “The Leapfrog Group” — is known for applying Lean methods to improve healthcare services. Taking performance improvement even further, Virginia Mason has also applied Lean methods to fundraising — with excellent results.

“The Virginia Mason Foundation was raising $7 million annually in 2002 when its health system adopted Lean as a key transformation strategy. In its presentation at an AHP conference in 2011, the foundation reported raising $15 million to $20 million per year with a staff of 24 and an annual budget of $3 million, as well as dramatically reducing “time in process” for major gift solicitations, citing an average of less than one year and a 90-percent completion rate from prospect identification to solicitation.

We’ve seen similar results with our clients, first with the development of the “Core Process” — an early implementation of Lean principles — at the Florida Hospital Foundation, which, in 2007, completed a $100-million campaign over goal and a year early.

Do the math

Most hospital fundraising programs are underfunded and underperforming. And although performance improvement initiatives are increasingly common in hospitals, they are rare in hospital fundraising operations.

If you do the math, it’s clear that investing in fundraising operations can really pay off. To demonstrate, let’s compare investing in philanthropy with investing to build service line volume. Although profit margins vary from hospital to hospital — with many struggling to make two or three percent —  for the sake of comparison let’s assume that your hospital is netting five percent from service line operations.

Fundraising costs vary, as well. Taking into account development staff time and associated expenses, the true cost can be as low as 20 cents per dollar raised, or less, in highly effective fundraising operations. Costs can be  significantly higher in fundraising operations that do not yield a good return on investment. Let’s assume your hospital’s fundraising operation is running a 25 percent cost ratio.

Based on these assumptions, what’s the result if we invest $1 million to increase service line revenue and another $1 million to increase philanthropic revenue, and both efforts are successful? Through philanthropy, you need to bring in $4 million in gifts to put $3 million on the bottom line. Through service line operations, you need to earn $60 million in revenue to get the same bottom line results.

So if you put a fundraising performance improvement initiative in place, and it yields an additional $4 million in philanthropy, you achieve the same bottom line impact as increasing other revenue by $60 million — or even more, depending on the service line’s operating margin and the hospital’s fundraising costs.

Basics of performance improvement

It’s difficult to boil down to a few paragraphs how to apply Lean Six Sigma principles so fundraising processes are more effective and effort is not wasted. Here are a few basic steps:

Focus on major gifts.
A key principle of Lean is flexibly placing resources where they will generate the most value. Of course, you need a complete pyramid of fundraising strategies and methods, but if you focus on maximizing your major gifts program you can significantly increase your return on investment. A mark of a high-performing operation is a revenue mix of about 80 percent major gifts, which in number make up about 20 percent of total gifts.

Define your processes for relationship development from first introduction through gift agreement and into stewardship.
In Lean Six Sigma lingo this is called mapping your value stream. Essentially, you block out on paper all the key steps involved in the major gift process. Then go back and identify all the activities that take place between the key steps. Pinpoint the steps and activities that do not bring actual value to the process. Can any of these be eliminated? Automated? Reassigned?

Shorten the solicitation process.
This equates to the Lean Six Sigma concept of cutting waste and shortening cycle time, with a “cycle” being the time from the beginning to the end of a process. In a typical fundraising operation, a development officer might have a portfolio of 130 to 150 prospects, and the time from identification to solicitation and gift acquisition could take 18 months — or even up to three or more years. If you intensify the relationship development process — which, among other things, involves reducing the size of the prospect portfolio to around 30 good, active candidates — you can shorten the cycle time to less than a year, increasing throughput and raising more money.

Develop stage-gate criteria to ensure that development officers spend time on the most likely prospects.
Stages are the various phases in a process, and the gates are review points between each stage where tough decisions are made about proceeding, reworking or stopping. If each gate has specific criteria, you can clearly assess when all criteria have been met — and only then move to the next stage. For each prospect, you move through specified stages and gates before reaching the “ask” — at which point, the prospect is well primed, and asking is only a formality.

Use high-cost, scarce resources to do only high-value work.
Good development officers are truly a scarce resource. They should focus on cultivating prospects, not on making database entries. Can a clerical staffer input the data instead? What about things such as routine reporting, other paperwork and thank-you letters? What can you do to increase the number of prospect-facing meetings per week?

Develop high-volume, point-of-entry activities and programs to create abundant prospect flow into the “pipeline.”
For example, in one model, the initial connector, often a board member, brings people to interesting events where they learn about new initiatives or treatment advances. Some become qualified prospects and move through the process. A good metric is, for every 10 people brought in by the initial connector, one gives a gift at the target level.

Set multiple process measures, with emphasis on cycle time.
How many prospecting events will you hold each month? How many connections should you make at each event? How many prospects should you be cultivating at each stage? You must establish criteria to let you know how you’re doing, as well as a system for alerting you when a particular measure is or isn’t being met. For example, you can use a “dashboard” system where green means you’re on track, yellow is the continuous improvement zone and red calls for immediate attention because you’re seriously behind where you need to be.

Measure early, and use metrics that correlate with success.
Instead of simply measuring things at the end, such as how much money was raised or the total sum each development officer brought in, use measures that help you see at key points whether you are on track for a positive outcome. Not only will you get what you measure, you will build a reliable forecasting system. Your chief financial officer will love you.

Maintain a constant effort to eliminate out-of-bounds process variance.
Create your “way” of fundraising, so you have a tried-and-true baseline process that is ingrained in your culture. In other words, if you have four gift officers, you will still have one consistent way that your organization goes about acquiring major gifts, instead of four different ways with numerous variations from each. That one way should allow for a clearly limited degree of variance so your front-line people can apply their experience and creativity to specific situations. You can then continuously improve that one way.

The foundation of high–performance fundraising

For high-performance fundraising efforts to pay off, you must have these three basics in place:

A compelling, donor-centric case.
Although much has been written about the importance of developing a detailed rationale for supporting your organization, the role of the case in performance improvement tends to be overlooked. “The essence of a successful strategy is getting the right people doing the right things. Achieving the right mix of fundraising methods requires the right case. Inwardly focused cases based on beneficiary needs are sufficient for annual fund solicitations, but often do not inspire the excitement necessary to attract high-dollar donors.

An effective fundraising board structure and composition.
Instead of the traditional small, governance-oriented board with members who have neither significant personal giving capacity nor the right connections, create a large, high-performance board composed entirely of donors. Treat the members as VIPs, offer them inside information about what is going on in the organization, and break them into working councils that meet only a few times a year — giving them a narrowly defined, less time-intensive but highly valuable role. Board members should be “connectors” who, as defined in Malcolm Gladwell’s book The Tipping Point, know many people in the community and are in the habit of making introductions.

An organizational culture for philanthropy.
For a long time, development professionals have been talking about the necessity of having a “culture of philanthropy” in which everyone throughout the organization sees the value of philanthropy and understands their role in it. But even more important is focusing on making your institution an attractive beneficiary for those who want to give. Raising substantial sums requires an investment, not only in terms of money but also in an examination of how the organization regards fundraising and makes decisions that impact philanthropy. Fundamental change to encourage philanthropy may be required, as well as significant improvement within the fundraising operation itself.

High-performance fundraising isn’t easy. It requires an investment and calls for changes in how things are done. Hope, on the other hand, allows organizations to maintain the status quo. But what would you rather do, hope for better results or take concrete steps to achieve them? With an investment in performance improvement, there is good  reason for hope.

Interested in talking to us about Fundraising?
Call: 269.208.3577
Email: sareed@mpicompanies.com