The United Way's mission and vision are about improving people's lives, and they recently decided that they were not making as big of a difference as they could. CEO, Brian Gallagher, decided that the most important measure for the organization was to look at the number of lives impacted and communities shaped. His approach may take donations away from traditional recipients of United Way grants.

In my blog last month called "Achieving Breakthrough Performance", I quoted an article in the SSIR by Gottfredson, Schaubert, and Babcock of the same title. The authors recommended that nonprofits stay in touch with the wills of their funders. While I will agree that funders are not customers, they should be on a nonprofit's scorecard. The change in focus at United Way is a great example of why a nonprofit should watch their donors.

The United Way is focused on giving money to nonprofits that can help reduce high-school dropout rates, reduce the number of families that do not earn enough to cover basic expenses, and increase the number of Americans who are living healthy lives. This new focus means that they are directing money in areas to specifically address these causes.

A May 29, 2008 article in the Chronicle of Philanthropy highlighted some of the changes that have happened. Meals on Wheels, Red Cross, and Easter Seals all lost significant funding in Texas. Some might say that this focus on performance management is hurting good charities in Texas and other areas. Certainly these organizations saw their funding go down, but Mr. Gallagher has been at United Way since 2002, and these organizations should be listening closely to the talk from the top management of their biggest donors. They should be carefully considering how they diversify their funding or change their own strategies to meet the goals of their funding partners. United Way is not alone as many foundations are also focusing on performance management, so grants are likely to be focused on creating the impact the foundation is looking for.

What is the moral of the story? Well that is hard to surmise because the United Way can be a powerful force in a community. But if you are a nonprofit, managing with the Balanced Scorecard, you should ensure you are using your scorecard to communicate your strategy to your major donors and ensure you are keeping them informed of your impact and progress. Further, you should have measures in your financial perspective that track the potential risk of losing key donors and the impact that would have on your organization. At one level, a key financial donor is the business equivalent of having Wal-Mart be your key customer representing more than 50% of your business. It is great until Wal-Mart decides not to sell your product anymore.

Thoughts?