The Nonprofit Sector Has Learned to Monetise Its Own Inefficiency
By Wevyn Muganda
The nonprofit sector may be one of the most innovative sectors in the world, yet one of the least innovative places to run an organisation.
Nonprofits rethink public service, challenge systems of power, build new models for justice and imagine radically different futures, while many organisations doing this work still operate through systems and ways of working that have barely changed in decades.
This isn’t to say that technology is a prerequisite for creating change; it clearly isn’t. Some of the most transformative work in our sector has been done with very little technology. The question is what happens when organisations with increasingly complex programmes, funding portfolios, and accountability requirements keep relying on processes never designed for the scale and complexity of the work they now carry.
We keep talking about the need for stronger organisations: better financial systems, better monitoring and evaluation, better data, better grant management, better reporting, better governance and, increasingly, better organisational capacity. And yet, much of the funding ecosystem is still structured around helping organisations cope with weak systems rather than replace them. Not because nonprofits want to be inefficient, and not because donors deliberately create bad systems, but because incentives do not always reward fixing the underlying problem.
That distinction matters because some of the inefficiencies we keep describing as “capacity gaps” have become part of how the sector functions.
1. We are asking nonprofits to do more with less while asking them to prove more
Funding is increasingly competitive. Organisations are competing for fewer opportunities, trying to maintain programmes, retain staff and demonstrate impact while navigating increasingly complex donor requirements. At the same time, the bar for accountability keeps rising: more indicators, more evidence, more financial documentation, more reporting and more requests to demonstrate that every dollar achieved something meaningful.
The contradiction is obvious. We want nonprofits to become leaner while making the machinery required to prove their impact increasingly complex.
And when that machinery breaks down, we often respond by adding people. Hire an M&E officer. Hire a grants manager. Hire a finance officer. Bring in a consultant. Fund organisational strengthening. Add another reporting template. The organisation gets the work done, but the underlying system remains largely unchanged.
2. This is where “capacity building” gets interesting
Capacity building is not the problem. Nonprofits absolutely need investment in organisational capacity. But I sometimes wonder whether we have become too comfortable with a model where organisational weaknesses are treated as something we can continually fund around.
An organisation has poor financial systems? Fund another position. Its reporting systems are weak? Fund M&E capacity. Its grant management is chaotic? Fund a grants officer. Its data isn’t organised? Bring in a consultant.
Again, none of these interventions is inherently bad. But we don’t ask often enough: At what point does capacity building stop building capacity and start institutionalising the workaround?
Because if the solution to a broken process is always another person, another consultant or another project budget, there is very little pressure to redesign the process itself.
3. And nonprofits have a rational reason for this
This is where some of you may get mad at me for saying it. It is easy to say nonprofits should simply “invest in better systems.” But with what money?
Most organisations cannot take unrestricted funding and decide, “We are going to spend $10,000 this year improving our internal operating infrastructure.” They have programmes to deliver, staff to pay, communities to serve, donor budgets to defend and often very little unrestricted money. If a donor will fund a programme officer but won’t fund the technology that makes that programme officer 30% more efficient, the rational organisational decision is obvious: hire the person.
The problem is not that organisations don’t understand efficiency. The problem is that the funding model doesn’t always make efficiency an investable priority.
4. So we have built an ecosystem where people become the infrastructure
Some of the most sophisticated “systems” inside nonprofits are actually people. Someone knows which spreadsheet is the latest one. Someone knows where the receipts are. Someone follows up with programme teams on calls or WhatsApp. Someone reconciles the budget before the donor report. Someone remembers which donor requires which format. Someone reconstructs six months of activity before reporting. Someone carries the institutional memory.
And when that person leaves, the organisation discovers that what looked like a process was actually one person’s memory and labour. We call this capacity. Sometimes it is simply human beings compensating for missing infrastructure.
5. Technology is often treated as an extra, not infrastructure
The nonprofit sector has a strange relationship with technology.
We talk constantly about digital transformation, but technology is often still treated as something that needs a special project, a grant or a capacity-building budget. A software subscription becomes an “administrative expense.” A database becomes an “overhead.” A financial management system becomes something to buy when a grant covers it.
Meanwhile, we would never question whether an organisation needs electricity, internet, laptops or office space to operate. At some point, shouldn’t operational technology be considered infrastructure rather than overhead?
If a system can reduce administrative work, improve financial accountability and help an organisation understand what is happening across its programmes, why is that considered less fundamental than hiring another person to do the same work manually?
6. But here is the uncomfortable part: nonprofits also have limited incentive to change
I came to this question while building Field2Donor| Operating System for Nonprofits, and I have had to confront something I didn’t initially appreciate.
You can show an organisation a better way to do something and still not give them a compelling reason to change.
The current system might be frustrating. It might involve Excel, WhatsApp, email, Google Drive and several people manually reconciling information. But it still works. The report eventually gets submitted. The donor eventually gets the documents. The receipts eventually get found. The budget eventually gets reconciled. The programme eventually gets delivered.
The system is inefficient, but it is functional. And functional systems are surprisingly difficult to replace.
7. So what happens when the funding ecosystem rewards coping more than fixing?
This is the question I keep coming back to.
If we genuinely want stronger, more sustainable, locally led organisations, perhaps we need to rethink what we mean by organisational strengthening. Are we funding organisations to build capability, or are we funding them to add more capacity around inefficient processes? Are we giving organisations unrestricted resources to invest in infrastructure, or are we still funding the people required to work around its absence?
Are we asking nonprofits to become more efficient while funding structures that make inefficiency one of the easier things to budget for? And perhaps most importantly: what happens when an ecosystem repeatedly funds organisations to cope with a problem instead of supporting them to eliminate the problem?
I don’t think donors are the villain. Nor do I think nonprofits are somehow irresponsible for operating this way. If you have read this far and don’t know it already, I work in a nonprofit, so yes, I am criticising my own butter and bread. Maybe that is exactly why I feel comfortable asking the question.
I think the incentives make a certain amount of sense for everyone involved. And that may be exactly why the system is so difficult to change.
We say we want leaner, stronger, more effective organisations. But perhaps we need to ask whether we are willing to fund the infrastructure that allows them to become that. Because if we aren’t, we may continue doing something quite strange: funding people to compensate for systems that we never fund organisations to fix.
If the organisations trying to change systems cannot themselves build effective institutional systems, what does that mean for the change they are trying to produce?
I don’t ask that as a judgement. I ask it because I think it is a question the sector needs to sit with. We expect organisations to challenge broken public systems, strengthen governance, shift power and create new models for how society works. But organisational transformation is itself a form of systems change.
Perhaps then, the question is not simply whether nonprofits have enough capacity. It is whether the ecosystem around them gives them the resources, incentives and permission to build institutions that are as innovative, resilient and effective as the change they are trying to create.
(Wevyn Muganda is a nonprofit leader and tech entrepreneur with experience across gender, youth engagement, peacebuilding, grant management and organisational development, and CEO and Co-Founder of Equal Generosity Ventures)
