The nonprofit sector – 1.5 million organizations in the United States and 20 million around the world – tackles our biggest social problems, usually without adequate resources. But even when funding is not the No. 1 issue – as it is now for most organizations – the sector faces at least three new challenges:

	Defining a unique role in an increasingly crowded and resource-constrained landscape.  The rapid growth in the number of nonprofits during the late ‘90s followed by the current funding crisis have made the competition for dollars even more intense.  Organizations must be clear about their unique role in addressing a given problem, and they must think more creatively about collaboration and consolidation with their peers.
	Demonstrating effectiveness. Increasingly, funders and donors are calling for nonprofits to better measure the impact of their work. Yet measuring social impact is challenging and often resource-intensive, making it imperative that funders and nonprofits focus their investments on practical, cost-effective ways to measure performance.
	Managing multiple sites.  Both large national nonprofits with hundreds of local sites and smaller organizations with just a few sites struggle with issues like local leadership, program design and innovation, cost and quality control, and risk management.  Most large organizations need to collaborate more effectively across local sites, while newer organizations need to focus on organizational design early on, to avoid the problems that have plagued their more established peers.

Three things to get right 
Lynn Taliento, a Nonprofit Practice partner in the Washington, D.C., office, suggests three ways that nonprofit executives and boards can improve their organization's impact:

	Clarify your vision and aspiration. Many organizations have a strong mission, but they haven't defined exactly what it is they want to achieve over the next three to five years, nor defined how they will measure that success.  All other elements of an organization – programs, staff, funding – should be designed to achieve that aspiration.
	Define your place in the landscape. While nonprofits are justifiably proud of the work they do, they often try to do too much. They can add greater value by carving out a specific role within the sector and doing that exceptionally well, rather than scattering their limited resources across multiple roles or activities.
	Measure performance however you can – starting now. Don't wait for the perfect metric. Some funders may be demanding assessments that are simply not worth the financial and operational effort.  It is, however, important to develop some standards of performance that are not only measurable, but that are useful for staff in managing the organization on a day-to-day basis.

Bridging the gap
McKinsey's nonprofit practice draws on the firm's expertise across all management disciplines, including marketing, organization, and strategy, to address such challenges. Often working on a pro bono or discounted-fee basis, the consulting teams not only help clients reach their aspirations, but also disseminate knowledge more broadly throughout the sector through reports and articles. These teams also collaborate with external experts and advisors – Senator Bill Bradley, for example, is an advisor to the practice.
 
In addition, the practice often provides a bridge between nonprofit organizations, businesses, and public agencies to bring together the right people and resources. A case in point: a McKinsey team helped design and launch the Global Fund Against AIDS, TB and Malaria, the world's largest public-private partnership aimed at combating these three diseases.

"Many nonprofits are great at motivating staff and volunteers around their mission," notes Taliento. "But a compelling mission is not enough as competition for funding, staff and volunteers increases. Organizations need to clearly define the value that they add in an increasingly crowded landscape, and must have some way of measuring and communicating that value to funders, staff and policymakers.”