McKinsey & Company Australia and New Zealand and the Australian Scholarships Foundation partnered in 2021 on a major research effort to provide a deeper understanding of the drivers of organisational health and capability needs across Australia’s social sector. *

The not-for-profit workforce employs 1.38 million people, 11% of the jobs. With a focus on mission their staff work tirelessly to help marginalised and vulnerable Australians. Yet organisational health of NFPs is continually compromised by lack of funding to support talent growth and to create operational excellence.

The report Building from purpose: Unlocking the power of Australia’s not-for-profit sector puts a spotlight on the strain on the sector’s people which has been exemplified by COVID-19, with an increased demand on services, and how this is a burden not only on individuals’ health, but also on organisational health.

Australian not-for-profits shone above their global peers in terms of commitment and a deep sense of mission, yet many organisations need to strengthen operational discipline. Talent growth has largely stalled in the sector; the continued pressures that COVID-19 has on communities is a roadblock to organisations having the capacity to build employees’ futures. 

The report takes an organisational health lens – how well an organisation aligns around a mission, executes against this ambition, and renews itself over time. The McKinsey Organisational Health Index examines outcomes (how healthy is your organisation?) and practices (what behaviours do your organisation adopt to stay healthy?).

The three capabilities of the healthiest NFPs

Three capabilities were unearthed that the best organisations have developed:

  • growing talent,
  • executing with excellence, and
  • system shaping.

Only 35 percent organisations were above the global median when it came to practices required for talent growth and performance management.

The research shows that the sector has strengths to build on across each capability, but also opportunities to unlock further impact.

Building these capabilities comes more easily to some than others. While 60 percent of the organisations surveyed scored above the global median on system-shaping practices, 40 percent did so in operational excellence. Only 35 percent were above the global median when it came to practices required for talent growth and performance management.

Over 100 senior leaders were interviewed from across the sector and beyond, and there was broad recognition for the importance to action these opportunities in order to position the sector to play a central role in revitalising Australia’s society and economy.

Louisa Graham, Australian Scholarships Foundation CEO notes, “The time and commitment invested by many leadership teams supporting this research is testament to how integral these issues are to the long-term success of these organisations.

Thank you to McKinsey & Company and all the CEOs, who share our commitment to developing the capabilities of leaders in the not-for-profit sector and who have participated in this research and round tables.  We would not be able to achieve what we have without your support.”

10 ideas to support action

The research acknowledges that overcoming the challenges to meet these gaps won’t be easy for many NFPs – but that this can be best achieved through collaboration.

Ten ideas for collaborative investment in people and capabilities, systems and tools, and processes are recommended to increase impact and accelerate the progress of the sector to give it the greatest chance of delivering for all Australians.

Read the full report including six case studies on charities and for-purpose organisations and how they are achieving organisational excellence.

*About this research – The research uses McKinsey & Company’s Organisational Health Index (OHI)’– a diagnostic tool McKinsey have used with 2000+ organisations (6 million+ responses) globally over two decades. The OHI measures how ‘healthy’ an organisation is, how it aligns around mission and strategy, executes with excellence, and renews itself to sustainably achieve its aspirations.

Findings are based on 4,000+ OHI survey responses across 37 prominent Australian social sector organisations and sector CEO roundtables and in-depth case studies on non-profits who are out-performing, even in the current environment.