I agree we are likely operating well below our capacity to achieve impact. (I also believe business and government are performing sub-optimally.) I think the reasons are many so I'll just name a few.
The natural pull against staying focused is extremely strong. This pull comes from a desire to respond to the suffering we see—sometimes without recognizing how limited our resources are relative to the problems we are addressing. It also comes from a realization of the interdependence of so many social problems. Can you really make dramatic progress on global health without also addressing global development, for example? But what is the right balance? In an interview with CEP, the late Rodger McFarlane of the Gill Foundation discussed this challenge very eloquently: http://strategy.effectivephilanthropy.org/
Developing and implementing strategy is exceedingly difficult in this context because of the complexity and need to think through rigorously the logical, causal connections between activities and results. Too often, people lack the will and discipline to stay on it. They have a “strategic plan” but it doesn’t really include the kind of detailed logic that real strategy requires.
The challenge of performance assessment and the fact that we haven't made more progress on it. It's much tougher in philanthropy, where there will never be a common metric and where your positive results could be my negative results. But all organizations should be able to define indicators that relate to their goals and strategies that will allow them to gauge progress and test and reevaluate their logic.
Related, the lack of natural feedback loops, particularly for major foundations, and the resulting risk of isolation from relevant perspectives and critiques. Obviously, CEP and other organizations have been working hard on this and we have made considerable progress over the past eight years. But there is a long way to go.
Sadly, I think the same kind of careerism and self-interest that we see infecting aspects of business and government in ways that are detrimental to high performance have at times affected the sector. This happens in ways that elevate to the level of scandal and then in much more subtle and insidious ways. Doing the things I discuss above involves taking on a level of personal career risk that can be—and often is—avoided. This is where boards come in and need to be more vigilant and assertive than they frequently are.