Strategic Issues in Not ForProfit Organizations

What are Not-for-profit Organizationsand

What are Public-Sector Organizations?• Not-for-Profit (NFP)

– An organization that provides some service or good with no intention of earning a profit

• Public Sector

– An NFP created, funded, and regulated by the public sector or government

Types of Not-for-Profit Organizations

Not-for-ProfitOrganization

Charitable

Religious

Social Service

Public Sector

Associations

Health Service

Cultural

Cause-Related

Foundations

Educational

Types of Public-Sector Organizations

Public-SectorOrganization

GovernmentalUnits

PoliceProtection

Paved Roadsand Other

Transportation Needs

RecreationFacilities

Care and Helpfor Needy and

Disabled Citizens

Laws and Regulationsto Protect andEnhance Life

Significance of NFPs

• Account for 1/20 jobs in the world

• Number of jobs in the NFP sector is growing

• NFPs provide goods or services that for profit entities are unwilling or unable to provide

NPF Trends

• Increasing privatization of government services (education, health care, social services, the arts)

• Increasing financial pressure on nonprofits• Increasing concerns about the efficacy of

nonprofits• Increasing corporate social responsibility

initiatives and funds

Nonprofits and Profits

• Nonprofit organizations are permitted to generate a profit

• However, nonprofits may not distribute their profits to their staff or directors – nondistribution constraint

• Surplus must be used to further the mission of the organization

Importance of Revenue Source

• NFPs dependant on dues, assessments or donations for their revenue sources

• May not be a direct link to the user of the service and the source of funds

• Pattern of influence is derived from its source of revenues– Those who fund the NFP are likely to have

significant influence on its operations

Management Challenges of the Nonprofit Enterprise

• Defining and measuring success (economic stability and growth is a subsidiary goal).

• Raising funds – cannot sell the company ‘shares’

• Attracting and motivating people given the often limited resources and the nondistribution constraint (no profit-based incentives)

Strategy in the NFP

• Getting critical resource decisions right – allocating time, talent, and money to the activities that have the greatest impact – is what “strategy” is about.

Strategic Planning

• The process of developing a comprehensive document that sets forth what and organization is working to accomplish and how it intends to succeed

The Strategic Plan

• Connects the mission and the programs

• Establishing performance measures that are understandable to all

• Encourages strategic thinking – the best allocation of scarce resources

Four main components of strategic planning

• Strategic clarity – Mission statement– Intended Impact – Theory of Change

• Strategic priorities: What specific actions and activities must take place to achieve the intended impact

• Resource implications: To pursue the priorities, and the plan to secure them

• Performance measures: Establishing the quantitative and qualitative milestones to measure progress

The Mission is the Centerpiece of the Nonprofit Organization

• It serves a boundary function• Serves to attract and motivate stakeholders

(donors, staff, and clients)• Should help in the process of evaluation

The challenge is to create a mission statement that is specific enough to inspire, but sufficiently

broad to allow strategic redirection

Intended Impact

• Is a statement about what the organization is trying to achieve and will hold itself accountable for within a period of time. It identifies both the benefits the organization seeks and the beneficiaries.

• Provides a bridge between mission and programs

Theory of Change

• Explains how the organization’s intended impact will actually happen.

• In other words, why will the organization’s approach bring about the desired change

To clarify a nonprofit’s Theory Of Change, ask:

1. What are the most important elements of our programs?

2. What assumptions led us to choose these particular program element?

3. Are there other ways to achieve the desired outcomes? Why are we not taking that approach?

Determining Strategic Priorities

• Looking at current programs– How do they align with mission, intended impact

and theory of change?– How much do they cost? (per outcome) – Do they play into the organization’s strengths?– How do they compare with peers?– Changes that should be made?

• Modify• Add new ones• Discontinue

Resource Implications – Human and Infrastructure

• What will it cost to implement?

• What’s the gap?

• Financial projections for new strategy– Scenario planning

Performance Measures

• Need to collect data – INDICATORS• Program milestones

– Quantity– Quality

• Operational milestones– Human resources– Infrastructure

• Financial milestones– Budget

In establishing performance measures, it is important to be clear about the timing and ownership

Usefulness of strategic planning to NFPs

• Portfolio analysis may be more difficult to apply to NFPs

• Situation (SWOT) analysis, mission statements, stakeholder analysis, and corporate governance are all relevant to the strategic assessment of NFPs

• May be difficult to apply where the output of an NFP is difficult to measure– Eg. Souls saved– May require the use of a proxy measure

Constraints on Strategic Planning

• Five constraints on strategic management– Service is intangible and hard to measure– Client influence may be weak– Strong employee commitments to a cause

may undermine allegiance to the employing firm

– Resource contributors may intrude on the organizations internal management.

– Restraints on the use of rewards and punishments

Impact of Constraints onStrategic Planning

• Impact on strategy formulation – Goal conflicts with rational planning– An integrated planning process tends to shift from

results to resources– Ambiguous objectives create opportunities for internal

politics and goal displacement– Professionalization simplifies detailed planning but

adds rigidity• Example hospitals

– Staff is well educated– Goals of the professionals or their representative bodies may

not align with organizational goals

Impact of Constraints onStrategic Planning

• Impact on implementation – Decentralization is complicated – Job enlargement and executive development

can be restrained by professionalism

• Impact on evaluation & control– Rewards & penalties have little or no relation

to performance– Inputs rather than outputs are heavily

controlled.

Specific Strategic Issues

• Misperception about the usefulness of strategic management

• Multiple stakeholders

• Unique strategies developed by NFP organizations

Popular NFP Strategies

• Strategic piggybacking– Develop a new activity for the NFP that would generate funds to

make up the difference between revenues & expenses– Purpose is to subsidize primary service programs – Requires

• Having something to sell• Critical mass of management talent• Entrepreneurial attitude & skills• Trustee/board/sponsor support• Venture capital

• Mergers– Merging with an organization with a similar mission can help to

reduce administration costs• Strategic alliances

– Developing cooperative ties with other NFPs

Unique StrategiesDeveloped by NFP Organizations

• Cause-Related Marketing– Funds a good cause– Benefits NFPs through public exposure and

corporate donations– Enhances the image of the supporting

company– Designed for the strategic advantage of the

sponsoring corporation– Benefits NFPs from the marketing link