Strategic Management in Not-For-Profit Organizations

Strategic Management in Not-For-Profit Organizations * There are many types of not-for-profit (NFP) organizations, e.g., charities; religious, political, social, special-interest organizations; various government entities; and educational and medical organizations * Another dimension, that cuts across many of the types above, is that there are many NFP organizations that coexist and compete with for-profit organizations doing the same things (particularly in education and medical services) * Strategic management issues can be quite different among these varied types of NFP organizations * Arguably, the most important single aspect of a NFP organization to understand and deal with in strategic management is the NFP's sources of revenues and their resulting effects on the patterns of influence affecting the organization. All revenues coming into a NFP could be grouped into two categories: (a) coming from customers/clients (those who receive the goods and/or services from the organization) or (b) coming from "sponsors" (which could include donors, grantees, government entities) ● Picture a continuum of various NFPs, arranged in order of increasing percentage of total revenues that come from sponsors (the remainder from clients). Near the left side, where almost all revenues come directly from clients, we would find (most) private schools plus NFP medical groups and hospitals. Near the right side, where almost all revenues come from sponsors, are such organizations as charities and government welfare agencies. Between the two ends of the continuum are most NFPs, including public and many private universities, many religious and government organizations, political and specialinterest groups. ● NFPs have to give attention to the interests of their sponsors, while attempting to give primary attention to the needs of their clients. Frequently, these two groups of interests and needs are different, or even conflicting, adding complexity to the strategic management of the NFP organization. ● One way to remind yourself of the dynamics just described is to think of the cynical modern- day version of the Golden Rule ("He/she with the gold makes the rules!") ● * Some of the relevant ways that NFPs differ from for-profit (FP) firms are: 1. Output and results are often intangible hard to measure objectively 2. Client influence may be weak 3. Resource contributors may have different priorities than those of clients, and the former may intrude on the organization's internal management 4. Some of the workers may be volunteers 5. Strong employee commitments to a cause or profession may undermine their allegiance to the organization 6. There are major constraints on financing (e.g., no equity transactions and fewer debt options) 7. Often, there are more constraints on the use of rewards and punishments * Some impacts of the differences above for doing strategic management in NFP organizations (adapted from W&H, 2000). Note that these are often present, but not always. 1. Goal conflicts interfere with rational planning (e.g., NFPs typically lack the kind of unifying central goal that profitability provides for the FP sector) 2. Management & planning focus tends to shift from results to resource inputs. Also, inputs are controlled more than outputs 3. Ambiguous and conflicting operating objectives create more opportunities for politics (both internally and involving outside stakeholders) 4. Rewards and penalties have relatively less relationship to performance 5. In many NFPs, professionals have major effects on decision making (e.g., physicians in hospitals and professors in universities). Professional norms and traditions can be both good (e.g., relative to ethics and standards) and harmful (e.g., by creating excess rigidity and resistance to appropriate improvements in the organization) 6. NFP organizations tend to practice "defensive centralization," to prevent lower-level actions that might offend important sponsors 7. There is a special need for skilled people in "linking pin" and buffer roles to relate between outside and inside groups