Strategic Issues in Not For

Profit Organizations
 What are Not-for-profit Organizations
and
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
Educational

Foundations Charitable

Cause-Related Religious
Not-for-Profit
Organization
Cultural Social Service

Health Service Public Sector

Associations
 Types of Public-Sector
Organizations
Laws and Regulations
to Protect and
Enhance Life

Care and Help

Governmental
for Needy and
Units
Disabled Citizens
Public-Sector
Organization
Recreation Police
Facilities Protection

Paved Roads
and Other
Transportation Needs
 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 on
Strategic 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 on
Strategic 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 Strategies
Developed 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