Quick takes

Citation

Gorrell, C. (2005), "Quick takes", Strategy & Leadership, Vol. 33 No. 2. https://doi.org/10.1108/sl.2005.26133bae.003

Quick takes

Catherine GorrellPresident of Formac, Inc., a Dallas-based strategy consulting organization (formac@mindspring.com), and a contributing editor of Strategy & Leadership.

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

5 A corporate executive’s short guide to leading nonprofitsLynn Taliento and Les Silverman

Nonprofit leaders need the informed support of for-profit executives as board members, as funders, as corporate partners, and as career-changing nonprofit executives doers. Yet too many for-profit executives do not understand the leadership challenges faced by their nonprofit counterparts. This lack of real understanding of what it takes to lead a nonprofit undermines the effectiveness of the contribution they are attempting to make and hurts the nonprofit sector’s performance.

This article presents the key differences of the for-profit company and the nonprofit, as told by several executives who have held senior position in both for-profit and nonprofit organizations.

Their basic point: it is harder to succeed in the nonprofit world than in for-profit organizations. The goals are harder to achieve and harder to measure since they tend to be behavioral (vs financial).

When comparing leadership in a for-profit vs. nonprofit, the “crossover leaders” agreed that the complexity of the nonprofit management stemmed from five problem areas:

1. 1.

   The typical nonprofit CEO has less authority and control:

2. 2.
   • •

     deference to the CEO is rare;

   • •

     authority is much more highly decentralized; and

   • •

     the for-profit leader’s time frame, command-and-control orientation, and view of the employee/employer relationship do not translate to the nonprofit world.

3. 3.

   Consensus building is mandatory because of the wider range of stakeholders:

4. 4.
   • •

     the nonprofit CEO has to use a more consultative, inclusive decision-making style;

   • •

     the organization is less hierarchical since it is dealing with a world that is less ordered than the private sector world; and

   • •

     leadership is by inspiration, not direction.

5. 5.

   Performance must be monitored using innovative metrics:

6. 6.
   • •

     simple financial metrics are not central; and

   • •

     nonprofits are “measurement-resistant.”

7. 7.

   Nonprofit leaders must pay much more attention to communications to influence and motivate, both internally and externally.

8. 8.

   Resources are scarce and training is limited. This greatly increases the difficulty to build a highly effective organization.

If business leaders serving as nonprofit board members understand these differences, then they can perform in their nonprofit roles as well as they do their corporate board roles. If donors understand the way this sector really works, they can better use their financial clout to improve nonprofit performance. If business leaders involved with cross-sector partnerships – which are central to addressing society’s most intractable problems – can cope with the nonprofit sector’s different culture and demands, more successes will result. Finally, if the well-meaning business people who move into leadership roles in nonprofits can fully appreciate the challenges, then fewer will end up frustrated, ineffective or worst, organization killers.

11 M&A in the nonprofit sector: managing merger negotiations and integrationDavid La Piana and Michaela Hayes

Just as with for-profit companies, nonprofit organizations do use mergers to increase their effectiveness and reduce financial pressures. In fact, merger between nonprofits are increasing. But corporate managers who serve on the boards of nonprofits need to be aware of the essential differences between the merger process in the for-profit and nonprofit sectors. A case study is presented to highlight “best practices” for nonprofit mergers.

Seven key differences between mergers of nonprofits vs for-profits are:

1. 1.

   The mission drives the process. The key factor driving a nonprofit’s decision to merge is the belief that the merged entity will be better able to advance the mission. In the for-profit sector a key factor is the financial bottom-line.

2. 2.

   The organizations involved are treated as equals. In the nonprofit sector, a merger is typically considered a partnership, with the two parties having an equal say.

3. 3.

   The process strives for collaboration. For-profits would use attorney teams representing each party from the outset; initially nonprofits jointly hire a non-attorney consultant.

4. 4.

   Stakeholders’ interests must be addressed. Stakeholders are akin to the shareholders in for-profit corporations, and their interest as “investors” is that both organizations are working collaboratively toward furthering the best interests of the shared mission.

5. 5.

   There are fewer resources available. Despite a merger’s requirement of significant time and energy, there is a scarcity of resources in most nonprofit organizations. This means boards and staff must devote their time to the process.

6. 6.

   There are often no tangible “rewards”. The chief payoff may be only enhanced ability to advance its mission. Therefore this outcome must be communicated frequently to help those involved understand and “own” the values and beliefs of the merger.

7. 7.

   The board’s role in nonprofit mergers will be different in the merger process:

8. 8.
   • •

     The negotiations phase. The board merger committee is charged with identifying and resolving all issues before making the recommendation to merge (or not) to the full board.

   • •

     The integration phase. Board members must serve as role models for the staff and volunteers and be the champions for the integration process. Typically nonprofit mergers do not result in staff layoffs but the boards may be reduced, a new executive director may be hired, and cultures of the two organizations need to be shaped into one unified entity with a group of stakeholders (funders, volunteers, staff, members, corporate partners, community members, media and others).

17 Volunteermatch.org: balancing mission and earned-revenue potentialSeth Barad, Liz Maw and Nan Stone

Earned income ventures hold the promise of diminishing a nonprofit’s reliance on contributions. These ventures also appeal to donors who believe that running a revenue earning business has cultural benefits for nonprofits as well as economic ones. Done purposefully, a nonprofit’s work on products and services that earn income promises not only to help it move forward with its financial goals, but also to strengthen its social mission.

This article presents a detailed case study about VolunteerMatch.org. This nonprofit organization needed to evaluate ways to improve two existing ventures, which were generating income but not making a positive revenue contribution. Shown are the step-by-step thinking and calculations for deconstructing the unit costs and revenue contributions of these existing operations.

A second need was for evaluating new earned-income opportunities. To answer this need, VolunteerMarch.org used a three-staged process:

1. 1.

   Stage 1: brainstorming that yielded 53 possible ideas.

2. 2.

   Stage 2: identifying and using three successive screens to evaluate the ideas. The screens were:

3. 3.
   • •

     Pass “deal-breaker” criteria - the criteria (which was acceptability to stakeholders and alignment with mission and culture) absolutely had to be met before an idea could be considered, regardless of the financial potential.

   • •

     Match to mission and financial contribution over a three-year time span. These assessments drew on benchmarks and trends where possible (such as market size, penetration rate, price points), but where data was not available, best estimates were used. Ranking by “social impact” employed the use of objective and subjective criteria.

   • •

     Match to the nonprofit’s strengths – the degree to which the new idea would build on and enhance demonstrated capabilities.

4. 4.

   Stage 3: take the product ideas to potential customers to reality test assumptions and customer opinions. For nonprofits, customers can be a very diverse group. Steps included first creating realistic profiles and robust statement of customer needs, then validating the venture ideas for each segment in the marketplace.

Taking their venture ideas through this process gave the nonprofit organization a better understanding of their costs, customers and product ideas. And armed with this knowledge, they could wisely proceed with selection of venture opportunities that added to the advancement of their mission.

24 The power of visionAndrea Kilpatrick and Les Silverman

Are you involved with a nonprofit and want to boost its overall effectiveness? Do you find that board members, donors and volunteers pull against each other for use of its scant resources? If so, consider sparking debate about the nonprofit’s vision for the next three to five years.

Uniqueness of non-profits

Most nonprofits have not taken the time to develop and update effective vision statements. Just as with for-profit companies, vision crafting takes away from the immediate activities facing the staff. But there are also two unique barriers for nonprofits to overcome. First, there is the challenge of making focused decisions. For-profit companies operate with the feedback provided by profits and losses, and having a focus on the bottom line, in turn, concentrates the minds of executives on what is working, what is not, and where the organization should go as a result. Nonprofits are driven by a mission, which can be defined in numerous ways by each stakeholder.

The second barrier to creating a three- to five-year vision statement is the funding process that sustains the organization. Deciding on the vision can be challenging because most donors give money for specific projects rather than to organizations’ general operating funds. As a result, many nonprofit leaders become tempted to broaden their scope – either in response to current funding overtures, or to increase their attractiveness to a larger universe of future benefactors. Insecurity about future funding is always present. This leads to wobbly criteria for accepting or rejecting new opportunities; differing opinions among leaders as to future direction; and overworked staff with multiple initiatives competing for precious time.

Cited in the article are steps to craft a vision statement (to sort through the many options) and recommendations for navigating the funding environment: how to say “no” to potentially distracting funding opportunities without creating an overly rigid strategic direction.

Benefits of a vision statement

The desired outcome is a vision statement that is compelling, easy-to-understand description of how the nonprofit would like the world to change in the next three to five years, what role it will play in that change, and how the organization will measure the success of its role. A vision statement allows focused actions, easier performance measurement, and staff members who are more efficient and even happier.

The bottom line is that nonprofits need a vision, and it is up to their leaders to do the hard work of defining and maintaining one. Funding fears are no excuse for delay. Donors are looking for returns on their charitable dollars, and nonprofits with clear visions are more likely to provide them.

27 The strategic value of shared understanding of costsSusan Colby and Abigail Rubin

With limited means to address substantial social challenges, nonprofit leaders constantly make choices about the most effective way to allocate available resources among competing priorities: actions, initiatives, and programs. Hence, resource-allocation decisions present one of the most powerful levers nonprofit executives can apply to achieve their organization’s goals. The problem is that most nonprofits have very weak financial systems. And without knowing the true all-in costs, they risk undermining their organization’s mission by failing to deliver key services and programs.

Three big hurdles

Three factors act to obscure true-cost information or make it unnecessarily difficult to obtain:

1. 1.

   Most nonprofits have only rudimentary financial systems, and the standard accounting packages on which they tend to rely are seldom conducive to tracking and understanding the true costs of operation. Introducing more fully developed financial and accounting systems into nonprofits is an obvious first step to strategic cost control.

2. 2.

   Many cultural issues present obstacles to focusing on true-cost information. Examples: attention to traditionally commercial matters as costs are seen as a diversion of valuable resources from activities that further the organization’s mission; staffs are reluctant to record their time so that their cost can be allocated to activities and programs.

3. 3.

   Funders prefer to support programs and projects rather than overhead expenses such as fundraising and administrative costs and prefer to provide seed money to support new programs rather than sustain existing ones.

The benefits

Questions that can be answered with better cost information are presented with case studies to illustrate the analysis performed by several nonprofits. They include: Which programs to fund (in a single department or at multiple sites)? Should we expand to a new location? What is the “cost per outcome” (to link the unit level economics to the impact that the nonprofit wishes to have)? How much should be charged for products and services? Does the flow of funds within the organization as a whole best advance the nonprofit’s mission?

The analysis

Recommended are several enhanced ways of approaching financial information:

• •

  First, stop thinking about the revenue side of the nonprofit separately from the cost side; look whether individual programs are “earning” or “losing” money. Act to unbundle costs out of financial categories that basically tell you nothing about what the costs actually do.

• •

  Second, evaluate each program’s contribution using a matrix that incorporates both mission alignment and financial contribution (cited in the article).

• •

  Third, make full cost data collection routine.

33 Scenario analysis and Ohio’s logic model of public educationStephen M. Millett and Susan Tave Zelman

As with for-profit organizations, nonprofits can gain from the use of scenario analysis, particularly when it provides a framework for understanding the existence of interlocking relationships among factors that determine desired outcomes. The case study of the Ohio Department of Education illustrates how scenarios may be used both for forecasting future outcomes and for identifying strategies that will logically lead to achieving likely outcomes.

The challenge that faces every nonprofit, simply stated, is how to prioritize the allocation of human and fiscal capital, which may be seen as investments today for the future. If successful, the analysis would provide a compelling rationale for future funding and activities. Then, armed with a structure for identifying and explaining to the organization’s stakeholders the factors – such as funding levels and program choices – that are the most likely to achieve the nonprofit’s stated mission and goals, consensus can be built for action.

The steps presented in the article’s case study were as follows:

1. 1.

   Begin with a topic question that speaks to the organization’s goals.

2. 2.

   Create a working group and an expert focus group composed of the senior management team and staff.

3. 3.

   Identify the most important descriptors (trends, issues, factors, and variables) relevant to the topic question. They will be the elements of a cross-impact model.

4. 4.

   Based upon the project team’s expert judgment, assign each descriptor two to four alternative outcomes (see examples in article.)

5. 5.

   Create a matrix of cross-impact analysis. It will show that some descriptors are widely influential (“drivers”) while others are “driven.”

6. 6.

   Use a computer program to calculate resulting scenarios from the probabilities of the descriptor outcomes, the cross-impact values, and the initial settings as starting points.

7. 7.

   The cross-impact analysis for scenarios leads to a logic model that sorted out first, second and third order relationships and interactions. The sorting process identifies what factors have direct impacts on higher achievement of goals and therefore helps prioritize where investments were likely to have the most immediate and significant results.

8. 8.

   Like any type of strategic thinking, development and use of a logic model will be a continuous work in progress, requiring that updates be periodically performed.