Strategic Management in Not-For-Profit
Organizations
Rex C. Mitchell, Ph.D.
* 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 special-interest 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:
- Output and results are often intangible hard to measure objectively
- Client influence may be weak
- Resource contributors may have different priorities than those of clients, and the former may
intrude on the organization's internal management
- Some of the workers may be volunteers
- Strong employee commitments to a cause or profession may undermine their allegiance to
the organization
- There are major constraints on financing (e.g., no equity transactions and fewer debt
options)
- 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.
- Goal conflicts interfere with rational planning (e.g., NFPs typically lack the kind of unifying
central goal that profitability provides for the FP sector)
- Management & planning focus tends to shift from results to resource inputs. Also,
inputs are controlled more than outputs
- Ambiguous and conflicting operating objectives create more opportunities for politics (both
internally and involving outside stakeholders)
- Rewards and penalties have relatively less relationship to performance
- 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)
- NFP organizations tend to practice "defensive centralization," to prevent lower-level actions
that might offend important sponsors
- There is a special need for skilled people in "linking pin" and buffer roles to relate between
outside and inside groups
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Last modified July 31, 2008 |
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