Are there barriers to effective non-profit management?

Last week, I jumped pretty deep into a debate on the perennial “Should non-profits run more like for-profit businesses?” question. The debate is still going on at Deborah Elizabeth Finn‘s excellent Information Systems Forum. A number of comments supported the idea that non-profits are very different from for-profit businesses and should remain so:

  • There were numerous referrals to horror stories where a new exec or a board member had imposed a more business-like structure on a non-profit to disastrous results.
  • Others suggested that non-profits, being mission-based, as opposed to profit-based, are fundamentally different from for-profits. And some went further by limiting the concept of efficiency to simply streamlining expenses and increasing revenues, as opposed, to, say, more efficiently communicating with constituents or managing client data..
  • Some seemed to equate for-profit business practices with unethical or customer-abusive practices.

On this last point, let’s quickly acknowledge that many business have unethical practices, and those are not the ones that we should emulate or adopt, of course.

On the first two, let’s establish a few givens here:

  1. Non-profits are businesses, with distinct features of their business model and great diversity among the non-profit models, just like for-profits.
  2. The question is less “should non-profits act like for-profits?” than it is “Should non-profits use more for-profit models for efficiency?”
  3. Many non-profits are completely sustained by donations, grants and other forms of charity or voluntary funding. Adopting business practices does not mean that you neglect or damage your ability to nurture your primary sources of revenue/funding. Um, quite the opposite!

I totally believe the horror stories. I’ve managed technology for over twenty years – I’m well aware of how poorly thought-out changes in business practice can be disastrous. My question to each of those relaters of horror stories is, was the problem that they were “acting more like a business”, or was it that they weren’t strategically improving their business practices, using, as appropriate, models from the for-profit community? Botching up a business by imposing organizational change in a dictatorial fashion is quite easy, and, again, is not at all unique to the non-profit sector. It’s all well and good for the new CEO to say “we’re going to start running like a business”, but it’s also crystal clear that, even in the nptech community, there is great confusion as to what “running like a business” means.

So, some big factors play into why non-profit leadership is often inefficient and ineffective. The two big ones:

  1. The key factor in selecting a non-profit CEO is their ability to fund-raise. Resource building is valued far more highly than people or organizational management skills. And leadership flows from the top. So if the leaders best talent is to schmooze donors, and not to manage people, then you run high risk of wasting a lot of the money that those donors provide.
  2. Non-profits are still rated and rewarded based on their ability to serve clients without making business investments. Guidestar and the like all have formulas that rate non-profits on their service to infrastructure ratios, with tiny numbers of people and expenses being trumped as a success factor. And these ratings are annualized, meaning that labeling one year as “an investment year” could be disastrous for your fund raising in the following year. This is a huge fallacy – you can’t be effective if you are not allowed to make strategic investments, and, depending on what you are doing, you might be able to far more significantly change the world with ten staff and 70% of your budget going to mission than five staff and 85% going to mission. That determination needs to be made by people who understand the particular business, not

I just don’t think that bad management is a by-product of being mission-focused or having strong ethics. It’s an outcome of not valuing business planning, good management practices, and the concept of budgeting to long-term outcomes, as opposed to just doing things the way we’ve always done them, by the seat of our pants. Bad management is a crisis for our industry, and it does not serve our missions or the world to continue to condone it.

2 Responses to “Are there barriers to effective non-profit management?

  • I worked in a corporation for 17 years. At the same time I became the leader of a volunteer program hosted by the corporation.

    While they were two separate roles, I found that I learned ideas from my business activities that helped me lead my volunteer-based organization, and I learned things from what I did in my volunteer work that I could apply in my paying job.

    In 1990 I left my corpoate job and turned the volunteer-organization into a non profit. I’ve continue to borrow ideas I learned from business, and that I keep learning from businesses, and apply them to what I do to help my organization grow from year to year.

    I understand the challenges non profits have due to inconsistent funding and I apply ideas I learned from advertising to try to overcome these obsticales.

    One of the most important habits is one of learning and innovation. I encourage networking of programs so we can learn ideas and improve process rather than reinventing everything. I host a library of resources on the web site, including a section on process improvement, innovation, knowledge management, etc. I feel these are ideas that any leader can learn from.

    I read business management books and attend business seminars when I can, to network, recruit volunteers, and learn new ways to think and act. I read a book recently, titled Good to Great and the Social Sector, by Jim Collins, and I think it offers a lot of good advise to this debate that’s been taking place on the list serv.

  • I didn’t buy the book, but I did check out Jim’s web site and found that he published there an additional chapter to the book addressing the exact “should non-profits run more like a business” issue. He makes my point in reverse – I’ve been arguing (most succinctly, I think, in a comment at 1cent’s blog), that non-profits are businesses, and the object is to stop limiting our business effectiveness by subscribing to artificial rules about how non-profits should be run. Collins says pretty much the same thing, arguing that it isn’t about running “like a business” – most businesses are poorly run. It’s about operating well. He offers an evaluation tool on his site for free download called the Good to Great Diagnostic Tool” that individuals and organizations can use to measure their effectiveness. I haven’t tried this yet, but I will, and then I’ll write about it.

    Thanks for the pointer!