January 01, 2017
Nonprofits play a valuable role in communities at global and local levels. They provide much-needed services during crises. They provide support to vulnerable populations where government services are absent or inadequate.
Nonprofits have a charitable purpose and a special tax status, but essentially, they are a type of business. Typically, one that delivers services rather than products. Like all businesses, they need to manage human resources, maintain infrastructure, monitor growth, forecast their revenue, and remain relevant in their market (cause) to survive.
Corporations have more resources than nonprofits to perform these standard business tasks. They also have greater motivation to do so, as their survival depends on generating profit, which requires careful resource management. While acknowledging the differences, nonprofits would do well to adopt certain corporate resource-management practices. Four examples where nonprofits could benefit from a more for-profit outlook are explored below.
Getting the Most Out of Employees
Corporations are motivated to maximize employee performance.
One way this manifests is in taking the performance evaluation process seriously.
In a for-profit setting, performance evaluations can be a vital management tool for identifying ways to improve an employee’s performance and contributions to the company. In the performance evaluation meeting, the employee and manager review what went well, what could have gone better, and decide on steps to take and resources to apply to improve the employee’s performance. While performance evaluations provide valuable feedback, the goal of the process is to help employees perform at a higher level for the benefit of the company.
In contrast, at many nonprofits, evaluations are treated as an administrative function. Some nonprofit managers view the evaluation process primarily as a means of documenting poor performance, so it is on file in the event of future disciplinary action.
Part of the challenge for nonprofits is that the evaluation process can seem hollow when there are no benefits tied to a positive evaluation, such as raises, bonuses, or promotions. While this is a challenge, performance evaluations can play a valuable function in the nonprofit's annual planning process. The performance evaluation meetings between a supervisor and her direct reports provide an opportunity for the organization to learn, from the employee's perspective, what worked and what didn't over the last year and to use this information to improve operations.
Performance evaluations can also be an opportunity to explore low- or no-cost advanced training for an employee to enhance her skills and contributions to the organization.
A second way corporations get the most out of their employees is by providing ongoing training, particularly to managers. Some people appear to be naturally gifted at managing others, but for most, effective management is a learned skill.
For-profit companies know this and invest in management training. One of the benefits of the training is that it not only helps managers manage their staff but also provides the company with a common language and framework for discussing and addressing management issues.
Nonprofits with limited resources may believe they cannot afford or allocate time to management training. However, low-cost training options exist. They include using an in-house facilitator to lead training sessions or having managers meet regularly to discuss how to apply the organization's management principles in the workplace. The main thing is that managers are encouraged to take their roles seriously and are given access to resources to continually develop their skills.
Prioritizing Effectiveness & Efficiency
Corporations place a premium on effectiveness and efficiency.
When employees work efficiently and effectively, it saves the company money. When a company rewards effectiveness, it's indicating that it values working smarter and achieving results.
In comparison, nonprofits may view long office hours as a sign of greater commitment to the cause. Nonprofit managers may, directly or indirectly, signal that they view those who work the most hours as working the hardest. A consequence of this messaging is that employees have no incentive to work more efficiently or to consider whether they are working on the right things.
Hiring the Right People
Large for-profit companies have the resources to do more extensive recruiting than most nonprofits. But large HR budgets are not the only advantage for-profits have over nonprofits.
One of the things corporations seem to do well is hiring people with the appropriate levels of education and training for a position.
The best example is that for-profit companies hire professional administrative assistants for administrative work, a practice less common in the nonprofit sector.
Nonprofits can get the HR piece right for their senior-level positions and hire people with the right balance of skills, education, and experience. For more junior roles — essentially administrative assistant positions — many nonprofits hire candidates with advanced degrees.
Hiring individuals with advanced degrees for roles that may not require a college degree can create an undercurrent of discontent within the organization. This is especially true if an organization has several admin roles filled by over-qualified individuals.
Everyone wants to apply their education and skills. If you place someone in a role that prevents them from using their skills and training, they will quickly become frustrated. Frustrated and bored, they may be less motivated to perform their work well. Hiring for the level of skills and education required for the job, and avoiding placing overqualified individuals in administrative roles, can result in a happier work environment for everyone.
Understanding Who They Work For
Corporations ultimately serve their shareholders. They have client/customer groups they sell products and services to, but corporations, if they are public, ultimately serve their shareholders. Knowing who they serve guides a corporation's business decisions.
Nonprofits don’t have shareholders in the traditional sense, but they do have investors in the form of funders.
Funders fund selected projects or, less commonly, contribute to an organization's general operating expenses.
Nonprofits report on their work to the funders, just as companies provide annual reports to their shareholders.
Where things differ fundamentally is that nonprofits typically do not view their primary role as serving their investors (funders). Nonprofits can see themselves (or want to see themselves) as autonomous. They know their funders are essential to their work, but they expect to manage the organization’s strategic direction without interference. They do not always welcome funder involvement as a natural by-product of the grantor-grantee relationship.
If a nonprofit has a for-profit wing and can fund its charitable works, then it is truly autonomous, similar to a privately held company that does not have to worry about pleasing shareholders.
If outside funding is needed to do the work, the reality is that the nonprofit works for its funders. Just as a corporation might need to move in a certain direction to please its shareholders, nonprofits must please their funders, and at least some of those funders may have an interest in shaping an organization's direction and priorities.
Joining Forces
In the corporate world, mergers between companies are common.
Sometimes mergers are not mutually welcomed (as in hostile takeovers), but planned mergers are not uncommon. Trading assets, entering joint ventures, and creating efficiencies through operational integration are all part of business as usual. Corporations aggressively protect their assets, but they aren’t afraid to share them with another company if it helps them to reach a goal.
On the other hand, nonprofits rarely merge. Although they collaborate occasionally, these collaborations are often more hierarchical than peer-to-peer because grant mechanisms designate one organization as the principal and the others as subcontractors. If nonprofits embraced mergers more frequently, one benefit would be less competition for scarce funds. Nonprofits that collaborate could also realize cost efficiencies and be better positioned to offer an expanded range of services to their clients.
Serving Funders
What does this have to do with grants and grant writing? Funders, like investors in for-profit ventures, seek a return on their investment. It isn't enough anymore (and maybe it never was enough) for an organization to work for a meaningful cause or even to do good work. Both private foundations and government agencies want to work with organizations that will be good stewards of their money. They want to work with organizations that can deliver results on time and cost-effectively.
If your organization is structured to function efficiently and to maximize the use of resources to serve the funder's interests--from financial resources to human resources--the funder will want to continue to invest in you. Sending the funder required reports and meeting the basic terms of a grant is a given, but to really flourish, you need to understand and serve the funder's interests. The funder has invested in your organization because it believes you can help it achieve its desired impact on the world. If you are able to do that, the funder will continue to "buy shares" or reinvest in your organization by sending additional grant funds to you.
Additional Reading
*Update 10.12.2015: For more information about nonprofit mergers, check out the NonProfit Hub post When Your Powers Combine: Why Nonprofit Mergers Should Not Be Feared by Lincoln Arneal.
*Update 11.5.2015: Interesting article posted on Devex on nonprofit sustainability and the value of for-profit and non-profit collaborations and integrations. See "For-profit and nonprofit integration: The road to financial sustainability" by Neil Ghosh.