a strategic approach for not-for-profit organisations

A E RIPPON A strategic approach for not-for-profit organisations October 2002

Chapter 4: Strategy formulation for not-for-profit organisations 4-94

A STRATEGIC APPROACH FOR NOT-FOR-PROFIT ORGANISATIONS

PART TWO

TRANSFORMATION AND BEST PRACTICE

CHAPTER 4:

STRATEGY FORMULATION FOR NOT-FOR-PROFIT ORGANISATIONS



A STRATEGIC APPROACH FOR NOT-FOR-PROFIT

ORGANISATIONS

CHAPTER 4


Page

4.1 INTRODUCTIONS 4-97 4.2 STRATEGY FORMULATION AND NOT-FOR-PROFIT ORGANISATIONS 4-98 4.2.1 Defining the future desired state for a non-profit organisation 4-99 4.2.2 Scanning of the environment 4-99 4.2.3 Vision and mission 4-100 4.2.4 Non-profit organisation values 4-101 4.2.5 Habits and paradigms 4-104 4.2.5.1 Paradigms 4-104 4.2.5.2 Habits 4-106 4.2.5.3 The seven habits paradigm 4-109 4.3 STRATEGY FORMULATION AND STRATEGIC DECISION-MAKING

PROCESS 4-111 4.4 STRATEGY FORMULATION AND STRATEGIC MANAGEMENT MODEL 4-113 4.5 SOME NOT-FOR-PROFIT ORGANISATION STRATEGIES 4-114 4.5.1 Some alternative general strategies utilised 4-116 4.5.1.1 Corporate strategies 4-116 4.5.1.2 Strategic business unit strategies 4-119 4.6 POPULAR NOT-FOR-PROFIT ORGANISATION STRATEGIES 4-126 4.6.1 Portfolio analysis 4-127 4.6.2 Strategic piggybacking 4-131 4.6.3 Inter organisational linking 4-132

4.7 SELECTING THE BEST STRATEGY 4-133

4.8 STRATEGY FORMULATION OF POLICY AND CONSTITUTION 4-133

4.9 CLOSURE 4-134




SYNOPSIS The first step of the strategy formulation process entails defining the non-profit

organisation’s future desired state in relation to the cause, as well as expressing

where it is heading. Here the cause or purpose for which the organisation was

initiated needs to be analysed and ascertained to see if the issues of concern are still

as relevant as in the past. Many non-profit organisations have causes, which, due too

many changes in the environment, are no longer relevant or do not have the

relevance they did in previous years.

In this chapter, the study includes the key activities involved in the process of

formulating strategy, the strategy formulation process, strategy formulation and

strategic decision-making process. This process also strategy formulation, a Strategic

Management model and some alternative strategies in general on strategy

formulation. Some popular non-profit organisation strategies, as well as the selection

of the best alternatives and strategy formulation of policies as broad guidelines for

implementation are also included.

Environmental analysis or scanning the environment, as discussed in the previous

chapter, forms the core of this process, and the objective of formulating strategy is to

optimally position the non-profit organisation, to contend with a constantly evolving

external environment. The first three components of the process, namely vision,

mission, and values, define the non-profit organisation’s desired future state.

After completing the process of strategic planning in arranged sessions, often at a

“get-away” in the outdoors, organisations forget to follow through with the

implementation of the formulated strategies decided on. In this chapter following

through and implementing the strategic plans developed are emphasised.



A STRATEGIC APPROACH FOR NOT-FOR-PROFIT

ORGANISATIONS

CHAPTER 4

STRATEGY FORMULATION FOR NOT-FOR-PROFIT

ORGANISATIONS

4.1 INTRODUCTION

In many organisations, strategy formulation is nothing more than an annual

ceremonial rain dance, which has as much effect on managing change within the

organisation as that the rain dance has in changing the weather. (Weeks & Lessing

1993: 34). This does not exclude non-profit organisations. In many cases, after

organisations go through the process of strategic planning in arranged sessions, many

strategic decision-makers and managers enter their daily business as usual routines

without providing for efficient implementation of the formulated strategies formulated.

It is of utmost importance to translate strategies into implementation programmes.

Here business plans assist with the formulation of strategies into implementation

programmes for achieving set objectives, and for performances to be achieved in the

future.

As many non-profit organisations strategic decision-makers are often voluntary, their

commitment and time allocated to the successful managing of such organisations is

limited, which results, in many cases, in their not following through with strategy

implementation as required.



Another problem is that many such strategic decision-makers only spend a certain

period holding such positions. They later either resign due to other primary

commitments or are replaced by other co-opted voluntary participants. Often this

affects implementation of well-formulated strategies drawn up by previous managers

elected to manage the organisation at the time. Changing managers annually will

lead to the changing of long-term strategies of the previous regime.

Included in this chapter is a brief overview of the key activities involved in the process

of formulating strategy.

4.2 STRATEGY FORMULATION AND NOT -FOR-PROFIT ORGANISATIONS

The model presented in Figure 4-1 (adapted from Weeks & Lessing 1993: 38),

provides for a schematic framework for a typical strategy formulation process for

strategic decision-makers and managers of non-profit organisations.

Figure 4-1: Non-profit organisation strategy formulation process

Source: Adapted from Weeks & Lessing 1993: 38



The essence of a future desired state and not the organisation’s history is

emphasised, although the history can be analysed to project various scenarios

developed for the future.

Position the non-profit organisation by focusing on an evolving future and not focus

on the historical context only.

4.2.1 Defining the future desired state for non-profit organisations

The first step of the strategy formulation process entails defining the non-profit

organisation’s desired state, in relation to its cause for existence or destination. Here

the cause or purpose for which the organisation was initiated needs to be analysed

and ascertained, to determine whether the issues of concern are still as relevant as

they were in the past. Many existing non-profit organisations have causes that, due

to many changes in the environment, are no longer relevant or are not as relevant as

they were in previous years. Changes in technology, attitudes or legislation in an area

of concern constitutes to these outcomes. The question of whether the vision,

mission, values or issues of concern that is still of relevance or still need to be

adapted to the current situation.

4.2.2 Scanning of the environment - an environmental analysis

Scanning of the environment forms the core to an environmental analysis for a non-

profit organisation. The objective of formulating strategy is to optimally position the

organisation to contend with a constantly evolving external environment. This

presents many opportunities often threatened by continual changes occurring in the

environment. The first three components of the process, namely vision, mission, and

values, define the organisation’s desired future state. It is important to review these

aspects carefully. This is also true for non-profit organisations of long historical

standing who have many enforced traditional rules and regulations.



Resistance to change becomes increasingly difficult to overturn, as set habits, culture

and rituals are common to non-profit organisational networks presently in existence.

4.2.3 Vision and Mission

Visioning is a process that enables executives to temporarily forget reason, look

beyond the present into the future, and determine what the non-profit organisation

would like to survive in this envisioned future environment. In brief, an organisation’s

vision is a picture of the future organisation stated in the present.

The mission statement is a clear statement of purpose or reason for existence

which defines the organisation’s right to exist, or is providing correct function in its

attempts to fulfil a role in society. Mission statements take on varying forms. In

general, they define the basic purpose and business of the organisation, its role in the

environment and the type of services and benefits provided. Furthermore the target

areas of concern it focuses on, who its clients/members, role players, stakeholders,

interest groups and individual specialists in these areas of concern are, and the scope

of its operation and how it conducts its activities. A combination of these elements

can be utilised to establish a mission statement for a non-profit organisation.

The following three questions can be answered when formulating the statement,

namely:

• What is the function of the non-profit organisation?

• For whom does it perform this function, i.e. who are its clients/members?

• How does it carry out this function in a community environment?

Non-profit organisations need to provide for a clear-cut focus when deriving the

mission statement.



4.2.4 Non-profit organisational values

The third component, defining the organisation’s desired state, is a statement of the

organisational values and ethics, often termed a philosophy statement or philosophy

of the organisation. The value statement provides guidelines for the behaviour within

the non-profit organisation.

The shared values, beliefs, norms, traditions, ethics, attitudes and ways of doing

things that have become entrenched within the organisation, are collectively referred

to as the organisational culture. In the case of many developed non-profit

organisations these elements which have been formed over many years are often well

entrenched.

These cultural elements act as a perceptual filter, and influence both management

and employees’ perceptions. These elements are interpretations of situations or

events. Indirectly culture, as a perceptual filter, acts as a behavioural determinant,

and the importance of the concept, from a strategic change management perspective,

especially for that of non-profit organisations, is manifest therein.

In formulating a values statement for non-profit organisations, the focus is on the

desired culture and not on the prevailing values, norms or beliefs of the organisation.

This element of culture plays a major role in many non-profit organisations and often

determines the success of the organisation’s future state, existence and sustainability

within a community environment.

Organisational behaviour and the shared values of all in the organisation, as stated

within the value statement, must be compatible if they are to have any meaningful

influence in the implementation of strategy of a non-profit organisation.



It is important to point out that the values included in the value statement may either

be the prevailing values or the values deemed essential the for the implementation of

a new strategic direction for the non-profit organisation. A desired culture, not

prevailing culture, is important if change is inevitable to the future sustainability of the

non-profit organisation. It is very important that strategic decision-makers and

managers of non-profit organisations obtain clarity as to the culture required for

managing strategic change within the organisation in question.

Having completed the process in defining the non-profit organisation’s desired future

state, the next step in the organisation’s strategy formulation process is the need to

identify the key success factors (KSFs). These factors are based on organisational

strategy in practice, and are combinations of factors identified in contributing to the

future success and survival of the organisation.

These are usually results orientated determinants which impact on the performance

and provide for the future sustainability of the non-profit organisation or not.

Examples are as follows:

• Client / member satisfaction of services received

• Service excellence of benefits offered

• Return on investment on capital projects

• Turnover from membership fees and other revenue sources

• Total quality of service output

• Ability to solve issues concerning or affecting a community cause

• Satisfaction of stakeholders, role players and interest groups

• Successful obtaining sponsorships / grants

• Earnings from donations in support of the cause

• Revenue from events and functions organised on behalf of members

• Interest earned on investments

• Growth in the membership portfolio joining the organisation

• Ratio of paid to unpaid membership fees



On completing this activity of identifying the future desired state and key success

factors that will determine a future success or failure, the strategic decision-making

team of the non-profit organisation needs to identify the strategic issues that must be

addressed, and to formulate the strategic objectives for the organisation. A core

element for establishing these objectives accurately is undoubtedly having a

comprehensive understanding of the organisation’s internal and external

environments. Such an analysis of these environments will encompass scenario

development by deciding on which scenario is most likely to derive success in the

future. This will ensure the future existence and long term sustainability of the non-

profit organisation.

These strategic objectives direct the non-profit organisation by moving it from its

prevailing state to a desired future state. Continually scanning the environment for

ongoing opportunities and external threats, also monitoring the growth and strengths,

focusing on minimising the identified weaknesses that prevail within the non-profit

organisation and carefully monitoring the organisation’s ever changing environment

(with uncontrollable variables) will force an organisation to anticipate various

alternative scenarios from which it can choose from.

At top management (board of directors or executive committee) level of the non-profit

organisation, there may be specific goals that need to be realised in the short- term.

These goals are usually of vital importance to the future existence, growth and

sustained survival of the organisation. These strategic goals at this level are often

termed chief objectives. They serve as a frame of reference for formulating strategy

at the business unit level (often a sub-committee level in the case of non-profit

organisations). The strategic goals formulated by business unit strategic decision-

makers form part of the chief objectives of the organisation, developing a golden

thread of activity relative to performance and results required.



4.2.5 Habits and paradigms: their role in the strategy formulation of non-profit

organisations

4.2.5.1 Paradigms

Paradigms, although discussed in chapter 3, are important to the existence of non-

profit organisations and their future desired state for sustaining their existence.

Understanding such paradigms assists with organisational change management, which

contributes to the development of the future perceptions of strategic decision-makers

of non-profit organisations. These decision-makers need to be equipped to formulate

strategy for a future desired state. Paradigms as described in chapter 3, are a set of

mental maps, mind sets or rules that people use for deciphering, understanding

interpreting and, in general, making sense of environmental reality. Conceived as

prisms or filters through which non-profit organisation decision-makers view the world

and shape or colour the perception thereof.

People are not normally aware that their perception of reality is being filtered by their

paradigms or mindsets rooted in past experiences. In the case of strategy, this plays

a major role for decision-makers of non-profit organisations. The mindsets of people

are such that they resist change by nature. Locked into tradition and ritual of

believing that what worked in the past must certainly work in the future.

Being set in the past, future distortions, to fit their perceived notion of reality,

effectively blind management for the future, which often leads to a stagnating non-

profit organisation. With time, change often forces change, shocking into reality, and

challenging strategy makers of non-profit organisations, who have ingrained

traditional mindsets and only take cognisance of what they wish to see. It is

important to incorporate environmental changes that continually occur as a changed

approach to that of strategy formulation.



Challenging traditional paradigms implies a need to challenge the assumptions,

beliefs, norms, traditions, attitudes, values and behaviour of non-profit organisations,

which underlie these paradigms or mindsets. Where these traditional attributes,

collectively shared by a group of people in a non-profit organisation, exists this implies

that the need exists to challenge the culture of the organisation.

Non-profit organisations are webs of social interaction that sustain the organisation’s

culture. Paradigms transformation therefore clearly embodies an element of culture

transformation, which, for non-profit organisations, may need careful intervention of

all systems using well-designed processes and procedures.

In formulating strategy, it is important that strategic decision-makers and managers of

non-profit organisations explore processes and procedures. Scenario formulation is a

powerful means of getting the leadership of non-profit organisations to think through

the cause-effect relationship that will give rise to alternative processes and

procedures. These will establish future efficient Strategic Management practices

aligned with environmental changes experienced. The formulation of scenarios for

the future of a non-profit organisation existence and long term sustainability forces

strategy makers of such an organisation to challenge or question their prevailing

mindsets.

Scenario construction is a team effort, and involves getting a non-profit organisation’s

members to present alternative perspectives for the organisation’s future

environmental reality. Includes are reservations, doubts and differences in opinion on

how the organisation is perceived and should be perceived. This inevitably challenges

the mindsets of all members of a non-profit organisation right through the

organisation. A team effort, and participation by all relevant role players,

stakeholders, interest groups and interested parties, is needed to facilitate change in

attitudes for achieving the most effective results. As a process, scenario construction

stretches the imagination of all who participate in the process, to encompass

alternatives, which often remain hidden in the traditional SWOT analyses.



Not all-experimental learning is collectively determined, although the concept culture

has a substantial impact on the management and employee’s paradigms of non-profit

organisations. People often hold differing paradigms in a group context, having

differing mindsets about their environments, issues of concern or causes of passion,

which are the driving forces responsible initially for starting a non-profit organisation.

It is fundamental to achieving a paradigm shift of thinking in people’s mental images,

within a group context of a future evolving or changing environmental reality of a

non-profit organisation. When people or groups of people’s paradigms change, their

view of the world radically changes and their world suddenly changes. Paradigm

transformation is, in all probability, one of the most complex issues for effectively

managing non-profit organisational change, especially in fast transforming

environments as experienced in present day South African organisational climates.

“We are what we repeatedly do. Excellence then is not an act but a habit.”

(Aristotle)

4.2.5.2 Habits

Character, basically, is a composite of habits. “Sow a thought, reap an action; sow an

action, reap a habit; sow a habit, reap a character; sow a character, reap a destiny”,

as the maxim goes. (Covey 1989: 46). Habits are powerful factors in the lives of

people and groups of people in a mindset. These habits often are unconscious

patterns, and constantly express people’s character and produce effectiveness or

ineffectiveness on a daily basis.

Breaking deeply imbedded habitual tendencies involves more than will power and a

few minor changes in the lives of people or groups of people, who by nature often

resist change. Habits too have a tremendous gravity pull, which is more than most

would realise or even admitted. Like any natural force, gravity pull can work either

with or against the system. The gravity pull of some of these habits may currently be

keeping a people or organisations from going where intended. This is in order to move

with changes occurring in the environment.



Covey (1987: 47) defines habits as the intersection of knowledge, skill and desire.

Figure 4-2 highlights this definition.

Figure 4-2: Effective habits: Internalised principles and patterns of

behaviour

Source: Covey 1989: 46

• The maturity continuum

The seven habits are not a set of formulas formulated as a concept or idea by Covey,

but are in harmony with the natural laws of growth, and provide an incremental,

sequential, highly integrated approach to development of personal and interpersonal

effectiveness. The direction in which people feel moved on a progressive maturity

continuum starts with dependence, further moving towards independence and then

towards interdependence.



This does not only relate to individuals but to groups of people in organisations, and

even to groups of people in community environments. Often non-profit organisations

are in a position of dependence, reliant, for example, on only one source of revenue

(government subsidy) or dependent on the mindsets of the comfortable past (what

worked in the past should surely work in the future). With changing paradigms,

people can become more independent as non-profit organisations and later

interdependent, in synergy with other community organisations. New levels of

maturity within a system (community) develop. A holistic systems approach begins

with a shift in paradigms and finally initiates a process of the forming of constructive

and effective habits.

• Effectiveness defined

• The seven habits are habits of effectiveness. Habits based on principles that bring

the maximum long-term beneficial results possible emerge. They become the

basis of a person’s or group’s character, creating an empowering centre of correct

mind maps, from which effective problem solving can be developed to maximise

opportunities and continually learn and integrate other principles, in an upward

spiral of growth (Covey 1987: 52). Habits of effectiveness based on a paradigm

of effectiveness that is in harmony with natural law develop.

Non-profit organisations’ strategy makers can take cognisance of the habits and

interventions that are necessary to stimulate change. To achieve a new desired

future state it is important that a paradigm shift of thinking, starting with the Strategic

Management of the organisation, is important. The following seven habits can assist

in creating a new shift in what determines a successful environment for achieving a

future state of successful performance results within the non-profit organisation.



• Non-profit organisations represent groups of people who are often strategy makers

on a voluntary basis and represent boards of directors or executive committees.

Suggested is a structure of management and staff comprising a Chief Executive

Officer (CEO) with management and staff assisting with the daily operations.

It is important that strategy formulation involves participation at all levels within a

non-profit organisation. Paradigms need intervention at all levels to ensure a follow

through of a new or revised desired future state. The importance of changing habits

continually throughout the non-profit organisation remains a constant challenge.

Communicating these changes and communicating these principles learned adopting

Covey’s model of seven habits for highly effective people. A collective effect creates

positive participation by all if communicated properly.

4.2.5.3 The seven habits paradigm

To assist existing and developing non-profit strategy makers of non-profit

organisations, a discussion on the model developed by Covey (1989: 53) in more

detail.

The seven habits of highly effective people is a study which was identified from

intensive research of successful entrepreneurs, leaders and management world wide,

pertaining to common habits developed for establishing successful performance

orientated results, are shown in Figure 4-3 below. First achieving what Covey terms

Private Victory leading to developing levels of maturity to Public Victory.

Non-profit organisations, due often to looser voluntary management practices, need

to seriously take cognisance of these mindsets and, from time to time, change their

mindsets. By changing habits, managers of non-profit organisations in South Africa

will encourage the rest of the employees and members.



Figure 4-3: The seven habits paradigm

Source: Covey 1989: 53

Not for-profit organisations also form part of a society in transition that all too often

allows socio-political change to outstrip people’s ability to transform ingrained

paradigms. Revolutionary change is often an environmental reality (adapted from

Weeks & Lessing 1993: 39).

In South Africa, at present, transformation and change in the mind-set of all South

Africans has become the order of the times. Globalisation is constantly creating

changes on all continents, forcing all systems and systems within systems, to analyse

their existence and realign themselves to fast changing environmental variables within

global communities. In many of these global communities, there exist non-profit

organisations with a passion for specific issues and causes of concern, which

continually lobby in these communities.



4.3 STRATEGY FORMULATION AND STRATEGIC DECISION-MAKING

PROCESS

Continuing strategy formulation pertaining to that of non-profit organisations, further

reference is made to the strategic decision-making process as briefly introduced in

chapter 2 previously. Figure 4.4 graphically provides this process.

Figure 4-4: Strategic decision-making process

Source: Wheelen & Hunger 1999: 27

A further discussion on six distinct steps for non-profit organisations, with the first five

incorporating a situational analysis that begins with the first five steps as follows:

Step 1

This includes the evaluation of the current performance results and review of the non-

profit organisations, vision, mission, values, objectives, strategies and policies.



Step 2

Included is reviewing non-profit organisations strategic decision-makers and

manager’s evaluation of their competencies, their level of involvement in a non-profit

organisation, and the performance of the existing board of directors (executive

committee) and other strategic managers of an organisation.

Step 3

Focusing on those external environmental influences or external environmental

variables already discussed in the previous chapter that could affect the present and

future state of the non-profit organisation, including its existence and sustainability.

Here scanning the external environment concentrates on tasks, which includes

collecting all relevant information, searching for opportunities and threats, selecting

strategic factors and the forecasting of events which are likely to affect the

organisation. This includes those that affect all strategic decisions made and

ultimately the future desired state of the non-profit organisation within a community

or environmental domain of operation.

Step 4

As discussed in the previous chapter, scanning of the internal environment which

dealt with a non-profit organisation’s focus on its organisational structure, culture,

sources of revenue and other resources and the importance of correctly selecting or

electing efficient motivated lateral thinking strategic decision-makers and managers.

Step 5 (a)

This step includes an analysis of the strategic factors for non-profit organisations in

the light of the current situation of a specific organisation. This includes the

undertaking of a SWOT analysis and incorporating portfolio analysis methodology,

specifically relating to existing and developing non-profit organisations. Here it is vital

that a community focuses on maintaining and sustaining an existing or developing

non-profit organisation.



Step 5 (b)

The review and revision of the vision, mission, values, objectives, strategies and

policies of a non-profit organisation is necessary before initiating alternatives.

Step 6

The sixth step of the decision-making process is the generation of alternative

strategies and the best selection thereof. In this section a discussion on some popular

non-profit organisation strategies, which may assist in the selection process of which

best alternatives to chose from is included. After this process is completed and the

appropriate strategies selected, establishing which appropriate policies can be used to

define the ground rules for implementation is important. An overview of existing

strategies, highlighting the criteria utilised in the evaluation of these strategies, is also

included. Furthermore, some suggestions on how to chose an optimal strategy and

on how strategy translates into policies are included.

4.4 STRATEGY FORMULATION AND THE STRATEGIC MANAGEMENT

MODEL

Figure 4-5 refers to a Strategic Management Model adapted for non-profit

organisations and highlights where strategy formulation fits into the model. As

discussed in chapter 2, strategy formulation determines the importance of a strategic

approach for the future existence of existing and developing non-profit organisations,

especially those experiencing fast changing environments.

In this chapter, there is a discussion on the vision, mission, values, formulation of

objectives and key strategic success factors needed to formulate strategies around

strategic issues of concern for non-profit organisations. This is to establish a future

desired state, and to achieve specified objectives at various levels within an

organisation. An organisation’s policy statements together with the above are not

mutually exclusive to the strategy formulation process.



Managers cannot formulate policies without knowing what are the strategic objectives.

The following guidelines highlight aspects for the formulating of policies for non-profit

organisations. In practice, after these processes are completed, a non-profit

organisation often documents strategy formulation in a written constitution.

Annexure A provides a Constitution for the model non-profit organisation (to be

discussed in chapters 7 and 8) for translating theory into practice.

4.5 SOME NOT-FOR-PROFIT ORGANISATION STRATEGIES

A key part to the strategy formulation process is to develop alternative strategies or

courses of action. These include actions for specifying the means for accomplishing

the non-profit organisation’s mission and objectives and for achieving the performance

required.

There is no one specific set of strategies that can be utilised at all levels within the

non-profit organisation. Each level, whether corporate or top management level,

functional or divisional or SBU (Strategic Business Units) level may have different

strategies. In the case of certain non-profit organisations, committees or sub-

committees, each need to develop specific strategies pertaining to the issues of

concern each committee undertakes to focus on. All relate to the cause or vision,

mission or objectives that the organisation is striving towards achieving. Figure 4.5

indicates those determinants that need to be considered before a strategy is selected.



Figure 4-5: Strategic Management model for non-profit organisations

Source: Own compilation adapted from various models



4.5.1 Some alternative general strategies utilised

Wheelen & Hunger (1999: 163) refer to the following alternatives that may be

considered.

4.5.1.1 Corporate strategies

§ Stabilising Strategies

(For reasonably predictable environments)

These include a No-change strategy, Profit strategy, Pause strategy and

Proceed-with-caution strategy.

• Growth Strategies

(Popular, as most top managers and strategic decision-makers equate growth with

success)

These include a Vertical integration strategy, Horizontal integration strategy,

Diversification strategy, Mergers acquisitions and joint ventures, Concentration

strategy and Investment strategy.

• Retrenchment Strategies

(Relatively unpopular because retrenchment seems to imply failure)

These include a Turn-around strategy, Divestment strategy, Captive company

strategy and Liquidation strategy.

• Combination Strategies

(Composed of a number of the above strategies)



The focus is on the use of several overall strategies as Stability, Growth and

Retrenchment strategies.

Non-profit organisations’ top decision-makers can also relate to combining such

corporate strategies. A popular combination is stabilising, growth and turn-around

strategies where non-profit organisations provide for surpluses rather than profits,

which are ploughed back into the system for the growth of the organisation.

One of the many sources of revenue for non-profit organisations is from membership

fees. In many cases, this membership fee base, if nurtured annually, stabilises the

organisation’s existence. By periodic revision of the benefits offered to members, the

organisation ensures that members remain satisfied. Members receive only the future

value of such benefits.

These benefits may change in relevance from time to time. The larger the

membership base the greater the “voice” of representation. The larger base

collectively allows for greater lobbying power on those critical issues of concern when

fighting a cause. Often traditional non-profit organisations fail to see changing

environmental variables timeously, and need to enter a stabilising, turn-around

strategy with an increase in growth to enhance the collective “voice” of representation

of the organisation. Power lies in the number of people standing together

representing the cause on critical issues of concern within a community environment.

The following questions need to be asked when deciding what the non-profit

organisations should look like in the future:

• Should the non-profit organisation pursue the same cause, based on whether the

issues of concern or relevance of such issues is still as important as in the past?



• Should the organisation do away with the whole business or refocus on certain

critical issues still prevailing and do away with others?

• Should the organisation become more efficient in the business or work on activities

that are relevant to issues of concern?

• Should the organisation grow by expanding its membership or client base or

diversify its portfolio of issues pertaining to changes in the environment that dilute

the cause?

• Should the organisation grow primarily by forming strategic alliances with other

non-profit or profit making organisations in the community environment?

• Should the organisation utilise different strategies in different areas of the

organisational network? This would be the case if a network of non-profit

organisations were operating in various community environments in regions,

provinces, either nationally or globally. (Own observation)

Before selecting a specific corporate strategy, top decision-makers and strategic

managers of non-profit organisations should analyse all the pros and cons of each

feasible alternative in the light of the organisation’s situation.

Although the non-profit organisation’s chief objectives do not focus on profitable sales

of goods and services, their constitution may allow for strategic partnerships with

profitable organisations, who can offer a collective service to its members. Examples

of this would be labour law services, law services, marketing and advertising services,

accounting and auditing services, information technology services, services for the

organising of special events, functions and sports days.



Thus, the following strategic business unit strategies can directly or indirectly apply,

depending on the nature and structure of the non-profit organisation. Often non-

profit organisations operate in a non-competitive environment but provide benefits or

services to their members or clients in partnership with profit making organisations

that operate in a competitive environment.

Such strategic alliances with profit making organisations are becoming a common

practice in community based non-profit organisations. They often have limited

resources at their disposal and piggy-back on profit making organisations for the

provision of selected collectively beneficial services or benefits which can be offered to

their members. The following Strategic Business Unit strategies can apply to non-

profit organisations with different divisions, autonomous organisations who are part of

the same network or committees and sub-committees in relevant focus areas of

concern.

4.5.1.2 Strategic Business Unit strategies

SBU strategies are applied to non-profit organisations structure, often represented by

committees, help-desks of specific specialised activity or sub-committees, which focus

on issues of concern in specific areas. These areas of concern can involve benefits

offered to members of the organisation and can be competitive in nature.

• Porter’s Competitive Strategies

Not all industries in which non-profit organisations operate have the same potential

and Porter briefly highlights the following forces driving industry competition.

Porter proposes three generic strategies for outperforming other organisations in a

particular industry; overall cost leadership, differentiation, and focus, which is similar

to the corporate strategy of concentration.



Porter lists some of the required skills and resources as well as organisational

requirements in Figure 4-6.

Figure 4-6: Forces driving industry competition

Source: Porter 1980: 4

Before selecting one of these strategies for a particular organisation or organisations

Strategic Business Unit, it is important to firstly assess the non-profit organisations

feasibility in terms of its divisional or committee strengths and weaknesses.

o Overall cost leadership strategy

This strategy relates to leading the organisation through a period where cutting costs

will develop an edge for the organisation by it either remaining in existence or by

sustaining the organisation in its community environment for the long term. As

environments become volatile to changes necessary to realign the organisation, a

strong control over costs may be necessary. This could be in the short or even the

long term.



Overall cost cutting and controls in all areas of the organisation include: collecting of

all outstanding membership fees and monies owed, minimising costs in various areas

such as research and development, sales force, advertising, elimination of

unnecessary administrative and running costs, such as expensive offices, and

monitoring of uncontrolled use of telephones, faxes and other resources.

Furthermore, there will be reduction of costs on borrowed capital such as overdraft

interest. Many non-profit organisations operate on limited resources and often need

to apply this strategy, especially in lean times or in combination with turn–around or

stabilising strategies.

o Differentiation strategy

This strategy involves the creation of a product or service perceived throughout the

organisation’s industry or operating environment as unique. The technique involves

the specific design of brand image, technology, features, dealer networks or customer

client or servicing of members, of, in this case, a non-profit organisation membership

benefits portfolio.

Non-profit organisations can utilise this strategy when developing and designing a

benefits package for their clients/members. It differentiates itself from other non-

profit organisations, or profit-making organisations offering services of a similar nature

to the prospective clients or target members. This may increase the collective number

of people in support of the organisations goals and objectives. This could expand into

all sources of revenue other than well-known forms such as sponsorships, grants,

donations and traditional membership fees. Often such a strategy of differentiation

incorporates strategic alliances and partnerships termed community public-private

partnerships (CPPPs) or just public-private partnerships.



Figure 4-7: Requirements for generic competitive strategies

Source: Porter 1980: 40

These terms are especially utilised in non-profit organisations alliances where

governmental organisations form such alliances with private non-governmental/

private non-profit organisations or private profit making organisations.

o Focus strategy



This business unit strategy focuses on a particular buyer group, service line, segment,

or geographic market. When non-profit organisations, through alliances with other

organisations, provide competitive products or services as benefits to their members,

knowledge of this strategy could assist in the choice of an alternative. When non-

profit organisations focus on specific service segments within their client or

membership base and provide for specialised niche strategies to encourage members

to either join or to increase revenue from providing such services, a focused strategy

is utilised. If different needs arise within a network of non-profit organisations

operating in various geographical regions that differ from one region to another, a

focus on the needs of the clients or members may differ. By developing packaged

benefits, designed to suite their needs, these will meet their unique set of

requirements. This enhances an organisation’s ability to attract potential clients or

members to the organisation.

• Functional-Area Strategies

The principle focus of functional-area strategies is to maximise an organisation’s

resource productivity. For non-profit organisations, various function areas may exist.

Various issues of concern might drive these to a community or by a cause for which

the organisation stands. In each function area or specific issue of concern, it is

important to optimise the use of resources that are often limited in many non-profit

organisations. These strategies developed, pull the various activities and

competencies of each function together to improve performance results.

Example:

The marketing committee recruiting members or clients for the organisation would be

interested in developing a strategy to improve the benefits package offered to the

organisation’s client members in order to attract members more easily with benefit.



The finance committee would in turn wish to develop a strategy that could increase

revenue for the organisation by providing such benefits to its members in the most

cost effective manner.

Figure 4-8 highlights a typical functional strategy decision tree which functional

managers and committee chairpersons need to take cognisance of in terms of

functional issues of concern to the organisation:

Figure 4-8: Functional strategy decision tree

Source: Wheelen & Hunger 1999: 188

• Some strategies to avoid for non-profit organisations



Poor analysis can lead to the following strategies. Avoiding these strategies is

important where possible. Wheelen & Hunger (1999: 190) refer to the following

strategies to avoid. These are more often or not also applicable to non-profit

organisations.

o Follow the leader - imitating other profit or non-profit organisation’s strategies may

be perceived as good, but it ignores the organisation’s own strengths and

weaknesses or even its own opportunities and threats in its community

environment.

o Hit another home run - if an organisation is a pioneer in providing a specific

service to its clients or members, it has a tendency to search for another super

service that will ensure growth and prosperity. Like winning at the horse races,

this is a long shot and most unlikely.

o Arms race - aggressive marketing against other non-profit organisations often only

incurs costs in marketing, advertising research, development, and promotions.

Alternatively, in the case of a non-profit organisation wanting to compete with

profit making organisations providing benefits to clients or members may result in

bad provision of services and, eventually, a loss of clients or members. Here the

focus of the non-profit organisation should remain on the core issues that brought

the organisation into existence and not on spin off services just for the sake of

searching for new sources of revenue.

o Do everything often in times of crisis management, many opportunities can

present themselves simultaneously and managers of non-profit organisations have

the tendency to want to take up every possible opportunity, instead of selecting

the most viable at the time. Limited time and resources is available in many cases

and by wasting time and resources trying to pursue multiple opportunities all at

once could force the organisation into a further crisis.



o Losing hand - Often a non-profit organisation’s top management invest so much

time, effort and resources into a strategy that they are unwilling to accept defeat,

and cannot let go of the unsuccessful strategy.

4.6 POPULAR NOT -FOR-PROFIT ORGANISATION STRATEGIES

In many cases the vision and mission of a non-profit organisation is to satisfy an

unmet need of the public. Its chief objective then becomes one of satisfying as much

as possible that specific need in a community environment. In many cases, where

revenues, exceed costs and expenses, surpluses are utilised to expand, grow and

stabilise the organisation as times change. Often costs and expenses can exceed

revenues and this creates great internal and external pressures on the organisation to

continue to provide its services. These services are, in many cases paid for up front,

and hold the organisation in good stead in the short term. It is important that

members/clients of non-profit organisations care for these members or clients and

provide benefits and services of value.

Sponsorship and grants are not always readily available as cycles in the economy or

fluctuations in revenues to meet costs and revenues are insufficient. A ceiling exists

for revenue generated through sponsorships and donations. Non-profit organisations

have had to find alternative means to generate cash flow to meet their revenue

requirements. The following popular strategies have been utilised to stabilise revenue

and grow the representation base of non-profit organisations:

• Portfolio strategy for attracting members or clients by developing a benefits

package for growing membership portfolio or existing client bases;

• Strategic piggybacking by developing piggybacking on other non-profit

organisations as well as well branded profit making organisations;

• Inter-organisational linking by creating synergy (inter-dependence) with other non-

profit organisations or well branded profit-making organisations.



These strategies provide a lower risk scenario for revenue generated annually and

over the long term in such organisations. This allows for a better focus in providing

for the needs of the public or community in general.

As many profit organisations do not wish to provide these services to the public, they

are often willing to create a win-win situation, by providing services to assist in

attracting clients or members for the non-profit organisation. In return, the non-profit

organisation offers media and advertising exposure enhancing the branding of these

businesses in a community environment.

4.6.1 Portfolio strategies

Portfolio analysis assists non-profit organisations in developing a membership

product/service portfolio. This is a useful method utilised when separating each

product; service; strategic business unit; division or functional activity. There are a

number of matrixes available to reflect the variables under consideration in a portfolio.

Products or services can be for:

• Growth

• Rate of recruitment of members/clients

• Relative competitive position to other non-profit organisations offering similar

benefits/services or to profit making organisations

• Stage of benefit (product or service) in evolution

• Market share of product or service offered to a members’ portfolio

• Community attractiveness relative to benefits offered (products or services)



Some matrixes that exist in portfolio analysis are the following:

(a) Four Cell BCG growth share matrix

(b) Nine Cell GE Business screen

(c) Fifteen Cell Product/Evolution Matrix

For purposes of this discussion for non-profit organisation, members’ benefits portfolio

matrix, (a) combination of (b) and (c) is utilised.

In developing a non-profit organisation the organisation portfolio is the most

recommended for integration and evaluation of environmental data. In the case of

non-profit organisations operating in a community environment, with the main source

of revenue coming from people joining the organisation paying membership fees,

either annually or monthly utilisation of the portfolio analysis method of establishing a

recruiting strategy is suggested. This results from providing a well-determined basket

of needs with accompanying benefits, or a portfolio of benefits provides a package

portfolio most attractive to the members. The following offers benefits in categories

as follows:

• Income generating benefits

• Cost cutting benefits

• Value added service benefits and

• Specialist service benefits

The benefits making up the portfolio or basket of benefits could be tangible or

intangible products or services. The following figure highlights the use of portfolio

analysis when considering a benefits package offered to members of a non-profit

organisation. From the basket of benefit alternatives, some benefits and others not,

pending the collective attractiveness established with members.



When finalising the benefits needs analysis for the non-profit organisations, an

undertaking with existing and prospective members determines the outcome of the

final package proposed.

With careful structuring of the benefits’ package, this portfolio of benefits will assist

the recruiting consultants in their ability to recruit more members. This will increase

revenue for the organisation and increase its representation collectively for purposes

of lobbying on critical issues of concern that the organisation supports and is fighting

for as a cause within its community.

The following figure indicates an organisation’s potential for attracting new members

and revitalising old by reviewing and revising what benefits it can offer its members:

Figure 4-9: Members benefits portfolio

Source: Own research on the Western Environmental Community Forum 1999: 20



Figure 4-9 indicates a typical example of a nine-cell matrix for non-profit organisations

developing a benefits portfolio or cluster of products and services. The benefits

“package” offered to its existing or prospective future members or clients. The

Western Environmental Community Forum is one of eleven redundant Environmental

Community Forums (ECFs) proposed for developing a benefits package for

membership portfolios in eleven regions of the Greater Johannesburg Unicity.

Statistics of the Unicity according to the Pikitup Johannesburg (Pty) Ltd business plan

is as follows:

• Population figures as by the Greater Johannesburg Strategic Metropolitan

Development framework: 3 800 652 in 1998 with 3.4% growth rate annually.

• Due to the influence of Aids and other environment variables an estimated

3 300 000 residents will be a more realistic figure by the year 2010.

A prospective base of three hundred thousand members per region is possible for

developing a membership base for each of the ECFs proposed. If only ten percent of

these prospective residents are recruited as members over the next ten years, thirty

thousand members per forum is potentially possible. If each resident only contributes

ten rand per month to a forum, the revenue source monthly from membership fees

will amount to three million six hundred rand per month to develop the forum’s vision

of creating an environmental awareness in each region.



4.6.2 Strategic Piggybacking

Strategic piggybacking refers to the development of a new activity for the non-profit

organisation for the purposes of generating funds needed to make up the difference

between revenues and expenses. It is important that the activity is directly or

indirectly related to the non-profit organisation’s vision, mission goals and objectives

and is not “uncoordinated” with the organisation’s purpose. Its specific purpose,

though, is to subsidise the primary services or benefits offered to its clients or

members. This is important as the organisation may otherwise jeopardise its tax-

exempt status.

New Ventures, a well-known New York consulting firm, suggests the following five

resources needed before beginning a revenue-activity (Wheelen & Hunger 1999:

294):

• Something to sell

The organisation must research not only the need for the service, but also whether

the members or clients would wish to buy such a service, if offered, as an indirect

service to its primary activities

• Critical mass of management talent

There must be sufficient people with expertise in providing the service within, or in

alliance with, the organisation to sustain the service in the long term.

• Board/executive committee/senate support

If the trustees, executive committee, board, or directors have any reservations about

earning revenue by providing such a service, they may directly or indirectly resist any

commercial involvement.



• Entrepreneurial attitude

Management must combine an interest in creative innovations with businesslike

practices to ensure any success in such suggestions

• Venture capital

Here again a joint venture or partnership with organisations having the resources and

expertise will be necessary in assisting with developing and implementing the services

suggested, together with the management of the non-profit organisation

Strategic piggybacking in South Africa amongst non-profit organisation networks is

becoming increasingly noticeable. This is not only due to the nature of fast changing

environments in transformation, but also to the fact that many such organisations

relied on subsidies or government grants for the revenue generation in the past and

this has now in many cases fallen away.

4.6.3 Inter organisational linking

A major strategy often used by non-profit organisations is inter-organisational linking

with other similar non-profit organisations in community environments. This is mainly

for the common use of similar resources, as each needs to cope with the rising

expenses and strategic or falling revenues. Such synergy between organisations is

becoming increasingly relevant in South Africa, especially in the non-profit

organisations promoting a voice for business in communities.

This is very evident with non-profit networks operating in the country at a national

level. Instead of a number of organisations, amalgamations of network non-profit

organisations are forming one large network, joining membership or client bases

offering combined benefit packages to increase lobbying ability and attractiveness for

drawing on larger numbers of members or clients to the organisation.



4.7 SELECTING OF THE BEST STRATEGY

After selecting a number of alternative options, a non-profit organisation must select

strategies to implement. This is by evaluating alternative strategies in terms of their

pros and cons. Scenario construction is a popular method utilised in forecasting likely

effects of each strategy chosen before making any final choices.

The following factors play a role in choosing the final strategies implemented:

• Management of the non-profit organisation’s attitude towards risk

• Pressures from the external environment

• Pressures from the organisational culture within the internal environment

• Needs and desires of operational managers daily running the affairs of the non-

profit organisation

4.8 STRATEGY FORMULATION OF POLICY AND CONSTITUTION

It is important to select the appropriate strategic alternatives for formulating policies.

Policies define the broad guidelines for making decisions. These policies establish

rules and regulations, which are utilised for the implementation of strategies through

projects and programmes in the future. The rules and regulations spelled out in many

non-profit organisations’ constitution sets out the framework for policy within a non-

profit organisation.

Policies define the ground rules for strategic implementation of the organisation and

serve to align the organisation’s activities in the new strategic direction or future

desired state it wishes to end with.



4.9 CLOSURE

In many organisations, strategy formulation is nothing more than an annual

ceremonial rain dance, which has as much effect on managing change within the

organisation, as that the rain dance has in changing the weather. (Weeks & Lessing

1993: 34)

Environmental analysis or scanning the environment, as discussed in the previous

chapter, forms the core of this process, and the objective of formulating strategy is to

optimally position the non-profit organisation to contend with a constantly evolving

external environment, which presents many opportunities. The first three components

of the process, namely vision, mission, and values, define the non-profit organisations

desired future state.

This chapter highlighted the key activities involved in the process of formulating

strategy starting with the future desired state of a non-profit organisation. Then

comes strategy formulation and non-profit organisations, the strategic decision-

making process, a Strategic Management model depicting strategy formulation fits

into the model, some general strategies, popular strategies for non-profit

organisations were explored. The chapter concluded with a discussion on important

alternative strategies for developing policy guidelines for non-profit organisations.


Bibliography 135

a strategic approach for not-for-profit organisations

Documents