bachani chapter one

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Strategy Making inNonprofit Organizations


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Strategy Making inNonprofit Organizations

A Model and Case Studies

Jyoti Bachani and Mary Vradelis


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Strategy Making in Nonprofit Organizations: A Model and Case Studies

Copyright Business Expert Press, 2012.

All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted in any form or by any

meanselectronic, mechanical, photocopy, recording, or any other

except for brief quotations, not to exceed 400 words, without the prior

permission of the publisher.

First published in 2012 by

Business Expert Press, LLC

222 East 46th Street, New York, NY 10017www.businessexpertpress.com

ISBN-13: 978-1-60649-385-4 (paperback)

ISBN-13: 978-1-60649-386-1 (e-book)

DOI 10.4128/9781606493861

Business Expert Press Environmental and Social Sustainability

for Business Advantage collection

Collection ISSN: Forthcoming (print)

Collection ISSN: Forthcoming (electronic)

Cover design by Jonathan Pennell

Interior design by Exeter Premedia Services Private Ltd.,

Chennai, India

First edition: 2012

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.


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Abstract

Tis book ofers a model or managing nonprot organizations and

illustrates it with several case studies. Te strategystructuresystems

approach to managing a business enterprise is modied to include a

purposeprocesspeople centered approach that is more relevant or

nonprot organizations. Nonprot organizations need this modied

approach because there are some undamental diferences between

business and nonprot organizations that are explained in the book. As

the demand or essential social services is growing and the government

budgets to provide such services are shrinking, there is a greater needor social enterprises to be managed more efectively and e ciently.

Using case studies and theories o management, we ofer a model that is

relevant or anyone managing social enterprises. Tis book will answer

the ollowing questions:

What are some diferent kinds o nonprot organizations?

What is the contribution o the nonprot sector to the

economy as a whole?

What is similar and what is diferent between nonprot and

other organizations?

How do the strategic management tools developed or

businesses become useul or managing a nonprot

organization?

Keywords

social enterprise, nonprot management, strategy, triple bottom line


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Contents

Preface..................................................................................................ix

Acknowledgments.................................................................................xiii

Chapter 1 A Model or Managing Nonprots .....................................1

Chapter 2 Te Role o Nonprots in Society .....................................11

Chapter 3 Purpose-Driven Strategy ...................................................23

Chapter 4 Processes that Engage Structures .......................................31

Chapter 5 People Beore Systems .......................................................45

Chapter 6 Te Key Lessons ...............................................................53

Case Study Index..................................................................................61

Notes....................................................................................................63

References.............................................................................................65

Additional Resources: A Related Reading List..........................................67

Index...................................................................................................69


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Preface

Sumantra Ghoshal and Christopher Bartletts ideas provide the oundation

or this book, which started as a dialogue between the two authors: Mary

Vradelis, who ater 20 years o experience in the nonprot sector was com-

pleting her second masters degree in business administration; and Jyoti

Bachani, a strategy proessor with several years o experience as a strategy

consultant, primarily in large corporations, who was teaching the nal

capstone strategy class.Mary had served many roles in the nonprot sector, including execu-

tive director, und-raiser, board member, volunteer, and most recently

consultant. In that time, she availed hersel o nonprot trainings avail-

able on management o board, staf, and nances, including und-raising

workshops to learn to raise revenue rom grants, individual donors, and

special events. Mary enrolled in the MBA program ater acing growing

pressure to operate her nonprots as a business. Acting more like a busi-

ness meant paying attention to the bottom line, metrics, and outcomes

versus inputs. oward the end o her MBA program she started to won-

der how to apply what she had learned to her nonprot work. She was

starting to eel that perhaps a lot o what she learned did not really apply

to her work. She started to question it in a dialogue with her proessor.

Jyoti tried to convince Mary that nonprots are organizations that

need to be managed in the same way as business organizations, since

maximizing protability or maximizing some other metrics, say social

goals, requires similar management practices. Minimizing cost is good or

both businesses and nonprots. Te dialogue continued past the timeMary graduated. Mary started to apply the new theories she had learned

and the two o them continued to exchange books and articles to learn

about their diferent perspectives. Finally, when these discussions were

not being resolved by theory, they decided to go into the eld to resolve

these by empirical data gathered rom several managers and leaders in

nonprot organizations.


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x PREFACE

Tese interviews proved to be valuable as the managers were open and

orthcoming about the challenges o their work. Many o them declaredthe same thing as Mary, that the management training recommended or

them was not serving them well. Tere was a need or better communi-

cation with their corporate supporters. Te nonprot leaders needed to

articulate their challenges in a way that would make the business training

more relevant to their nonprots. Te business leaders too could bring

their expertise to bear on the management o nonprots better i they

could better understand the concerns o the nonprot leaders. Tere was

a need or bringing the two sides closer through a ocused articulation o

the diferences and the identication o words that had diferent mean-

ings in the two contexts. Tis is what we took on as the goal o our book.

In this book we blend our 40 years o combined experience with

research to understand how to apply business practices in nonprot con-

texts. We looked at nonprots to understand how business management

could provide answers to some o their challenges. Tese stories have been

particularly poignant at a time when the economic crisis created a greater

need or services provided by nonprots (housing, healthcare job train-

ing, and counseling) and revenue sources rom grants, donations, andearned income were shrinking. But beyond the scal challenges, we were

moved by the stories such as that o Patrick, who realized that he might

have to leave the organization he ounded when the board began to apply

bottom-line success metrics to a program that he considered vital to the

organizations mission; or Gerard, who wondered whether his organiza-

tion could continue to und an arts program that served an important

cultural community, even though it did not meet the capacity-building

standards o his organization; or Jef, who realized that his idea o an

ambitious goalone that would have been welcome in the or-prot

worldwas demotivating to the employees who were crucial to his youth

organizations mission; or the innovative leaders who applied technology

to bring medical care to thousands o patients in remote areas o Pakistan.

Both the authors are committed to making management relevant in

practice. Organizations in general, and social organizations in particular,

are vehicles or collective action through which human endeavors beyond

the individual level are accomplished. Management o this collective efort

is a challenge in the best o circumstances, and we are dedicated to nding


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PREFACE xi

ways in which it can be improved. Here, we take on the assumption

that business and nonprot organizations can be managed in a similarmanner. Tere are many similarities that make this a good prescription in

general, but in many cases this has not served the nonprot organizations

well. We ofer some o these instances as case studies in this book. Te

cases have been disguised in the interest o a rank presentation o hard

to discuss issues. Te purpose o sharing these stories is that others can

learn rom their experience, and also that those in similar situations can

identiy how to tackle them successully. For those unamiliar with the

inner workings o nonprot organizations, these stories provide a avor

o what it takes to manage one. Tese stories, and our experience, provide

the basis rom which we have inductively arrived at some recommenda-

tions or the readers o this book.

We thank those who shared these stories with us. We hope that the

lessons we have learned rom these will be useul to them and others so

that they can successully apply management ideas to nonprot organiza-

tions. We provide a way to build a common language to acilitate ongoing

conversations between the two sectors, since we see that the same words

are used in the two contexts to mean diferent things. Illustrating how thesame ideas are applied diferently is a way to create a pathway to more

successul organizations. During the course o research or this book,

we ound the work o other authors who have also addressed this gap

between or-prot and nonprot management. We decided that these

other solutions are complementary to our results and recommendations,

so we have included these as urther recommended readings at the end

o the book.


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Acknowledgments

Te authors thank the leaders o nonprot organizations or sharing their

experiences with us; the School o Economics and Business Administra-

tion at St. Marys College o Caliornia or bringing the authors together;

and the reviewers and editorial and publishing teams at Business Expert

Press or making this book possible. Judy Macias, John Zorn, and Steven

ulsky read early versions and gave us eedback that improved this

book. Friends and amily, especially Bruce Birkett and Vishnu Bachani,supported us through the challenges o writing our rst book. We retain

responsibility or the errors and omissions, as learning is a work in

progress.

Jyoti Bachani

Mary Vradelis

San Francisco

November 2012


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CHAPTER 1

A Model for ManagingNonprofits

Tere is tremendous unused potential in our people. Our organizations

are constructed so that most of our employees are asked to use 5 to 10%

of their capacity at work. It is only when these same individuals go

home that they can engage the other 90 to 95%to run their house-

holds, lead a Boy Scout troop, or build a summer home. We have

to be able to recognize and employ that untapped ability that each

individual brings to work every day.

Percy Barnevik, ormer CEO o ABB

Tis book provides a set o strategic management tools with case studies toillustrate them or the leaders and managers o nonprot organizations. It

ofers answers to the ollowing questions: What are some diferent kinds

o nonprot organizations? What is the contribution o the nonprot

sector to the economy as a whole? What is similar and what is diferent

between nonprot and business organizations? How do the strategic

management tools developed or businesses become useul or managing

a nonprot organization? What are the management practices prevalent

in nonprot organizations that may be better suited or their context? Can

business managers learn something rom nonprot managers?

We believe that the answers to these questions will be useul to any-

one who works in the nonprot sector or wants to, and to those who

partner with nonprot organizations in various roles as stakeholders,

such as employees, managers, leaders, donors, board members, advisors,

and academics. Tis book is also likely to be useul or leaders and man-

agers who work at the intersection o business and nonprot organiza-

tions perhaps with publicprivate partnership organizations, or with

a nonprot organization that relies on donations and management


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2 STRATEGY MAKING IN NONPROFIT ORGANIZATIONS

representation rom the business world, or with a business organization

that has an interest in and operating role, even i at arms length, with oneor more nonprot organizations.

Knowledge and expertise provide power. Tis book will equip readers

with knowledge that they can put to use in a number o diferent ways,

primarily or being more efective in managing in the nonprot context.

Equipped with this knowledge, leaders in nonprot organizations can

claim credit or the contributions they make to the community and society.

We did not nd any other article or book that provides a ramework or

the challenges aced by nonprot organizations in delivering critical social

services or which there is an existing large and growing demand.

Te advice that nonprot organizations ought to be managed in

more business-like ashion has oten led to rustration or leaders in this

sector, as business practices do not address their issues. Using business

practices in the social sector can be disastrous unless some basic difer-

ences between business and nonprot organizations are understood. Tis

book ofers a ramework that takes some common business practices

and modies them to add the twists necessary to make them especially

relevant to nonprot organizations. Tis ramework will be useul to alignall stakeholders toward the shared cause. Based on practical research, the

ideas presented here are relevant to the real world o solving managerial

problems in organizations.

Te quote at the start o this chapter, rom the bookTe Individual-

ized Corporation by C. Bartlett and S. Ghoshal, reects that when people

volunteer to serve a cause they give a lot more o themselves than they

do to their paid jobs. What is it about the organizational setting that,

despite proessionally-trained managers, leads to such suboptimal use o

its human resources? Volunteering usually happens through nonprot

organizations, be it church or the local Boy Scout troop. Successul non-

prot organizations operate in a way that allows people to contribute

with sel-motivated dedication. Te research we present here is based on

several such nonprot organizations that are managing to channel the

devoted engagement o their people. Tere are lessons rom these non-

prots that should be o interest to business leaders who wish to have

organizations where employees can contribute with such enthusiasm.

Te individuals potential is better expressed in the activities taken on


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A MODEL FOR MANAGING NONPROFITS 3

voluntarily. Tere is something to be learned rom the volunteer sector

that makes this possible.Te authors oTeIndividualized Corporation1 propose a new mani-

esto or management. We use their ideas to develop a ramework that is

applicable in the nonprot context. Management theory developed in

business settings needs to be modied beore it is applied in the nonprot

and voluntary sectors. We provide many nonprot case studies to show

how nonprots ace challenges that are diferent rom businesses, and

why there is a need to modiy management theory beore it is applied in

nonprot organizations. In this chapter, we introduce the basic rame-

work that ties together all the lessons rom our research into the strategic

management o nonprot organizations. Tis ramework is derived rom

basic strategy tools that have been made relevant and applicable in the

context o nonprot organizations. Te many case studies we use elabo-

rate the concepts used in this ramework.

Let us look at a case study that illustrates this problem o applying

business practices in a nonprot setting. Although this case is about

one particular organization, similar situations occur across many other

nonprot organizations. Tere is an ongoing leadership and manage-rial conict between the need to make the activities and programs o an

organization more accountable and nancially viable, versus delivering

to the values and the mission o making a diference in the community.

Case Study: Sparks Fly at the StatewideLiteracy Center

Patrick was the ounder and executive director o the Statewide Literacy

Center. He was in his 13th year o leading this organization that had

started as his dream and had become a reality thanks to his hard work.

It was incorporated in the early nineties, with a mission to inspire

and celebrate a love o reading, writing, and discourse throughout his

western state. By 2010, the literary center served over 30,000 people

through educational and cultural programs that included: an annual

lecture series; Writers in the Schools (which places proessional writers in

classrooms); writing camps or children and youth; Te Big Read; and

various workshops and events or writers and the local communities.


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Patrick expressed his values through the mission o the organization.

However, in the organizational setting, these same values could also cre-ate stress. One such situation arose when a new member o his manage-

ment team disagreed with how values translated into action. Tis new

staf member initiated an organizational assessment and identied a writ-

ing program or rural children that lost money every year. She recom-

mended discontinuing the program. Patrick said, She elt everything we

do has to make excess revenue to expand and contribute to the growth

o the organization. I a program isnt contributing excess revenue does it

mean it doesnt advance the organization? Although the board and staf

thought the reassessment was useul, her push or business ideas didnt

align with Patricks values or what he considered to be the organizations

values as well. He viewed the program to be a valuable one that reached

a constituency that no one else served. Tis program made a real difer-

ence in the lives o some o the children who participated in it. Tere

were no other programs or these children. Patrick elt that this one pro-

gram was closest to serving the mission o the organization, and he was

prepared to let it be subsidized by other programs or this one reason.

She was attempting to bring business values into the nonprot center.In Patricks words, this is eventually what caused sparks to y.

Tis disagreement was taken to the board. It was led by two staf

and one board member, and was seen by Patrick as a way to unseat him.

From Patricks perspective, this battle was a conict between the prioriti-

zation o nancial bottom line over a programs value to the community.

[Teir] argument was that I was making poor business decisions or the

organization.

Patricks position was that, we advance the organization by running

programs that contribute to the quality o lie in the community. Te

programs might not provide a nancial return initiallybut in the long

term, could have a nancial return. I communities see the value, they

may be more willing to invest nancially down the road. Patrick believed

that the mission-driven program paid benets that might not be mon-

etary, but contributed to the community, leading the Statewide Literacy

Center to be valued. Te primary program that was in dispute was

the summer camps in rural parts o the state, that were oten the only

cultural opportunity that those kids might have. Tese were valuable to


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the community and to the state as a whole. Patrick explained: Grantors

support us in some cases because [the programs] arent nancially viable.Programs like this also help to build relationships with grantors. Te State

Arts Commissions mission is to reach out to rural communitieshelping

them reach their mission. Te National Endowment or the Arts is also

interested in programs that serve rural communities nationally. Our pro-

grams serve their mission toothereore they support it. Nobody gives

you money to do what you want to dothey give money to do what they

want you to do.

Tis conict made me look again at the values I was using to base my

decisions on. Yes, those were my values. I someone else disagreed with me

about thatthen I would have to say bye. I the Board had said, we need

to water down the program, I would have elt a need to move on. In that

sense it was helpulit was reinorcing about how I was making decisions.

Fortunately or Patrick, the board, as a whole, supported his ocus on

the programs values and impact. Tey told the staf members to not bring

such issues to the board anymore and to ollow Patricks leadership. At

last, this year-long conict was over, and they could go back to the busi-

ness o the Statewide Literacy Center. Patrick said that her singular idea[drive or money] had undue importanceit was a cancer not healthy

to have a strong drive or money. Money should serve mission.

For Patrick, the story didnt end there. Tis was not only a ques-

tion o the importance o his values aligning with the organization. It

also brought into question his role as a manager and leader o a non-

prot organization. At rst, this conict did a lot to undermine my

condencenot so much my values, but in my abilities to manage

people. How did I let that happen? Tere are certain traits that I carry

that make me conict averse. At a certain pointI had to sayno

we arent going there this isnt going to happen. Ive heard your

pointsconsidered them, incorporated some o them and now

this is how we need to do this. I did not do that and now I am still trying

to get my eet on the ground.

Ater getting a personal business coach he understood how he had

allowed the board and staf to get out o alignment. He had seen this conict

developing and elt he should have said, Whoops, here is a place we are in

conict and out o alignment. Right then, I should have made time to


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ace itask her, Where are you? You are not on the same page. My prob-

lem was that I allowed it to stay out o harmony.

A Nonprofit Management Model

Nonprot organizations are oten being asked, by their board members,

consultants, and even businesses that donate to support their cause, to be

more accountable, transparent, efective, and e cient. Tere are many

business tools and management rameworks that are ofered to them as a

way to achieve all this. However, those who have adopted these approaches

have oten ound that it did not lead to the results expected and, more

oten, was a total waste o time. Tey had to do it just to please the donor

or board members who wanted them to adopt these business approaches

that served well in the business context, but were not appropriate to the

nonprot context. Many leaders o nonprot organizations are rustrated

that the board members and donors or other stakeholders who come rom

the business environment do not su ciently understand their world, yet

impose these inappropriate business solutions on them.

Te ramework underlying the key lessons o this book is describedin Figure 1.1, the nonprot management model (NMM). Tis model

is derived by applying the new maniesto or management proposed in

the book Te Individualized Corporation to the nonprot context. We

start with the observation that organizations, whether they are or-prot

or nonprot, are similar in some regards and diferent in others. While

business organizations can be assumed to be mostly driven by prot-

maximizing goals, and thus can be assumed to be pure economic entities,

nonprot organizations are better served by theories that recognize them

as social entities with diverse goals.

A dominant management doctrine, which we will call Strategy

StructureSystems Model (or SSS model), is based on the rm selecting

a strategy that would allow it to gain sustainable competitive advan-

tage. Te strategy is implemented by setting up structures, which are an

aggregation o activities and tasks. Systems acilitate and monitor how

the structure delivers the strategy. Systems are designed to be enduring

such that people can be replaced as parts within the system. In the SSS

model, top managers set the strategy and control resource allocation,


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middle managers act as administrative controllers, and rontline managers

are the operational implementers. Te implementers, being replaceable

parts in the system, are not expected to do much more than simplyollow directions coming down the chain o command rom the hier-

archy. Tus, it is not surprising that intelligent, enthusiastic, rontline

managers who join such organizations lose interest quickly, leading to

the situation exemplied in the quote at the start o this chapter. Te job

becomes a means to earn a living, to pay the bills, and a mere contractual

relationship.

An alternative way to conceptualize an organization is to use a

Purpose-Process-People (PPP) model that ocuses on it as a social entity.

In addition to being an economic entity that has to manage some nancial

aspects, each enterprise also has multiple nonnancial goals. An organiza-

tion also has a social reason, a Purpose, or which People come to work

together with agreed Processes (PPP Model) that help achieve it.

Anyone who has ever been in or around any organization would conrm

that this conceptualization o an organization as both an economic and a

social entity is better. Te economists assumption o prot maximizing is

relevant or analytical purposes o understanding and driving the nancial

measures, while the social enterprise conceptualization also includes

How:

Purpose PeopleMaking

a difference:Social,

environmental,economic

Process

Will you raise fundsto support yourpurpose?

Who: Is energized by

the purpose?Has values that

align withyours?

Has resourcesto offer?

Benefitsdirectly fromservices?

Benefitsindirectlyfrom services?

Will decisions bemade?

Will you communicate

with stakeholders?Will you decide what

tools to use toreach your goals?

Can you leverage yoursuccess to improveyour ability to make a

difference?

Appropriatemetrics forsuccess?

Need thatis being met?

What is the:

Values?

Mission?

Figure 1.1. Nonprofit management model (NMM).


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many non-nancial goals. Organizations cultivate reputations or being a

good place to work, or responsible community members who participateas good citizens. Te people who make up organizations are not perectly

rational interchangeable parts that serve the prot-maximizing goal.

People tend to nd jobs with organizations that are in elds related to

their interests and passions. Tey express themselves through their work.

Tere are social interactions in organizations with bonds o riendships,

enmity, and all manner o relationships. Te employees care about the

organizations they spend large parts o their waking lie in. People are

not robotic replaceable parts that make up an organization, but actors

who participate in organizational lie, bringing all the complexities o

humanness into the situation. People work or many diferent reasons in

addition to the need to make money, and take pride in making a difer-

ence through their proessional achievements. Tus, organizations should

also be theorized as social entities, in addition to being economic entities.

As the quote at the beginning o this chapter implies, the same

person who engages with his work with a raction o his potential can

get energized to serve with enthusiasm when volunteering or a cause

that he cares about. Our research with nonprot organizations leads usto propose that a greater emphasis is needed on the PPP aspects when

managing an organization. Te nonprot organizations we studied

had a clear ocus on their purpose, which energized the volunteers and

employees they attracted; and processes by which collaborative eforts to

realize the mission were careully considered and implemented.

Troughout this book we provide several examples and case studies to

show this. In the case we presented earlier the importance o purpose is

borne out. Instead o ocusing on the nancial criteria alone, or the mis-

sion delivery alone, there was a need or a scally responsible process in

place that would allow the people to achieve the shared purpose. In this

case, Patrick asked or a management coach so that he could handle uture

decisions in a manner that was less stressul or the people in the organiza-

tion who shared the same goal but had diferent ways o going about it.

Our primary contribution adds to the literature on how to adopt

business practices or the management o nonprots. Te recommended

reading list at the end o this book ofers related ideas rom the ew other

authors who have addressed this topic. Our recommendations are a set o


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modications to common business practice such that these would be less

stressul to adopt and more efective. When managers in business organi-zations collaborate to work with nonprots, they would be better served

i they used this ramework to bridge the linguistic barriers to communi-

cation. We believe that this translation across the border o business and

nonprots will help bring businesslike e ciencies and efectiveness, with

greater accountability, to the nonprots. In sticking with language that

is consistent with their cultural context, the nonprots are less likely to

alienate their leaders, employees, donors, or political patrons. Te man-

agers in our sample learned to make these modications by learning the

hard way and correcting their mistakes. We believe that others can learn

rom these experiences and avoid making the same mistakes by preemp-

tively using the recommended approach to reach similar goals.

Te case studies in this book are based on real organizations we

studied, though the names o specic organizations and people have been

changed. Occasionally, we have developed a composite case that includes

common problems we saw in more than one organization. Our primary

goal was to develop the most inormative situations to illustrate the chal-

lenges aced by leaders o small to medium sized nonprot organizations.Te rest o this book is organized as ollows: In Chapter 2 we explain

why nonprots are important to society. By using examples, we show how

nonprots provide much needed social and human services that no one

else ofers. In that chapter we describe several diferent types o nonprot

organizationslegally, socially, culturally, and so on. We provide data on

how important this sector is to the overall economic growth and prosper-

ity o our country.

We also show what is similar and diferent between business and

nonprot organizations. In the next three chapters we use each P o the

PPP model to provide translations o strategic management tools into

the modied concepts that are better suited to the nonprot environ-

ment. In Chapter 3, Purpose-Driven Strategy, we explain how to use

the vision, mission, and metrics to set strategic direction. In Chapter 4,

Processes Tat Engage, we describe how business hierarchy, power, or

capital structure is modied to be a network o inuence or und-raising

processes. In Chapter 5, People Beore Systems, we show how nonprot

organizations are under unduly large inuence o the ounder or specic


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people in key positions, with their values having a huge impact on the

organization, much more so than in comparable business situations wheresystems make people more dispensable or replaceable. In the nal chapter

the key tools are summarized or easy reerence, and the limitations or

this research are provided so that managers can know the boundaries

within which these lessons are most relevant. Te majority o our cases are

small to medium sized nonprot organizations, so the lessons rom the

book may be more relevant to similar sized organizations. In our experi-

ence, we ound that larger nonprot organizations tended to be run more

like business organizations.

bachani chapter one

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