Writing assignment

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The chapter reviews the background to nonprofit management and introduces a normative–analytical management approach based on the notion that nonprofits are multiple stakeholder organizations

How can we approach the management of private institutions for public benefit? What does the presence of multiple stakeholders mean for managing one of these institutions? After reading this chapter, the reader should: ■ be familiar with the basics of nonprofit management; ■ understand the differences between nonprofit management and public sector as well as business management; ■ be able to make the connection between multiple stakeholders and the special challenges of nonprofit management.

Management is the process of planning, organizing, directing, and controlling activities to accomplish the stated organizational objectives of organizations and their members.

Management makes an organizational mission operational, and works toward achieving its objectives.

First, the chief responsibility of management is “value creation” in relation to the organization’s stated mission. For example, if the mission is to help the homeless to gain paid employment, then all management activities are to contribute to the stated objectives around that mission, i.e. “create value” for the organization in fighting homelessness. In this sense, management is all about how that mission is to be accomplished within the guidelines established by the board. Second, even within the guidelines established by the board, management involves making critical, clear, and consistent choices. This means weighing trade-offs and establishing boundaries. It is as much about what to do well as it is about what not to do at all. Third, the design of organizations and their management styles is contingent upon mission, strategy, and task environment (see Chapter 7). No management model fits all circumstances equally well, and like organizational structure, management approaches are context- and task-specific.

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The key point is that the multiple bottom lines present in nonprofit organizations demand different management models and styles. Thus, various management models are possible, and indeed needed, in nonprofit organizations. What is more, the different stakeholders and constituencies associated with specific bottom lines are likely to favor, even push for, “their” way of running the organization. The image we gain from this description is that of organizations

An analytic–normative model of nonprofit organizations Against the background laid out above, the model of nonprofit organizations as conglomerates of multiple organizations or component parts represents one possible analytical framework that can be used to understand the various dimensions, dilemmas, and structures involved in nonprofit management. Such a model involves several crucial dimensions: ■ performance–time axes that address the permanence and objectives of the organizations; ■ task–formalization axes that deal with the task environment and organizational culture; ■ structure–hierarchy axes that relate to aspects of organizational design; and ■ orientation–identity axes that address the relation between the organization and its environment.

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Multiplicity is the signature of nonprofit organizations. The challenge for management, then, is to develop models that identify these components, their cultures, goals, and operating procedures in an effort to establish some coherence and identity between mission, activities, and outcomes. What are the implications of this discussion in the context of current developments? A full account of implications that follow from the approach suggested here is beyond the scope of this chapter. Nonetheless, two theoretical and management-related implications are apparent:

Avoiding inertia and inefficiency Meyer and Zucker (1989) have commented on the persistence of nonprofit organizations despite low performance. This view, echoed by Seibel (1996), diagnoses the longevity of nonprofits as a case of permanent failure rather than success. They suggest that because of their complicated governance structure and minimal influences from markets and the electorate to check on performance, nonprofits can easily be maneuvered into a state of hidden failure. In the context of the management model suggested here, we can easily understand why and how this can happen. Different organizational components may be unknowingly locked into a stalemate, unable to change matters without giving up their own position. Truly successful nonprofit organizations require proactive management models, not management by exception. Because performance signals from markets and electorates are incomplete, if not totally missing, proactive management frequently has to position and locate the organization—particularly at critical stages of organizational development (see Chapter 7). Form rigidities Not all nonprofits must necessarily remain nonprofits. The notion of nonprofit organizations as multiple organizations contains the possibility that some components may acquire a more businesslike or market-driven character over time. If this component (for example, service delivery, marketing, fund-raising) becomes dominant, management must consider if the nonprofit form is still appropriate given prevailing demand and supply conditions. This is the case in the US health care field, where many hospitals and clinics are migrating to the forprofit sector, having lost their distinct multiplicity and having become simpler organizations in the process. Likewise, organizations may decide to protect their core mission from commercial pressures and find a form and structure suitable for that purpose.

Chapter 12

This chapter reviews a number of basic management tools and issues that reflect the normative–analytical management approach introduced in Chapter 11. More specifically, the chapter looks at human resource management and strategic management, presents a number of planning techniques appropriate for nonprofits, and concludes with a brief overview of financial management, business plans, and marketing.

Having reviewed management models and presented the case for a normative management approach in the previous chapter, this chapter is concerned with more specific tools and planning techniques that are appropriate and useful for nonprofit organizations. After reading this chapter, the reader should: ■ be familiar with basic aspects of human resource management; ■ have an understanding of strategic planning and management planning tools; ■ be familiar with the basic financial relationships in nonprofit organizations; ■ understand the notion and purpose of a business plan.

KEY TERMS Some of the key terms introduced in this chapter are: ■ alignment model ■ balance sheet ■ break-even analysis ■ budget (line-item, performance, zero-based, program) ■ business plan ■ cash flow statement Delphi method ■ human resource management ■ income and expense statement ■ issue-based planning ■ marketing ■ PEST analysis ■ scenario planning ■ stakeholder survey ■ strategic management ■ strategic planning ■ SWOT analysis

HUMAN RESOURCE MANAGEMENT In this section, we take a brief look at some of aspects of personnel management in nonprofit organizations. Human resource management includes all the activities related to the recruitment, hiring, training, promotion, retention, separation, and support of staff and volunteers. As mentioned in Chapter 9, nonprofit organizations tend to be labor-intensive rather than capital-intensive. Because of this characteristic, multiple stakeholder influence, and the complex nature of goods and services produced, human resource management increases in importance

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Strategic Vision, mission, programs Positioning Management Allocation of resources Performance, monitoring Goal achievement Operational Service delivery Advocacy work,

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SWOT analysis SWOT analysis is a very effective way of identifying the strengths and weaknesses as well as opportunities and threats an organization faces. Using the SWOT framework helps an 266 MANAGEMENT II: TOOLS AND SPECIAL TOPICS organization direct its attention and focus its activities into areas with greater opportunities while being aware of its limitations and external threats: ■ strengths and weaknesses are largely internal factors over which the board and management have some influence; ■ threats and opportunities are external factors over which the organization has less influence, sometimes none. A SWOT analysis involves a series of direct questions developed in the context of the planning issue or problem at hand. These questions are answered either individually or as part of a group process. Answers are collected, analyzed, and interpreted and fed into the various planning models discussed above

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FINANCIAL MANAGEMENT Nonprofits, like all other organizations, have to manage their finances and put in place a system that keeps track of financial aspects. Financial management is needed for governance and accountability reasons: management has to report to the board on the organization’s financial status, and the board reports to the fiscal authorities by filing tax returns, to funders by submitting project reports, or to the general public by publishing an annual report. In the US, many nonprofit organizations required to submit Form 990 to the Internal Revenue Service have to file this annual tax declaration after the end of each fiscal year. In the UK, charities submit annual statements to the Charity Commission, and German nonprofits to the local tax office.

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Break-even analysis Nonprofits have a variety of cost types (see Box 12.2), and when developing a budget, it is important to understand the cost and revenue structure of the proposed project or program organizations. Break-even analysis is a popular planning tool for exploring the financial viability of proposed activities. The break-even point is defined as that level of activity where total revenues equal total expenditures. At that level, the nonprofit will neither realize a surplus nor incur an operating loss

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Business plan A business plan is a macro plan on how to implement a mission and the set of objectives. It is based on a set of assumptions about how the organization will operate and create value around its stated mission, and it sets out the needs, rationale, governance, and financing of the organization. Business plans are generally prepared as part of the start-up of an organization; however, many organizations update their business plans on a regular basis to incorporate results of strategic planning processes

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Key elements covered in business plans are: ■ vision, mission, and values guiding the organization; ■ organizational description (size, activities, units, etc.); ■ needs assessment, “market” analysis; ■ services provided, at what quality and quantity; ■ operations (how services will be delivered and why); ■ marketing and outreach plan; ■ governance, list of board members; ■ management approach and personnel policies; ■ financial analysis: funds available and needed, projected costs and income; and ■ assessment and program evaluation; performance indicators

Marketing Marketing has assumed greater relevance for nonprofit organizations and now involves a range of activities such as the marketing of services provided, cause-related marketing, image marketing, and branding. As part of a business plan, marketing analysis has become a seemingly indispensable tool for looking at how the organization intends to approach its customers, members, users, or the public at large. According to Kotler and Andreason (1991), marketing is the analysis, implementation, and control of exchange relationships between the organization and its external as well as internal stakeholders. Since nonprofit organizations are multiple stakeholder entities, nonprofit marketing must be sensitive to different audiences and adjust its communication patterns and other approaches accordingly.

Chapter 13

This chapter considers the different models and types of relationships nonprofit organizations have with the state in terms of funding and contracting, regulation, advocacy and campaigning, and consultation. The chapter also discusses the advantages and disadvantages of relations with governmental bodies and explores different forms of public–private partnerships. 281 LEARNING OBJECTIVES Relations with the government and public agencies are perhaps the most important ones nonprofit organizations have to take into account other than those with their core stakeholders. After considering this chapter, the reader should: ■ have a basic understanding of how government–nonprofit sector relations developed in the US and other countries; ■ understand basic models of government–nonprofit relations and underlying theories; ■ be familiar with the different ways and means of state support of nonprofit activities; ■ understand the notion of public–private partnership.

CONCLUSION Cooperation between government and the nonprofit sector has a long history. In the US, the relationship is deeply rooted in the country’s ideological and cultural make-up. Over time, however, this system of third-party government has been neither stable nor comprehensive in its coverage. Pushed along by major policy initiatives that periodically seemingly revolutionized the substance and practise of government–nonprofit relations, public–private partnerships remained a flexible and open system, unaffected by standardization that any more comprehensive policies would bring about. In the UK, the development from parallel bars to extension ladders, and from there to alternative systems and the Compact, signals a relationship that has changed in major ways over the last century. In Germany, the principle of subsidiarity is perhaps the clearest expression of an explicit public–private partnership. Many theories of the nonprofit sector argue that public collaboration with nonprofit agencies also represents a division of labor in the provision of collective goods, coordinating the relative strengths and weaknesses of each sector. These theories describe the relationship between government and the nonprofit sector as complementary and symbiotic. The third-party government theory (Salamon 1995), for example, conceives of the nonprofit sector as the preferred mechanism for the provision of public goods. From this perspective, solving new and expanding social and economic problems is most appropriately and effectively accomplished on a voluntary bottom-up basis (Lipsky and Smith 1989–90). Government is the secondary institution that steps in when the voluntary sector “fails.” Reliance on the nonprofit sector for performance of various government functions, in turn, allows the US government to promote general welfare without expanding its administrative apparatus (Salamon 1995). The public goods theory, on the other hand, flips the logic of the third-party government theory. From this perspective, the government, whose responsibility it is to produce public goods, fails to provide goods and services that meet the needs of the entire population, particularly in heterogeneous societies with a diversity of needs. The nonprofit sector exists to satisfy demands for collective products and services left unfulfilled by the government (Weisbrod 1988). While the different logic of the third-party government theory and of the public goods theory make different assumptions about how government and nonprofits come to be mutually dependent, both see such coordination as optimal within modern industrialized economies.

The assumption among many scholars of the nonprofit sector is that nonprofit organizations offer the state a flexible, localized way to respond to emerging or entrenched social and economic problems. These organizations are more able than government bureaucracies to be both responsive to shifting public needs and to establish long-term service relationships with clients. Government agencies can rely on existing, often community-based, organizations to manage and deliver specialized goods and services that would be costly for them to establish and maintain. In doing so, the government also shifts the financial and political risks of collective good provision to the nonprofit sector. In turn, nonprofits receive reliable streams of funding and clients, tax exemption, and preferential regulatory treatment from public sources

Chapter 14

This chapter first looks at the history of foundations and how the modern foundation evolved over the centuries, with a particular emphasis on the evolution of the grantmaking and the operating foundation. The chapter then presents different types of foundations, and surveys their sizes, activities and developments over time, in both the US and other countries. The chapter also introduces theoretical perspectives on the role of foundations in modern society, and concludes with a brief overview of current developments in the field of philanthropy. LEARNING OBJECTIVES We have already briefly looked at foundations in Chapter 3, and encountered them in other chapters as well. Foundations are among the most interesting institutions of modern societies: as private institutions for public benefit and beholden to neither market expectations nor the democratic process, but in command of their own assets, they enjoy significant independence. After considering this chapter, the reader should: ■ have a basic understanding of foundations, their historical developments, and forms; ■ know some of the major contours of the foundation field; ■ understand the theories that address the role of foundations in modern society; ■ be familiar with some of the challenges facing foundations; ■ have a sense of recent developments in the field of philanthropy

CONCLUSION The creation of foundations depends on two crucial factors: the availability of financial capital and other forms of assets, such as real estate, and the willingness of individuals or organizations to dedicate such funds to a separate entity, i.e. a foundation, and its dedicated purpose. As the examples from developing countries and transition economies just FOUNDATIONS reviewed suggest, assets might well be small initially, and can be built up over time. Even in developed countries, the time factor in the emergence of a significant philanthropic community is critical: the current foundation boom in the US largely represents a supply phenomenon, whereby financial assets created during the burst of growth in the stock market of the 1980s and 1990s were transformed into foundation capital by a greater number of people than in the past, indicating a revival of philanthropic and dynastic values in American society. In the same way, the growth in the number of foundations observed in Germany could be explained by the unparalleled wealth that has been amassed in there since World War II, and the “retirement” of the generation of entrepreneurs and industrialists who helped create this wealth since the 1950s (Anheier and Topeler 1999a). Thus, we can assume that variations in the creation of foundations over time depend not only on the demand for the functions they serve, but also on the extent to which the economy generates, or otherwise makes available, assets that can be transformed into foundations—and the degree of philanthropic entrepreneurship in society.

Writing in a European context, Strachwitz (1999) observes that foundations frequently confront an ambiguous public image: they are seen as exotic institutions by some, and as bulwarks of conservatism by others; or as playgrounds for the rich, and self-less expressions for humanitarian concerns. This picture is by no means unique to Europe: in The Big Foundations, Waldemar Nielsen (1972: 3), writing about the US, says: “foundations, like giraffes, could not possibly exist, but they do.” As quasi-aristocratic institutions, they flourish on the privileges of a formally egalitarian yet socially as well as economically highly unequal society; they represent the fruits of capitalistic economic activity; and they are organized for the pursuit of public objectives, which is seemingly contrary to the notion of selfish economic interest. Seen from this perspective, foundations are not only rare, they are also unlikely institutions or “strange creatures in the great jungle of American democracy,” to quote Nielsen (1972: 3). With foundations becoming increasingly more common, it seems that the “golden age” of foundations neither began nor ended when the “big foundations” were established by Rockefeller and Ford. Within little more than two decades, foundations in many countries have passed from a period of relative decline through to a phase of unprecedented growth. Thus, foundations in many countries—not only in the US—represent essentially a late twentieth-century phenomenon destined to grow and expand in the twenty-first century