Managing in Nonprofit Organizations

When we talk about organizations, most of us think
of either for-profit companies or public sector organizations. But,
at some point in our work or personal lives, many of us are also
involved in nonprofit organizations. In fact, nonprofits are one of
the fastest-growing sectors today (in terms of the number of people
working in the sector).
Nonprofits – also known as not-for-profits,
charities, and social sector organizations – are highly professional
entities. As such, managers working in this sector need all of the
same skills as their counterparts in the for-profit and public
sectors. But to succeed, nonprofit managers also need other skills,
and they need a clear understanding of the very specific nature of
nonprofit organizations.
Do you know how leadership in a nonprofit
environment differs from the for-profit world? We'll take you
through some of a nonprofit's unique features, and we'll look at the
particular requirements of managers in this sector.
Understanding the Nonprofit Environment
Filling Gaps
By their very nature, nonprofit organizations usually fill gaps in
services provided by public sector organizations. After all, if the
government did everything that was needed in the nonprofit's area of
interest, the nonprofit wouldn't need to exist.
This makes nonprofits different from for-profit companies and public
sector organizations in two key ways:


Nonprofits are usually dependent on donations. If it were
possible to make money doing what a particular nonprofit does, then
market forces probably would have created a company to fill that
opportunity. This, in turn, means that nonprofits must be extremely
careful in using their resources. Individuals and organizations that
give money to nonprofits usually realize that they have operating
expenses, but donors also want to know that a high proportion of
their money directly benefits the nonprofit's mission. This is one
reason why most nonprofits have a mix of paid and volunteer staff.
The gaps that nonprofits fill sometimes disappear as government
organizations begin to do the work that the nonprofit had been
doing. For example, at the beginning the 20th century, the UK had no
universal healthcare, and charitable organizations operated many
hospitals for the poor. Once the National Health Service was set up
in 1948 to provide free healthcare to all, those charities no longer
needed to raise funds.

Measuring Organizational Performance
For-profit companies have a simple way to measure how they're doing
relative to previous years and relative to their competitors: the
bottom line. Whether they look at revenue or various profit
calculations, financial measures are typically straightforward – and
they allow direct comparisons with other companies.
In the nonprofit sector (and the public sector), measurement is less
obvious. Of course, some aspects of a nonprofit's work can be
measured financially. For example, fundraising revenue and grant
income are two obvious numbers, and the nonprofit can also calculate
the proportion of this money that's directly spent on their mission.
But in other cases, nonprofits, like public sector organizations,
should be creative about developing their own measures of what they
achieve – for management information purposes and to motivate their
staff. For example, if the mission is to educate the public on an
issue, measures can be surveys of public awareness; if the mission
is to work directly with people, the measure can be the number of
people helped.
Nonprofit managers need to develop a balanced scorecard of measures to give a full picture of what the organization is doing.
Collaborating, Not Competing
In contrast with the for-profit sector, nonprofit (and public
sector) organizations usually achieve more if they work
collaboratively with other interested parties. These can include
other nonprofits, government organizations, or even commercial
businesses. For example, medical charities regularly work with
universities and pharmaceutical companies.
Because nonprofits often have the mission of contributing to the
"common good" for their particular area, it usually doesn't matter
to them whether they do this on their own or with others – as long
as they achieve their goal. Compare this with the mindset of a
for-profit business, which is usually very competitive and focused
on market share.

One great advantage for nonprofits is that they can almost always
find people who are enthusiastic about helping the organization
pursue its goal. As a result, the nonprofit needs to supply the
necessary information or ideas to support these volunteers.
But there's usually no need for the nonprofit to monopolize or
maintain absolute control over its area of interest; other
organizations can also "enter the market" and contribute to the same
goal.
Using Nonprofits as Outsourced Suppliers
Government organizations frequently use nonprofits as "outsourced
providers" in two main ways. First, the government works with them
as experts to deliver services – such as distributing aid in
disaster-struck regions. Second, the government frequently ask
nonprofits to help educate government staff in particular areas, and
to make inputs to policy development, especially social policy.
Specialist Skills for Nonprofit Managers
The nature of the nonprofit environment requires some specialized
managerial skills, in addition to general leadership abilities.
These special skills include fundraising and developing successful
grant applications. Some of the other skills are below:

Seeing the "big picture" – This helps ensure that the organization
continues to pursue the best strategies to fulfill its mission in a
changing environment.
Working collaboratively in a continually changing set of informal partnerships. This includes understanding how to influence external organizations.
Managing volunteers as well as paid staff – Managers need to
balance the two groups – ensuring that everyone feels equally
valued, and recognizing the different legal relationships. As an
employer, nonprofits have expectations of and obligations toward
their paid staff, who therefore have certain rights and
responsibilities. On the other hand, there's usually no such
"contract" with volunteers – but managers still need to
communicate tasks clearly to unpaid staff and ensure that they receive any
necessary training.
Understanding what motivates your paid team – While individual
worker motivations vary in all business sectors, many people choose
to work in nonprofits because the sector is fairly stable, and
because they want to work with likeminded people to further the
mission of the nonprofit. Staff members generally value these
aspects of the job, so they're prepared to accept lower salaries
than they would receive in the for-profit sector. Therefore, when
you think about how to motivate nonprofit team members, consider
giving them opportunities to link what they're doing directly to the
organization's mission – don't just focus on how they can achieve
more career-oriented rewards, such as promotion.


For more information on managing in the nonprofit sector, listen to our Expert Interview with Heather McLeod Grant on "High-Impact
Nonprofit Organizations .


Key Points
The nonprofit sector has several distinct characteristics, compared
with the private and public sectors. Nonprofit managers need to
understand these if they want to succeed. Nonprofits tend to operate
in gaps between other organizations. They are often restricted by
their resources, and they must find ways to measure their
performance and work collaboratively with volunteers as well as
other organizations.
Nonprofit managers need all of the same team management skills as
their for-profit counterparts. But they also need to be sensitive
and creative about motivating both paid and unpaid staff – while
staying focused on the nonprofit's mission at all times.