Web Chapter C

Front 1

Why non-for-profit

Back 1

The not-for-profit sector of an economy is important for several reasons. First, society desires certain goods and services that profit-making firms cannot or will not provide. These are re- ferred to as public or collective goods because people who might not have paid for the goods receive benefits from them. Paved roads, police protection, museums, and schools are exam- ples of public goods. A person cannot use a private good unless he or she pays for it. Gener- ally, once a public good is provided, however, anyone can use or enjoy it.

Front 2

Revenue sources Fig. C-1 The Effects of Sources of Revenue on Patterns of Client–Organization Influence
KNOW THIS FIG.

Back 2

A - Profit Making Organization
B- Private Universities
C- Public Universities
D- Charity, government welfare

Front 3

Patterns of influence

Back 3

The pattern of influence on an organization’s strategic decision making derives from its sources of revenue. As shown in Figure C–1, a private university (organization B) is heavily dependent on student tuition and other client-generated funds for about 70% of its revenue. Therefore, the students’ desires are likely to have a stronger influence (as shown by an unbroken line) on the university’s decision making than are the desires of the various sponsors such as alumni and private foundations. The sponsors’ relatively marginal influence on the organization is reflected by a broken line. In contrast, a public university (organization C) is more heavily dependent on outside sponsors such as a state legislature for revenue funding. Student tuition and other client-generated funds form a small percentage (often less than 40%) of to- tal revenue. Therefore, the university’s decision making is heavily influenced by the sponsors (unbroken line) and only marginally influenced directly by the students (broken line).

Front 4

C.3 Impact of Constraints

Back 4

Several characteristics peculiar to a not-for-profit organization constrain its behavior and af- fect its strategic management.

Front 5

Impact of Constraints (5 points )
Read more on web

Back 5

1. Service is often intangible and hard to measure.
2. Client influence may be weak
3. Strong employee commitments to professions or to a cause may undermine alle- giance to the organization employing them.
4. Resource contributors may intrude on the organization’s internal management.
5. Restraints on the use of rewards and punishments may result from constraints 1, 3, and 4.18

Front 6

Impact on Formulation

Back 6

The long-range planning and decision making affected by the listed constraints serve to add at least four complications to strategy formulation:

Front 7

Impact formulation (4 points)
Read more on web

Back 7

1. Goal conflicts interfere with rational planning: Because a not-for-profit organization typically lacks a single clear-cut performance criterion (such as profits), divergent goals and objectives are likely, especially with multiple sponsors. Differences in the concerns of various important sponsors can prevent management from stating the organization’s mission in any- thing but very broad terms, if they fear that a sponsor who disagrees with a particular, narrow definition of mission might cancel its funding.
2. An integrated planning focus tends to shift from results to resources: Because not- for-profit organizations tend to provide services that are hard to measure, they rarely have a net bottom line. Planning, therefore, becomes more concerned with resource inputs, which can easily be measured, than with service, which cannot. Goal displacement (ex- plained in Chapter 11) becomes even more likely than it is in business organizations
3. Ambiguous operating objectives create opportunities for internal politics and goal displacement: The combination of vague objectives and a heavy concern with resources allows managers considerable leeway in their activities. Such leeway makes possible political maneuvering for personal ends.
4.Professionalization simplifies detailed planning but adds rigidity:In not-for-profitor- ganizations in which professionals play important roles (as in hospitals or colleges), pro- fessional values and traditions can prevent the organization from changing its conventional behavior patterns to fit new service missions tuned to changing social needs.

Front 8

Impact of strategy implementation

Back 8

The five constraining characteristics also affect how a not-for-profit organization is organized in both its structure and job design. Three complications to strategy implementation in par-ticular can be highlighted

Front 9

Impact of strategy Implementation (3 pts)

Back 9

1. Decentralization is complicated: The difficulty of setting objectives for an intangible, hard-to-measure service mission complicates the delegation of decision-making authoiity. Because of the heavy dependence on sponsors for revenue support, the top management of a not-for-profit organization must be always alert to the sponsors’ view of an organizational activity. This necessary caution leads to defensive centralization, in which top management retains all decision-making authority so that low-level managers cannot take any actions to which the sponsors may object.
2. Linking pins for external-internal integration become important: Because of the heavy dependence on outside sponsors, a special need arises for people in buffer roles to relate to both inside and outside groups.
3. Job enlargement and executive development can be restrained by professionalism: In organizations that employ a large number of professionals, managers must design jobs that appeal to prevailing professional norms.

Front 10

Impact on Evaluation & Control

Back 10

Special complications to evaluation and control arising from the constraining characteris- tics also affect how behavior is motivated and performance is controlled. Two problems, in par- ticular, are often noticed:
1. Rewards and penalties have little or no relationship to performance
2. Inputs rather than outputs are heavily controlled: Because inputs can be measured much more easily than outputs, a not-for-profit organization tends to focus more on the resources going into performance than on the performance itself. The emphasis is thus on setting maximum limits for costs and expenses. Because there is little to no reward for staying under these limits, people usually respond negatively to such controls.

Front 11

Strategic Piggybacking

Back 11

refers to the development of a new activity for a not-for-profit organization that would generate the funds needed to make up the difference between revenues and expenses.The new activity is typically related in some manner to the not-for-profit’s mission, but its purpose is to help subsidize the primary service pro- grams.

Front 12

Social Entrepreneurship

Back 12

(Strategic Piggybacking) in which a not-for-profit organization starts a new venture to achieve social goals.

Front 13

Mergers

Back 13

Dwindling resources are leading an increasing number of not-for-profits to consider mergers as a way of reducing costs through economies of scope and reducing program duplication and raising prices because of increased market power.

Front 14

Alliances

Back 14

Strategic alliances involve developing cooperative ties with other organizations. Not-for-profit organizations often use alliances as a way to enhance their capacity to serve clients or to ac- quire resources while still enabling them to keep their identities.