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Chapter 13

Strategic Issues in

Not-for-Profit Organizations

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Not-for-Profit Organizations

Not-for-Profits:– Account (on average) for 1 in every 20

jobs around the world– 1990 – 1995 jobs grew by 23%

• Whole economy grew by 6.2%

– Employ > 25% of U.S. workforce– Own about 15% of nation’s wealth

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Not-for-Profit Organizations

Not-for-Profits:– Private nonprofit corporations

• Hospitals, private colleges, charities

– Public governmental agencies• Prisons, welfare departments, universities

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Not-for-Profit Organizations

Not-for-Profits Importance:– Public or collective goods

• Paved roads, police protection, museums, schools

– Preferred tax status• 501(c) (3) U.S. Tax Code

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Not-for-Profit Organizations

Key Differentiator:– Source of revenue

• Profit-making firm– Sale of goods and services to customers

• Not-for-profit firm (NFP)– Dues, assessment, or donations from

membership of sponsoring agency

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The Effects of Sources of Revenue on Patterns of Client-Organization Influence

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Not-for-Profit Organizations

Constraints on Strategic Management:– Service is often intangible

• Difficult to measure

– Client influence may be weak• Client payments - small source of funds

– Strong employee commitments• To professions• To “causes”

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Not-for-Profit Organizations

Strategic Decision Making:– Pattern of influence

• Derives from source of revenue

– Key to understanding management of NFP• Who pays for the delivered services

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Not-for-Profit Organizations

• NFP Strategies– Strategic Piggybacking:

• Development of a new activity for the NFP that would generate the funds needed to make up the difference between revenues and expenses.

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Not-for-Profit Organizations

PiggybackingPiggybacking

Something to Sell

Management Talent

Trustee Support

Entrepreneurial

Venture Capital

Resources

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Not-for-Profit Organizations

• NFP Strategies– Mergers

• Focus on reducing costs

– Strategic alliances• Developing cooperative ties with other

organizations