Are Nonprofit Organizations Ready To Overcome Current Challenges?

During this nonprofit course I have learned the importance of the role of nonprofit organizations in our society and the challenges they face nowadays.

I would like to focus my discussion on one central topic that has created many arguments with the current challenges that nonprofits encounter, I will also be discussing the different tools nonprofit organizations are utilizing to engage citizen participation i.e. social media and other innovative strategies.

The purpose of this blog is to incorporate the class discussions, useful literature from Michael Worth (2012) and Renz & Herman (2010) and other learning resources that have emphasize the complexity of managing these types of organizations. Additionally, I have used a recent article posted by Suzanne Perry, Caroline Preston, and Nicole Wallace in the Chronicle of Philanthropy as guidance to discuss these specific challenges that briefly discuss the current challenges nonprofit organizations face.  Also, I have used as reference an interesting journal from Kristina Jaskyte that mentions how nonprofit leadership plays an important role to overcome the challenges by incorporating innovative strategies.

Funding:

As per the Giving USA 2011 Report, the largest source of funding for public charities are fees from the sale of goods and services, such as patient care, tuition, and membership or admission tickets. Contributions and grants from government account for 32 percent of revenue, and private sources account for 14 percent, this includes donations from individuals, foundations and corporate gifts.

For many years government and nonprofit organizations (NPOs) have joined efforts to offer a variety of services to fill the gaps of market failure and to improve the social well-being and quality of life for a community. However, this partnership has been affected by the current economic crisis.  Even though, the government entity has increased its support for specific initiatives such as The Social Innovation Fund established by the Obama administration, government has been forced to shrink overall government aid to nonprofit organizations.  This means that nonprofit organizations that depend solely in government grants will need to find other external resources to keep moving forward. These external resources can come from private donors but as Perry, Preston and Wallace discuss in their article, it may be impossible for private companies to donate in the same scope that government does.

Competition: Are there too many nonprofits?

As I mentioned before, nonprofits have experienced cutbacks and difficulties. This situation has forced them to compete for donors, grants, and government contracts. For this reason, it is important to understand the size and scope of the nonprofit sector in the United States.

The US nonprofit sector is the largest in the world. According to The Urban Institute, National Centerfor Charitable Statistics, The Nonprofit Almanac, 2012, there are about 1.6 million nonprofit organizations registered with the Internal Revenue Service (IRS) which includes public charities, private foundations, and other types of nonprofit organizations.

Competition is a natural force in any business environment and it is becoming more common in the nonprofit sector. The challenge for nonprofit leaders and stakeholders is to react to competition in a way that generates better results for the community.  In order to compete, nonprofits are forced to use different strategies that will determine its differentiation and its position in the sector. Seeking differentiation means to convince stakeholders that they deserve resources as opposed to their competition and seeking for positioning is building its reputation in the nonprofit sector.

What kinds of strategies can nonprofits use in order to compete with the current nonprofit climate? Many nonprofits recognize the use of marketing and communication strategies to create awareness in order to increase their funding by engaging the public and their core stakeholders. In this current media-saturated environment there are new trends in communication strategies that can be used by nonprofits such as new digital media that offer options to the new generation of supporters that are willing to participate in a more personal setting. For example, this new digital media communication includes. Below you will find an interesting video that demonstrates how nonprofits are able use social media applications to promote their mission.

Leadership and Innovation: Looking for a committed board

Leadership:

In a nonprofit environment, the board of directors has the definitive strategic and fiscal authority of the organization. It is extremely critical to have a fully committed nonprofit board in rough times.  Moreover, the relationship between the chief executive and board members is strengthened by the constant support of CEO, which will eventually encourage board members to get involved in new alternatives that will eventually lead them to overcome any challenges. This relationship is recognized as a board-centered model of leadership (Renz & Herman, 2010).

Each year the Nonprofit Finance Fund (NFF) performs a survey which recognizes various challenges that the nonprofit sector encounters. One particular aspect of this survey indicates the relationship between management and board members in nonprofit organizations. The chart below collects 3,915 responses from nonprofit managers to show board involvement in fundraising activities.

*Source: 2012 State of the Sector Surveys

http://nonprofitfinancefund.org/state-of-the-sector-surveys?utm_source=Partner&%3Butm_medium=Lodestar&%3Butm_campaign=AFRF5.25.12





As you can see, managers say that the board is failing when it comes to fundraising. According to their sampling, 34% of nonprofit boards make the “right amount” of donations and only 24% are willing to use their contacts to directly solicit funds for the organization. Indirectly, only 34% of boards are equally contributing to fundraising efforts through referrals (Francis, 2012).

These results make me think whether leaders of nonprofits are ready for today’s challenges. As Worth (2012) mentions in his Nonprofit Management book, today professionals are required to have a unique set of skills that combines business and government management knowledge that will permit them to successfully lead nonprofit organizations.  Selecting the appropriate members for Board of Directors and management is imperative to support the organization’s mission and its goals.

Innovation:

Another aspect I want to mention is the importance of innovation in the nonprofit sector. As you may know, competing in today’s world requires a set of innovative strategies that will support organization’s fundraising efforts.

When thinking about innovation, a question arises: How does the Board of Directors influence organizational innovation? As Kristina Jaskyte discusses in her “Boards ofDirectors and Innovation in Nonprofit Organizations" Journal (p. 439-459),  nonprofit boards of director influences organizational innovation depending on its board size and culture, and she describes it by mentioning the following model:

As we can see this model shows the direct and indirect links between board variables and innovation, which are explained as follows.

• Board Capital and Innovation: which consist on how board of directors’ human capital (experience, expertise, knowledge, skills and reputation) and social capital (information, capital, power, and community contacts available to the board by virtue of social relationships) affects the innovation process. A board of director good use of this skill can contribute to its organization success in implementing innovative strategies.
• Board Culture and Innovation: in this variable Kristina suggest that an open board culture can stimulate the use of new strategies by the members of the organization.
• Board Cohesiveness and Innovation: this variable refers to the level of communication and collaboration between board members by creating a good atmosphere and facilitating innovation.
• Board Chair-Board members and Executive Director Relationship and Innovations: this combined relationship variable goes back to my previous discussion in regards to successful governance that seeks both board of directors and executive directors’ cooperation to achieve organizational goals and mission.
• Board demographic: this variable includes the size and diversity of the board. Having a large or small board can affect positively or negatively when trying to reach a consensus.

The use of this model allows us understand the impact of the decision made by the board of Directors’ and the necessity for a good relationship between the board and its executive Director so that in return they are able to smoothly develop innovative strategies within the organization.

Innovation importance has also been recognized by the Obama’s administration in the establishment of a Social Innovation Fund which purpose is to award $50 million in grants to innovative charities in the United States, following $74 million of matched funding from private donors. This funding initiative shows how government, philanthropy, and nonprofit groups interact by being examples and creating awareness about what approaches can successfully alleviate social problems.

To conclude this blog, I would like to emphasize the importance of having the support of boards when making strategic decisions. Also, nonprofit organizations need to consider the new trends some companies are implementing in order to improve the relationship with their donors and to achieve specific fundraising goals and objectives. Moreover, they should understand that stakeholders are constantly challenging board decisions in the current media-saturated environment.

Sources:

Francis, Angela. "Board Engagement: Thinking Beyond the Wallet." Social Currency. Nonprofit Finance Fund, 05 June 2012. Web. 25 June 2012. http://nonprofitfinancefund.org/blog/board-engagement-thinking-beyond-wallet.

"Innovation Funds." The White House. N.p., n.d. Web. 25 June 2012. http://www.whitehouse.gov/administration/eop/sicp/initiatives/innovation-funds.

Jaskyte, Kristina. "Boards of Directors and Innovation in Nonprofit Organizations." Nonprofit Management & Leadership 22.4 (2012): 439-59. Web. 25 June 2012. http://onlinelibrary.wiley.com/doi/10.1002/nml.21039/pdf.

Renz, D. (2010). The jossey-bass handbook of nonprofit leadership and

management. (3 ed.). San Francisco: Josse-Bass

Perry, Suzanne, Caroline Preston,, and Nicole Wallace. "5 Challenges for the Nonprofit World in 2012." Outlook 2012. The Chronicle of Philanthropy, 04 Jan. 2012. Web. 23 June 2012. http://philanthropy.com/article/5-Challenges-for-the-Nonprofit/130193/.

Worth, M. (2012). Nonprofit management: Principles and practice. (2nd). Los Angeles, CA: SAGE Publications, Inc.

 

Challenges between Government and Nonprofit Sector Partnerships

By: Mary Padilla 


The Beginning of Nonprofits

The notion of nonprofits has existed for centuries now. The initiative for improvement and change in our society has truly molded and transformed the way the nonprofit sector runs today. Therefore, in order to have a better understanding, the Nonprofit Quarterly gives a thorough explanation of the evolution of nonprofits and their relationships with government entities. Nonprofits first came into the picture during colonial times. During that time government’s involvement was minute and somewhat insignificant; nonprofits were more decentralized and their resources were extremely limited. Organizations during that particular period were able to fund their projects and serve the public via donations and fees. Eventually, social issues became more prevalent and the number of organizations grew, particularly during the Depression, however, many of those nonprofits perished once World War II ended (Rathgeb-Smith, 2009, p2).

The YMCA is one of the oldest existing nonprofits in the U.S and around the world. This picture is from 1914 YMCA Basketball team. This picture credit is due to http://freepages.history.rootsweb.ancestry.com/~butlercounty/ymcabball.html

The shift in government involvement began once the Hill-Burton Act of 1946 passed. Through the Act the federal government was able to provide grants and loans to policy areas that focused on hospital care and adolescent welfare. The Act would ultimately spark the relationship between nonprofits and the government sector. Steven Rathgeb Smith of the Nonprofit Quarterly indicates that the 1960’s became the era for social change, particularly in the areas of civil rights and poverty. The nonprofit and public sector during that time witnessed a plethora of change; governments began restructuring their involvement and role in social issues and regulations. There was an inevitable urge to develop new policies that would enrich the nonprofit sector. The three significant changes in policies were: (Rathgeb-Smith, 2009, p2)

1. Federal government provided ongoing funding support for local nonprofit service agencies through grants to state and local governments.
2. New funding allowed and encouraged the creation of thousands of new nonprofit agencies outside the existing networks.
3. The funded programs were accompanied by a new regulatory authority that provided the basis for a more assertive evaluation in the role government played in the nonprofit sector.

These alterations allowed some nonprofits to become fully dependent on government funds, and subsequently led to a myriad of new of nonprofits. State and local governments began to shift their focus on managing the growth of contracts in the nonprofit sector. The new governmental regulations seemed to have fixed all of the financial debacles nonprofits were faced with, and even though these policies brought many changes one gets to thinking whether or not they were all beneficial. Many believed the new modifications would help cultivate the relationship amongst nonprofits and the public sector, however many others believe that these changes have triggered many challenges amongst these two entities and led them to have an adversarial relationship.

Loss of Autonomy in the Nonprofit Sector

There is no doubt that nonprofits facilitate government in areas where they are restricted or have the inability to respond due to“political, structural and systemic” issues, according to Worth. (2012,p.48) This is known as government failure. Nonprofits have the ability to provide public goods to certain constituents that would otherwise be neglected of such services. The role nonprofits play is imperative, and like government, they are held liable for the services provided that will ultimately benefit society as a whole. Even though government can help fund the gaps nonprofits fill, organizations can simultaneously lose their own identity because of it.

The relationship between nonprofits and the public sector may at times be perceived as a contentious one. Many nonprofit executives have noted an evident loss of autonomy in organizations that have been fully dependent on government funds or grants. A journal in the Intl Journal of Public Administration by Richard Feiock and Simon Andrew implies that despite the sovereign service decisions nonprofits make, organizations are ultimately obliged to follow regulations held by the public sector. Monetary dependence can ultimately manipulate and alter the organizations culture, mission and environment, particularly when public funds are being issued. Organizations can evidently become less autonomous when they are solely dependent on a specific funder. In Worth (2012, p.60), Pfeffer and Salancik’s call this notion “resource dependence theory.” Conversely, organizations that choose to only be funded by government entities are more likely held accountable for their actions and services provided; a large percentage of them will ultimately have to comply and implement governmental policies within their nonprofit.

Unfortunately, this notion will unlikely change if resource dependent nonprofits remain stagnant. The Urban Institute conducted a national survey on nonprofit organizations that highly depended on government grants and funds in order to run properly. The following graph demonstrates the devastating deficits the state of Florida nonprofits faced in comparison to the national number.

Data collected and performed by the Urban Institute in 2009 (http://www.urban.org/uploadedpdf/412227-National-Study-of-Nonprofit-Government.pdf)

As I mentioned before, nonprofits that do branch out (i.e. commercial revenue) are more susceptible of becoming autonomous. Organizations such as Autism Speaks comprehend how vital governmental relations are within their own nonprofit. The government sector plays a significant role in funding research that one day may find the cure for autism. Conversely, the public sector is able to provide the necessary relief to organizations alike via tax exemptions and grants, and when organizations foster good relationships with the public sector they become more inclined to receiving public aid for years to come. On the other hand, in the case of Autism Speaks, and many other nonprofits, the notion of seeking funding in conjunction with other alternative avenues (individuals, corporations and philanthropists) has proven to be extremely crucial for the organizations ability of providing effective services to the nation. In June 2012 Autism Speaks was able to gift $2.9 million worth of donations and grants towards autism research. When nonprofit organizations branch out their funding resources they are able to maintain their mission and have the full capacity to represent the cause while maintaining their autonomy.

Nonprofit Contracting

A major trend that has existed over time in government is downsizing and seeking contractual agreements with nonprofit organizations. Due to many constraints, the government is incapable of serving all public goods and seeks aid from others. According to Renz (2010 p. 555) countless state agencies at a point in time fully depended on nonprofits to provide goods and services to the public, especially in areas that were new and novel. During Reagon’s presidency in the 1980’s, the Omnibus Budget Reconciliation Act passed, it significantly cut the funding for social services by 20% amongst many other things. However, contracting between nonprofits and government entities grew once again in the late 1990’s after the Temporary Aid to Needy Families Act passed. Unfortunately, since 2008 the U.S has experienced an immeasurable amount of economic peril; and the undeniable lack of funds have left the country with no other option than to significantly cutback funds that have adversely affected the nonprofit sector (Renz, 2010). The Urban Institute noted that 42% of nonprofit organizations in 2009 faced budget discrepancies, more than half of the organizations were forced decrease subordinate salaries, and nearly 40% were required to withdraw money from their emergency fund or work with smaller staff.

Today contractual work is often times the viable solution for the public sectors inefficiencies; not to mention that it is also financially beneficial for government to contract out their services to the nonprofit sector. An article by David Suarez in the Journal of Public Administration Research and Theory states that organizations“success in obtaining government resources can increase a nonprofits legitimacy or credibility with other potential donors, leading to indirect benefits and spillovers in other areas.” However, it seems as if the negative aspects of government contracts overpower the positives in nonprofits. For one, government contracts have the ability of limiting flexibility amongst nonprofits, which translates to more power to public agencies. Secondly, organizations fully dependent on government funding and contracts are prone to having blurred goals and are ultimately left to play the role of a vendor. Lastly, when public agencies contract out to nonprofits they lose track of the actual number of people in need of services in their community, which may become a problem in the long run (Suarez, 2011). However, the Urban Institute found that in nonprofit organizations, government contract experiences vary from state to state. This is largely due to the fact that each state has their policies in place, which ultimately determine the levels of effectiveness and efficiency amongst this tradition. For example, research found that in Illinois 83% of organizations experienced late payments; however in Florida only 38% reported delayed payments.

The following figure demonstrates data collected and conducted by the Urban Institute. The research focused on the five most problematic areas nonprofits faced when contracted by a government entity.

Significant Problems in Government Contracting

Data collected and performed by the Urban Institute in 2009 (http://www.urban.org/uploadedpdf/412227-National-Study-of-Nonprofit-Government.pdf)

I took the liberty of interviewing a personal friend (whose name shall stay anonymous) that worked at Regis House Inc. for two in a half years as the Out of School Supervisor. He was in charge of running two elementary after school programs to low- income families free of charge, as well as provide children with life training skills in two middle schools. That particular program educated children in areas that ranged from anti drug use, anti-theft, communication skills, etc. Regis House Inc., mission is "To Improve Lives for a Healthy Community through Family Support, Mental Health and Substance Abuse Services.”The organization during the time he worked there was fully contracted by the government. The disbursement of grants and the organizations climate was extremely restricted, and many of the regulations and policies within the organization were deeply rooted by the public sector. In October 2010, the organization experienced extreme budget cuts and grant funding was very minimal, however, the organizations proceeded to keep afloat and run as they did before. The cuts were undeniable, the organization that once ran with 30 staff members, had to inevitably downsize to a staff of 13 which included 7 full timers and 5 part timers. With the fiscal constraints, the organization faced the daunting task of laying off employees. The organization then started to fall back on payroll because grant payments were late, sometimes having the inability to pay employees for 2-3 months at a time. Employee moral was on the floor, and it took a huge toll on the organizations dynamic and everyone took notice of it. In order to keep the organization running, the Director and the CEO of the organization declined their paychecks in order to subsidize pay to their part timers and full timers. Every staff member made sacrifices in order to keep the organization running; they ultimately believed in the mission and the effectiveness of the programs. Unfortunately the monetary constraints left Regis House with 5 employees and a depleted work culture. Even though the organization set out to serve the publics best interest, government contracting led to the demise of this particular nonprofit.

Fostering Good Relationships

A plethora of nonprofit organizations have been able to foster healthy and ongoing relationships with the public sector. I also conducted another interview a friend that works for Autism Speakswho has experience and success in this area. Through her years of practice she was able to explain and develop a strategy that other nonprofits may find useful when trying to develop a relationship with the government sector. The following are her personal suggestions and involvement in this matter:

Before a Nonprofit organization cold calls a person of interest in the public sector (i.e. representatives, senators, commissioners, etc.) a nonprofit should reach out to their volunteer base to make a connection. There are many cases in which nonprofit volunteers are personally connected to the organization via personal experiences, or relate to the nonprofits mission while maintaining an extensive network of people they have relationships with. The nonprofit volunteer that has such connections is able to set up a phone call or a meeting between a public sector official and the organization. At the meeting, the nonprofit organization has the opportunity to explain the goals they wish to accomplish with the help of the public sector official. For example, passing a bill that ties with the nonprofits purpose. Ultimately a nonprofit can achieve its overall social goal with a political agenda.

In an ideal world these two entities would get along despite their differences, however the real world sets in and the trials and tribulations these two faced are anything but a reality.

Aside from accomplishing a social change the public sector is a source of revenue for nonprofit organizations. Nonprofits should also maintain a healthy and amicable relationship with public officials because many organizations depend on their donations and support. When a high government official endorses a nonprofit organizations mission, it helps promote to the community that this is a worthwhile cause and hopefully increase not just fundraising, but awareness amongst constituents. In the video below President Barack Obama gives a speech that emphasizes how important government support is in the nonprofits sector and the significant role the partnership between the government and the nonprofit sector plays in our society.

Disclaimer: Please skip the first 6 minutes. Thanks

Sources:

Andrew, S., & Feiock, R. (2007). Introduction: understanding the

relationships between nonprofit organizations and local government . Intl Journal of Public Administration,

Boris, E., De Leon, E., Roeger, K., & Nikolova, M. (2010, September).

National study of nonprofit-government contracting state profiles. Retrieved from http://www.urban.org/uploadedpdf/412227-National-Study-of-Nonprofit-Government.pdf

Rathgeb-Smith, Steven (2009). Government and nonprofits:

turning points, challenges, and opportunities . The Nonprofit Quarterly, 16(3)

Suarez, D. (2011). Collaboration and professionalization: the contours of

public sector funding for nonprofit organizations. Journal of Public Administration Research and Theory, 21(2)

Renz, D. (2010). The jossey-bass handbook of nonprofit leadership and

management. (3 ed.). San Francisco: Josse-Bass

Worth, M. (2012). Nonprofit management: Principles and practice. (2nd). Los

Angeles, CA: SAGE Publications, Inc.