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.