Title: Leading Strategic Change: New Perspectives on the Nonprofit Sector
1Leading Strategic Change New Perspectives on
the Nonprofit Sector
- Jim Phills
- Centre for Social Innovation
2Agenda
- Nonprofits in Perspective
- Purpose
- US Growth
- Significant Characteristics
- Implications
- The Importance of Leadership
- Social Innovation Beyond Nonprofit Leadership
- QA
3The Purpose of Nonprofits
- Why do we need nonprofit organizations?
Beauty Knowledge Justice Fairness Healing
Faith CompassionVoice Understanding Community
The Creation of Social, Environmental, and
Aesthetic Value A better world
4Growth of Nonprofit Sector in the US
- Number of 501(c)(3)s (public charities and
private foundations) 474,000 in 1989 to 774,000
in 1999 ( increase of 67 ) - Between 1970 and 2000 nonprofits share of gross
domestic product (GDP) went from 3.1 to 4.2 - Between 1970 and 2000 government spending as a
percentage of GDP declined from 13.9 to 10.8 - In 1999, Nonprofits (including religious
congregations) reported revenues of more than
1.03 trillion, and held assets of more than
1.65 trillion - Source (Boris Steuerle , in press)
5Charitable Giving in the US
- Total giving in 2002 was 241 billion
- 37 million individuals
- 184 B 18 B in bequests
- 400,000 corporate sponsors
- 12 B
- 60,000 independent foundations
- 27 B
- 50 to religious and educational institutions
- Source (Meehan et al 2004)
6Significant Characteristics of Nonprofits
- Product Market
- Produce public goods
- Produce goods or services that are difficult to
evaluate - Provides goods or services to those with limited
ability to pay - Receive portions of income in the form of
donations - High fixed cost as a proportion of total cost
7Significant Characteristics of Nonprofits
- Organization Management
- Lower level of compensation (non-contingent)
- Poor incentives for cost minimization
- Cross-subsidization
- Productive inefficiency
8Significant Characteristics of Nonprofits
- Capital Market
- No equity ownership
- Providers of capital lack of direct influence
over management governance - Absence of a market for corporate control
- Limited access to capital
- High cost of acquiring capital
9Significant Characteristics of Nonprofits
- Legal Economic
- Benefit from public subsidy in the form of tax
exemption - Non-distribution constraint
- The defining characteristic of non-profit
organization is that the persons who control the
organizationare forbidden from receiving the
organization's net earnings. This does not mean
that a nonprofit organization is barred from or
in profits rather, it is the distribution of
profits to controlling persons that is forbidden.
Thus by definition a nonprofit organization
cannot have owners. - Hansmann, 2000 The Ownership of Enterprise
10Significant Characteristics of Nonprofits
- Nature of Performance
- Given the complex non-monetary objectives of
nonprofits, operational definitions of
performance tend to be elusive and contested - Lack of a single value objective function
(e.g., maximizing shareholder wealth) - (Jensen, 2001)
11Challenges facing the Nonprofit Sector in the US
- Increased competition for funding
- Growing private and public sector substitutes
- Increased pressure from donors to
- Demonstrate and measure efficiency and
effectiveness - Achieve sustainability
- Establish alliances and partnerships
12Implications of Characteristics and Challenges
- Scarcity of resources
- Difficulty making choices tradeoffs
- Questions about accountability
- Difficulty ensuring adequate motivation
- Difficulty aligning incentives
- Confusion and conflict over organizational
priorities - Inefficiency in the allocation of resources
within and across organizations
LEADERSHIP
13Developing the global leadership capacity of the
nonprofit sector
- The Need
- Globalisation and social change
- New social needs and problems
- Growing complexity and interdependence of social
problems - International conflict
- Resource Scarcity
14Developing the global leadership capacity of the
nonprofit sector
- The Possibilities
- More efficient allocation of resources across
organizations to areas of greatest social return - Increased legitimacy and respect accorded sector
managers - Increased funding to the sector
- Increased innovation, effectiveness, and
efficiency within the sector - Progress addressing social needs and problems
15 A Caveat The problem with leadership
- There are almost as many different definitions
of leadership as there are persons who have
attempted to define the concept - (Stogdill, 1974)
-
- Of all the hazy and confounding areas in social
psychology, leadership theory undoubtedly
contends for the top the nomination...
Ironically, probably more as been written and
less is known about leadership than any other
topic in the behavioural sciences. - (Bennis, 1959)
16 The problem with leadership
17A Functional Approach to Leadership
- The leaders main job is to do or get done
whatever needs to be done - (McGrath, 1962)
- The emphasis is not so much on what the leader
should do as on what needs to be done for
effective performance.... the functional approach
leaves room as to how to get critical functions
accomplished - (Hackman and Walton, 1986)
18 Key Leadership Functions
- "Executive work is not that of the organization,
but the specialized work of maintaining the
organization in operation" - Direction
- to formulate and define the purpose, objectives,
and ends of the organization - Motivation
- to promote the securing of essential efforts
- Design (organizational architecture)
- to provide the system of communication
- (Barnard, 1938 p. 215)
19Leadership Functions Direction, Design,
Motivation
Psychological Emotional Logic
Mission
Economic Logic
Strategy
Execution
Activities Resource Allocation Policies
Source (Phills, in press)
20A Multi-level view of Nonprofit Leadership
- Organizational
- Problem/Need
- Sectoral
- Societal
- Global
21Social Innovation Beyond Nonprofit Leadership
22Social Innovation
- The Meaning of Social Innovation
- Innovation
- The development and implementation of novel and
useful solutions to problems - (Burns and Stalker 1961 Kanter 1983 Amabile
1988) - Social
- Has a social purpose or benefit
- Is in the service of fulfilling a social need or
addressing a social problem
23The Meaning of Social Innovation
- The process of inventing, securing support for,
and implementing novel and useful solutions to
important social needs and problems - That are more effective and/or more efficient
24Key features of Social Innovation
- Alternative focus
- Social needs and problems rather than sectors
- Education, Poverty, Hunger
- vs.
- Nonprofit, Public, or Private
- Inclusive Scope
- Individuals and institutions who organize
activities and allocate resources in pursuit of a
social purpose
25Paradoxical Assumptions underlying Social
Innovation
- Sector independence
- The legal status of a social purpose organization
is a choice - There are multiple possibilities that are viable
for any given idea or approach
26Paradoxical Assumptions underlying Social
Innovation
- Sector interdependence
- Boundaries between sectors are becoming more
porous as reflected in the exchange of people,
ideas, and capital - Growing emphasis on alliances and partnerships
between nonprofit, public, and private sectors - Increasingly efforts to address major social
problems will require collaboration of all
sectors as well as reconfiguration of traditional
roles - Environmental degradation
- Global health threats
- Educational reform
27The Centre for Social Innovation (CSI)
- History
- Founded at Stanford Graduate School of business
in 1999 - Mission
- To foster innovative solutions solutions to
social problems by enhancing the leadership,
management, and organizational capacity of
individuals and institutions pursuing the
creation of social and environmental value
28The Centre for Social Innovation
- Philosophy
- Dissolving boundaries facilitating the exchange
of ideas, values, and talent between the private,
public and nonprofit sectors. - Increasing sense of accountability and emphasis
on performance in nonprofit public sectors - Increasing sense of responsibility and awareness
of social impact in private sector
29CSI Activities
- Research
- Generate knowledge that enhances our collective
understanding of social innovation - Teaching
- Facilitate the dissemination and exchange of
knowledge - Engagement
- Enable and support the implementation of social
innovation through community outreach
30CSI Programs
- Alumni Consulting Team (ACT)
- Public Management Program (PMP)
- Executive Education for Nonprofit Leaders (EPNL)
- Stanford Education Leadership Institute (SELI)
- Stanford Social Innovation Review (SSIR)
- Stanford Project on Emerging Nonprofits (SPEN)
31Stanford Social Innovation Review(SSIR)
32SSIR A Recurring Theme from the 1st Year
- Application of Business Ideas to the Nonprofit
Sector - High Engagement (Venture) Philanthropy
- Going to Scale Replication of Social Programs
- Alliances and Partnerships
- Social Enterprise/Entrepreneurship
33Stanford Project on Emerging Nonprofits (SPEN)
- Research Team
- Woody Powell, Denise Gammal, Caroline Simard,
Hokyu Hwang - Research Project
- A comprehensive study of the social sector in the
San Francisco Bay Area - Quantitative Analysis of the more than 9,000
nonprofits in 10 counties using IRS data on the
total population - Qualitative analysis of 200 randomly selected
operating charities through a series of in-depth
interviews with executive directors or presidents
34Key motivations for SPEN
- 1) Shrinkage of the Welfare State
- What are the consequences of the increasing
private provision of public goods? - 2) Growing Professionalization of Nonprofits
- Is the transfer of managerial practices having an
impact? - 3) Emergence of Venture Philanthropy Social
Entrepreneurship - What is the impact of these trends?
35SPEN Research Questions
- What impact do different funding models have on
organizational behaviour, development and
sustainability? - What are the pressures, mechanisms, and
conditions facilitating the circulation of ideas
within the sector and across sectors? What are
the relationships through which ideas flow? - How have nonprofits fared since the economic
downturn?
36Growing unmet societal need - - health care,
mental health, homelessness, social services - -
creates pressure to increase scale
Accounting, fund-raising scandals prompt demands
for transparency
Lack of sufficient new revenue triggers search
for income-producing opportunities
Nonprofit Sector
3rd party provision of government services
produces standardization
High-engagement philanthropy encourages
outcomes measures
Widespread acceptance of ratio of administrative
to total expenses as a benchmark
Calls from high profile gurus for social
entrepreneurship promote cross-sector transfers
Pressure on Nonprofits to adopt or develop
business-like practices
37Preliminary Insights from SPEN
- How does receptivity to transfer of practices
vary across nonprofits? - Fiscal Health inverted U-shaped distribution,
with poorest and wealthiest less likely, those in
the middle most receptive. - Funding Model dependence on earned income
heightens transfer diversified funding base
lessens transfer. - Activity Volunteer, Advocacy, and Religious NPs
are less receptive. - Professionalization of Staff more
managerial/applied degrees, more receptive and
well compensated professional staff are fertile
audience for transfer. - Nature of Board more heterogeneous and less
corporate, then less receptive more corporate,
then more receptive and more direct transfer. - Competition Nonprofits that are in mixed
industries that compete with for-profits are much
more likely to utilize business practices.
38Transfers that are counterproductive or
superficial
- Funders are intensifying their reporting
requirements, but in a misguided way. Theyre
training nonprofits to write about what they want
to hear, not producing results. Executive
director, large human services organization - Everybody requires a report and everybody wants
their own format and the data collected their own
way. They are sympathetic that every funder has
their own requirements, but each of them thinks
the simple solution is to adopt their method of
reporting. Executive director, large human
services organization - Well, theres no use doing something if its
not making you money. Weve learned that.
Executive director, youth athletic association - There are so many advisory committees
recommending requirements for contracting that
dont really make a lot of sense. Executive
director, parental counselling organization - Every single funder adds 2 or 3 little changes
in their quarterly reports in terms of questions
and items for reporting. It seems like every
year more and more time goes into the reporting
and less time to actually working with people.
Executive director, transitional housing org.
39Transfers that are deep
- Weve seriously taken on the role of creating
financial stability. We dont say were like a
business, we are a business. Exec. dir., large
human services org. - Nonprofits need not be ashamed of being
businesses. We need best practices benchmarks.
Many NPs not only cant do it, but find the very
idea offensive. Exec. dir., large human
services org. - We are always evaluating our services to see if
there are things we need to let go. Some
programs that were very successful in the past
would just get laughed at by our contemporary
clients and funders. So weve become pretty
ruthless about deep-sixing things when they dont
work well any longer. Exec. dir., large human
services org. - We use Stanford GSB students to help us do
periodic market assessments. With their help, we
are creating a database that makes it easier for
us to track every person that comes through our
doors. Exec. dir., medium-sized public advocacy
org. - We were founded by a group of business leaders
who were concerned about the quality of science
and math education in our schools and worried
that students were not prepared to be
competitive. Exec. dir., medium-sized
educational NP.
40Transfers that are deep
- We now measure by units of service, and that
means many things - - number of bags of
groceries, number of times we talk to a client,
different types of services we perform for a
client, number of hours we spend with a client,
etc. We keep records of all these, its a fairly
sophisticated process we have to do for our
grants. Executive director, AIDS services org. - The grant application process is intensive.
They evaluate us musically but they also ask Are
you a viable arts organization? Do you charge
for tickets? Are your audience numbers growing?
Is your Board integrated? Is your organization
serving various economic goals? Executive
director, boys choral group - Government is much more intensive. They really
want to know about your constituency, its ethnic
breakdown. They want surveys, with age of
audience and other demographic info. They want
to know who is coming to our shows, is it
tourists or locals, so they can evaluate the
Hotel Tax Fund for the Arts. It is an intensive
amount of work for us to generate all this
information for them. Executive director, arts
organization - We have a social bottom line. We have to
report how much we save the city by employing
ex-convicts, and estimate how much is saved by
not having folks committing crimes and being put
back in jail. This is monitored closely.
Executive director, prison gardens program
41QA
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