Managing in Nonprofit Organizations
Exploring the Charity Sector
Layla has just started her new management role at a charity, after several years in the private sector. She's delighted to inherit a passionate team that is committed to the organization's mission.
However, she soon discovers that all is not well. Morale is low, her team members frequently work long hours with little recognition, and they're worried about their jobs because of recent funding cuts. Plus, a few people are underperforming because they haven't received important training as a result of a spending freeze.
Managers in nonprofits need the same skills as those in the public and private sectors. But to succeed, they must overcome specific challenges and have a clear understanding of this unique environment.
In this article, we look at what makes this sector unique, and explore how you can get the best from yourself and others in nonprofit organizations.
What Is a Nonprofit Organization?
Nonprofits – also known as not-for-profits, charities, social enterprises, NGOs, and the "third sector" – exist to benefit the public rather than to make money. They can have a local, national or international focus, and tend to operate in education, law, health care, emergency, and social services. They usually fill the gaps in services provided by the public sector.
According to the National Center for Charitable Statistics, there are more than 1.5 million nonprofit organizations in the U.S., and they make up around 10 percent of the country's workforce. Nonprofits can be large and worth billions of dollars, such as the Bill and Melinda Gates Foundation, but the majority operate locally, and rely primarily on volunteers.
Nevertheless, the not-for-profit sector is a significant player in the U.S. economy. According to a recent report, it contributes 5.4 percent of the nation's GDP, or $887.3 billion. And, while the for-profit sector experienced a decrease in jobs and wages during the recession of the late 2000s, the number of nonprofits grew, despite cuts in government grants and contracts. This is likely down to nonprofits stepping in where the State retreated.
Top Tips for Nonprofit Managers
Managers need special skills to succeed in a nonprofit environment, such as fundraising and writing grant applications. Here are some top tips to help you to progress:
1. Embrace Change
Managing in a nonprofit requires flexibility and the ability to cope with change, for example being able to revise budgets at short notice. And you need to be able to look for ways to innovate, to make the most of new opportunities, and to inspire others to respond positively to change.
It's important to focus on the "big picture," so that your organization can fulfill its mission in an uncertain environment. You can do this by adopting a transformational leadership approach, creating an inspiring vision of the future and motivating your team to buy into it.
If your team feels threatened by change, try coaching to allay people's concerns. Explain the potential benefits of the change and how it might affect them positively. It can take time and patience, but investment in coaching often pays off in the long run.
Tools such as Kotter's 8-Step Model and Lewin's Change Management Model can help you to guide people through change. Bridges' Transition Model and The Change Curve are also useful in identifying the feelings that people experience during turbulent times.
2. Learn What Motivates Your Team
Probably the greatest motivation for working in a nonprofit is seeing the positive impact it can have on the people it helps (we look at this in more detail below).
Although people who work for nonprofits are typically highly committed, they may be tempted to leave if the stress from such a changeable environment gets too much, or if they are offered better-paid opportunities in other sectors. You may not be able to motivate them with bonuses or regular raises, but you can offer them rewards that mean a lot and cost little. For example, flexible working, extra vacation time, and telecommuting are all attractive options.
There are many inexpensive ways to recognize excellent performance. For example, say thank you, give awards for service, or praise your team members in your organization's newsletter or on its website. People will more likely put in extra effort when they feel appreciated.
3. Improve Your Influencing Skills
If you develop good work relationships with stakeholders outside your organization, they will likely support what you're trying to achieve. Carry out a Stakeholder Analysis to identify people with power and influence, and decide who you need to consult and keep informed. These will include your clients and their representatives, your funders, and the media. You'll also need to understand what motivates your stakeholders so that you can win them around. You can also open up future opportunities through Professional Networking.
4. Demonstrate Your Impact
Nonprofits need to measure and communicate their impact, and demonstrate their accountability, if they want people's time, money and buy-in. But results are not always as obvious as they are in for-profit organizations, where performance is judged on the bottom line. Of course, you can quantify some aspects, such as fundraising revenue and grant income, as well as the proportion of this money that is spent directly on achieving your mission.
You need to show donors, funders and team members how their contributions count, and how much they are appreciated. For example, if your mission is to educate the public on an issue, you could survey awareness; if it's to help others, calculate the number of people you've reached and write powerful case studies to bring the data to life. Develop a balanced scorecard to give a full picture of the key factors that contribute to your organization's success, and communicate these results regularly.
How Nonprofits Operate
Nonprofits rely on a mixture of government grants and private donations to fund their work. And those people who donate do so to benefit the organization's mission, rather than to pay for bureaucracy or large operating overheads. Nonprofits therefore make every effort to keep their reputation and trustworthiness high. They must be seen to be keeping their operating and staff costs in check, and to be spending their limited resources carefully. This is one of the reasons why nonprofits employ both paid and voluntary team members.
Legal Setup and Governance
Unlike for-profit companies, registered nonprofits are eligible for a range of income and tax exemptions. (In the U.S., this is known as 501 (c)(3) tax status.) Despite their name, they are allowed to generate surplus revenues, but any profit must be used for the good of the organization rather than to benefit owners or shareholders. It is the role of the trustees or board of directors to run the nonprofit sustainably, to manage risk appropriately, and to make sure it complies with relevant regulations.
Collaborating, Not Competing
Nonprofits often have the mission of contributing to the "common good" for a particular area, so it usually doesn't matter to them whether they do this on their own or with others. In fact, nonprofit (and public sector) organizations often achieve more if they collaborate with other interested parties.
Collaboration can include nonprofits working with one another, with government organizations, or even with commercial business. For example, social enterprises work with for-profits to help them to develop more Corporate Social Responsibility.
There is one area in which nonprofits do compete with one another fiercely: recruiting supporters and securing their donations. This can lead to them adopting high-pressure sales techniques, which can ultimately prove counterproductive by alienating the public, existing supporters, volunteers, and employees alike.
Benefits and Pitfalls of Nonprofits
One of the main benefits of managing in a nonprofit is that team members are typically highly motivated and committed to its mission. As such, they tend to go "the extra mile." In fact, the idea of "giving back" is a real selling point for nonprofits, and a professionalization of the sector is attracting new talent.
However, you must be careful not to exploit this high level of goodwill and indulge in negative office politics or bullying of those who are working for a "higher cause." If they are not managed respectfully, team members might feel unappreciated and underpaid, and leave for better-paid roles in the private sector.
A major challenge for nonprofits is the constantly changing environment in which they operate. Governments frequently amend or introduce legislation, and funding from other sectors and from private individuals is unreliable.
A frequent challenge for managers of nonprofits is balancing the needs of volunteers with those of paid staff. For more information on this, see our article, Managing Volunteers.
Nonprofit organizations exist for public benefit rather than to make money, and often plug gaps left by the market and government.
There are a number of unique challenges that you'll need to overcome to succeed in this environment. These include embracing change while remaining focused on the "big picture," and working collaboratively with other organizations.
You'll also need to motivate people when resources are tight, find creative ways to measure performance, and communicate the impact of your work effectively.