Developing and executing a coherent strategy is essential for any organisation no matter what sector they operate in. For organisations that view themselves as being Not-For-Profit, there can be unique challenges in underpinning financial sustainability at a level that enables them to deliver ongoing value to their clients. For no matter how they view themselves, they operate in a highly competitive marketplace.
Active Knowledge Questions:
If not profit, then what? What strategic objectives work best in NFP organisations?
We Are Not In Business
The Achilles’ heel of many organisations in the NFP sector is the subconscious image they carry of themselves. The way they separate themselves out from the business world who they often see as being profiteers.
This image can create a culture, and an accompanying language, throughout the entire organisation that often does the reverse of what they seek. There is a belief that by not defining themselves as a business, they will place their clients, and their needs, first before profit.
My experience is that it usually does the opposite by undervaluing efficiency, effectiveness and continual improvement as foundations of performance. And prohibits discussions of competitiveness as ‘one simply does not compete against fellow NFPs’, all of whom seek to support those in need – our common clients.
Of course, everyone in the organisation recognises that they are competing against others for clients, staff, resources, funding etc. but such language is not evident when strategy is on the table. And the most important person they are competing against is themselves and ensuring they are always striving to do better.
The starting point in strategic planning is to unearth these images and ensure they do not inhibit or block a robust discussion of the needs of clients, the performance of your organisation in meeting those needs and competing against others who seek to do the same.
Profit Is Not A Dirty Word
Every NFP organisation recognises that profits are essential to their continuity and sustaining the services they deliver to their clients. Charges and fees must be set at a level that allows the organisation to be sustainable and invest in its capabilities, people, systems, process and infrastructure.
A financial discipline is essential and that only comes about through a focus on the numbers with strong budgeting, forecasting, reporting and monitoring, and robust systems and processes to ensure accurate and timely data – the right data, in the right hands, at the right time.
An NFP mindset can, at times, struggle with reconciling the need for strong financial skills and systems with the belief that profit should not be the prime focus. Making people accountable for the numbers can at times seem counter-cultural in an NFP organisation, but financial performance will ultimately determine the client value that an organisation can deliver.
The distinction I would draw is that NFP organisations can, and need to, deliver strong financial performance but not profiteer. If a financial objective is to charge as low a price as possible, then it’s likely that organisation will fail as it will not earn adequate financial returns to sustain itself nor the services it seeks to deliver to its clients.
The reality is that organisations operating in what is typically called the NFP sector, seek to survive on the ‘smell of an oily rag’ when it comes to revenue. Traditionally clients within this sector are drawing upon various forms of government welfare funding to pay for services. There are no profit margins and organisations serving these clients do not have surplus funds to play with.
Strategically, the effectiveness and efficiency of financial systems are more-essential in the NFP world than for any for-profit business, because they have less money to work with.
Our Strategic Challenges
There is a range of challenges that although maybe not unique to the NFP sector, are certainly prevalent and which strategy must address. Here are some, in no particular order:
- Board members are commonly volunteers who have a heart for the area of work of the organisation. Being volunteers, and despite their best endeavours, the time that they can invest in the organisation may well be limited, but the active involvement of the Board in strategy is vital.
- A corporate equity structure with members rather than shareholders can result in mixed messages as to direction and priorities.
- A lack of capital and/or stagnant capital can be a restraint. The organisation may hold very limited capital, but it may also have significant assets that were gifted, and there is either a reluctance or legal restraints on how they may utilise those assets.
- The work of these organisations – disability, aged care, mental health etc. – can be very rewarding but also emotionally challenging for their staff. And these organisations have very limited HR and training budgets to invest in their staff.
- Wages of staff are often at the lower end of the scale due to the funding models noted above, and recruiting staff is a daily challenge.
- Client and community expectations can be very high, but again not matched by funding.
- Increasing government regulations add-in layers of cost, as do increasing unclear and complex reporting obligations.
- Demand for services can readily outstrip government funding, with an expectation that providers will somehow bridge that gap.
- There can be a reliance on volunteers but that pool of people is diminishing with ageing and especially during this COVID-19 season.
And We Do Compete
Because of the challenges outlined above, a robust strategy is vital for any NFP organisation and a strategy founded in making it competitively fit.
To compete should be the language of NFPs rather than a prohibited word. And importantly, NFP organisations are extremely well suited to be highly competitive. Further, they can readily outcompete for-profit operators if only they focus on their strengths as NFPs rather than think of themselves as weaker.
Why? Because the elements/traits that created highly competitive organisations are ones NFPs are naturally stronger in.
Within every organisation, there is a competitive engine, a series of interdependent elements, that set the floor and ceiling to that organisation’s performance and competitiveness. Strategy within NFPs must focus on strengthening the elements of their competitive engine as this will result in them delivering a value to their clients which outcompetes anything that a for-profit organisation can offer.
Here are some of the elements of the competitive engine that exists in every organisation:
- A righteous purpose for its existence, one in which pride can be held.
- A motive to improve every day and not profiteer.
- Worthy leaders who are trusted to place clients and employees first, and ahead of themselves.
- A culture that supports the work of the organisation.
- A vision that inspires.
- Recognition and rewards equally available to everyone within the organisation.
There are ten elements in the competitive engine grouped within the three sets of core, focus and fuel, some of which were noted above. When reading those elements any NFP should recognise itself.
Every NFP organisation wants to deliver the best value they can to their clients, but often they go about it in the totally wrong way. They focus on minimising their costs and pricing and through such underinvest in the natural competitive strength they possess. Being competitively fit will drive their effectiveness and efficiency as organisations allowing them to build financial sustainability and continuously improve the value they deliver to their clients.
NFPs should take pride in the client value they are capable of delivering. This will enable the provision of the greatest value possible to their clients and craft their organisations into enduring sustainable providers of services to those in need. This is achieved through a robust strategy focused on competitiveness and actioned throughout their organisation.
An entirely new level of performance.
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All the best in the success of your business,
Richard Shrapnel
