What Business Can Learn from Nonprofits

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By Robert52
October 31, 2006

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I have worked in the nonprofit field for 25 years, and currently serve as the CFO of a human services organization. I continue to be inspired by an article written by Peter Drucker called "What Business Can Learn from Nonprofits." This article appeared in the July-August 1989 edition of the Harvard Business Review. The best nonprofits are very successful at running cost-effective programs. In the past management was a dirty word for those involved in nonprofit organizations. It meant business, and nonprofits prided themselves on being free of the taint of commercialism and above such sordid considerations as the bottom line. Now most of them have learned that nonprofits need management even more than business does, precisely because they lack the discipline of the bottom line.

As a rule, nonprofits are more money conscious than business enterprises are. They talk and worry about money much of the time because it is so hard to raise, and because they have so much less of it than they need. But nonprofits do not base their strategy on money, nor do they make it the center of their plans, as so many corporate executives do. A CEO who sits on both business and nonprofit boards says the businesses he works with start their planning with financial returns. The nonprofits start with the performance of their mission.

Starting with the mission and its requirements may be the first lesson business can learn from successful nonprofits. It focuses the organization on action. It defines the specific strategies need to attain the crucial goals. It creates a disciplined organization. It alone can prevent the most common degenerative disease of organizations, especially large ones: splintering their always limited resources on things that are "interesting" or look "profitable" rather than concentrating them on a very small number of productive efforts...The best nonprofits devote a great deal of thought to defining their organization's mission...nonprofits also start with the environment, the community, the "customers" to be' they do not, as American businesses tend to do, start with the inside, that is, with the organization or with financial returns...A well-defined mission serves as a constant reminder of the need to look outside the organization not only for "customers" but also for measures of success... Finally, a clearly defined mission will foster innovative ideas and help others understand why they need to be implemented � however much they fly in the face of tradition.

Peter Drucker feels that many nonprofits now have what is still the exception in business � a functioning board. They also have something even rarer: a CEO who is clearly accountable to the board and whose performance is reviewed annually by a board committee. And they have what is rarer still: a board whose performance is reviewed annually against preset performance objectives. Effective use of the board is thus a second area in which business can learn from the nonprofit sector.

I try to look for mission focus when evaluating companies for investment purposes. We have many high-powered business types who serve on the board of directors of my organization. Some of these board members join us through some personal connection, such as having a family member with a disability. Others come on to the board because they think it might be good for the development of their own businesses. Still others are encouraged to join a nonprofit board because the corporations they work for view it as fulfilling a social responsibility mandate. After serving for a while, we sometimes have trouble getting some of these business people to step off the board for a mandatory rotation. Drucker notes that nonprofits used to say "We don't pay volunteers so we cannot make demands on them." Now they are more likely to say, "Volunteers must get far greater satisfaction from their accomplishments and make a greater contribution precisely because they do not get a paycheck." ...What do these unpaid staff people demand? What makes them stay - and of course, they can leave at any time. Their first and most important demand is that the nonprofit have a clear mission, one that drives everything the organization does...The second thing this new breed requires, indeed demands, is training, training, and more training. And, in turn, the most effective way to motivate and hold veterans is to recognize their expertise and use them to train newcomers. Then these knowledge workers demand responsibility ...and opportunity for advancement.

At the time Drucker wrote this article, he was doing educational programs for mid-level and senior executives in a variety of businesses. Most of them were serving as volunteers in nonprofits. When he asked them why they volunteer, many of them said something like this: Because in my job there isn't much challenge, not enough achievement, not enough responsibility; and there is no mission, there is only expediency.

I think that most people who volunteer for nonprofits start doing it out of a desire to serve. At some point, they may find that they are receiving as well as giving.

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