Multiple “Markets”

A nonprofit can benefit by considering primary markets (the tax-exempt purposes) and secondary markets (resource opportunities). The operating domain includes the need for services, the funding opportunities, workforce potential (labor pool of volunteers and paid employees), the nature of other service providers, and the socio-political interests of the community (see Figure 8.2). The operating domain is at a minimum “two-headed,” and the existence of multiple target audiences makes it much harder to satisfy everyone (Andreasen and Kotler, 2008). Extensive literature is dedicated to analyzing market opportunities and evaluating the strengths and weaknesses of other providers (Chew and Osborne, 2009; Porter, 1998), and different chapters in this Handbook discuss alternative ways that nonprofits can examine their options.

“Where does my organization ‘fit’ in relation to other providers?” This is a basic question in strategic management. There is some concern that the nonprofit sector is cluttered, that there are too many nonprofits doing more or less the same thing. Nonprofit managers should be cognizant of other organizations and stakeholders operating in a similar service arena. It is vital to consider how one nonprofit differentiates itself from another. Nonprofits may appear similar but there should be several ways that each is unique (including core values) (Frumkin and Andre-Clark, 2000). This differentiation is important for meeting community needs but also to attract resources.

An example of a start-up volunteer center illustrates how external forces influence strategic choices. The center was trying to determine where and how to move forward with the idea of “promoting volunteerism” in a particular regional area. The existence of the volunteer center was instigated by a funder. Community leaders had recognized for quite some time that there was a need for more coordinated services and infrastructure to serve the nonprofit community, but it wasn't until a key funder helped the center be established that the “need” was addressed. Based on the interests of the funder, certain market choices are already determined, such as the geographic service area. The funder becomes part of the “dominant coalition” of decision makers helping to articulate and define the strategic purposes (as illustrated in Lake, Reis, and Spann, 2000). There are numerous other choices to be made. For example, there are various types of volunteers (corporate, students, faith-based, individual community members, and required community service), and the center needed to decide which to prioritize. The center also considered who else was providing similar services. For instance, this center was in a university town and needed to understand how the university did or did not meet the needs of student volunteers. Inevitably, resources influenced the focus of activities. Who was willing to help pay for services? So resource questions guided how the center developed in addition to the needs and demands of the beneficiaries.

A related concept is the existence of multiple “bottom lines” (Jeavons, 1994). Take for example, Teach for America, which seeks to “eliminate educational inequity.” Their strategy provides teachers to some of the most disadvantaged student populations in America. Concurrently, Teach for America seeks to recruit and influence some of the best and brightest college-educated students (that is, future leaders) in America. They hope to influence and change the volunteers, while meeting needs. They are educating not only school-aged students, but they are also educating college graduates about the American education system. Only some “corps members” will remain as teachers, but the corps members will forever understand the challenges in American education. Part of Teach for America's success is related to understanding the multiple markets. There was indeed a need for teachers in low-income communities, but there was also a desire among well-educated socially conscious individuals to make a difference, and Teach for America was able to serve both of these objectives simultaneously. This recognition of multiple markets (resources and needs) is fundamental to nonprofit strategy. These examples illustrate the complex and multifaceted “markets” that nonprofits understand when defining their operating domain. (Chapter Thirteen of this Handbook addresses in depth the topic of nonprofit marketing.) The next section explores in more detail needs, service recipients, and resource markets.

Service Recipients and Needs: Understanding the Need for Services

By defining a social need and/or unacceptable social condition nonprofits make a rationale for operations. “A need is a measurable gap between two conditions ‘what is’ (the current status or state) and ‘what should be’ (the desired status or state)” (Altschuld and Kumar, 2010, p. 3). Nonprofits address a whole range of “gaps,” including spiritual gaps, knowledge gaps, and social/cultural gaps. Definition and articulation of the social condition is fundamentally the public benefit justification that managers utilize to defend their tax-exempt status. How that condition is defined is based on interpretation and worldview (Checkland, 2000). Various actors within the organization engage in defining and describing community needs. At the organizational level, board members and executive leaders define broad categories of social priorities. These are often articulated in the organization's mission. Program managers further define social conditions to guide particular program initiatives, within the broad scope of the mission.

There are many factors to consider regarding needs and demand for services. Needs can shift and change and thereby make the current level of services unnecessary. Nonprofits do not necessarily respond to such changes in the same way that a for-profit business might (Lynk, 1995; Zaleski and Esposto, 2007). Some studies document that nonprofits don't take advantage of the market dominance in a “typical” way. When there is limited competition it appears nonprofits may try to expand services or take on more difficult cases. Confusion with market forces is not all that surprising because nonprofits do not operate exclusively on the exchange basis (that is, services = revenue). Other factors also drive those decisions, including resources, governance models, and executive leadership.

This lack of market sensitivity might be a good thing because it means nonprofits remain focused on their charitable purposes. However, given the potential for power differentials between service recipients and the nonprofit, there is some recognition that some nonprofits may not attend to the needs of beneficiaries in the way they should (Bruce, 1995; Pavicic, Alfirevic, and Mihanovic, 2009). Some explanations include the recognition that in many instances the nonprofit is the only service provider. Beneficiaries often don't have a choice of providers and have to accept what is given. Even if there are other providers, the need or demand for services often outstrips the capabilities of all providers, so providers do what they can but are cognizant of the excessive demand. There is also the potential for providers to assume a professional or even moral justification to control services because they “know what is best.” In an effort to get something done, nonprofits may inadvertently overlook beneficiary preferences. Nonprofits are morally accountable to beneficiaries but not financially accountable, and the ambiguity and power differential can be difficult to negotiate. (Chapter Four of this volume discusses in depth the multiple dynamics of nonprofit accountabilities.)

Funding Opportunities

Even more pressing for most nonprofits than demand for service is the nature of the resource environment. There is tremendous complexity in the funding environment given the range of revenue sources, such as government, corporations, individuals, foundations, and the various mechanisms through which donors can participate (grants, major gifts, annual contributions) (Delfin and Tang, 2008; Grønbjerg, 1993). Nonprofits must ensure consistent and reliable funding to sustain operations, but funders can lose interest or shift priorities and stop funding these operations.

An example is an organization dedicated to prevention services, primarily by providing programming on public school campuses. They were quite good at providing clinical and educational services related to drug abuse prevention and addiction within the school system. Most, if not all, of their services were offered on campus. Funding came through contracts with the local school district. As the educational priorities changed, demand increased for time on academics and resources were limited, so the program was losing contracts with the school district. Eventually, significant contracts were not renewed. The organization needed to consider how to respond: “our primary market is going away.” Some on the board thought: “This is it, we were good at what we did and now the sponsor no longer wants our services. Our program is over.” Others on the board, in particular, the new executive director, felt the organization was about prevention and, although they had operated in one way in the past, they needed to consider other ways to provide services to the community at large. The need for prevention services and drug abuse treatment wasn't going away—if anything, drug use and abuse was going up. The sponsor, however, was not interested in paying for those services in the same way as they had.

The executive pushed forward and developed a new program model that allowed them to expand their “market” (community-based prevention services) while staying true to their mission. They might never have become involved in what became an award-winning community program without this push from the funder. The organization continued to expand their funding base to limit the influence of just one sponsor. For most nonprofits it is inevitable that a major funder is going to have a significant impact on their services. Funding can be a “push” as, in this instance; a lack of resources pushed the organization out of a service niche. Funding can also be a “pull” whereby organizations are drawn toward particular funding opportunities. If the organization is not careful, this can become a source of “mission creep”—the problematic condition in which a nonprofit loses track of its purpose and spends too much energy following the resource market, slowly and modestly shifting to accommodate resource opportunities at the expense of attention to mission. It is important to remember that funding considerations need to be addressed in alignment with mission and service priorities (Jennings, 2004). One without the others is not optimal.

Leadership in Strategic Management

The story of prevention services also illustrates the role of the executive and board (Goodstein and Boeker, 1991; Ritchie, Kolodinsky, and Eastwood, 2007). Changes in leadership allow an opportunity to implement new models, identify new opportunities, and implement new approaches. Strategic perspectives are often held in the mind of the key decision makers, sometimes articulated but rarely captured in their entirety or in a plan sitting on a shelf. As an example, when discussing the role of the mission statement in decision making, one executive explained that the mission was used to constrain ideas for services and could be used to block new ideas. “We could do that if you want to change the mission statement,” he would say to board members who suggested ideas he felt were outside the organization's purview. Other executives might frame the mission more like a planter from which program ideas “grow” (Brown and Iverson, 2004). For them, the mission statement is used to build new ideas and strategies. This is how the executive at prevention services described what was happening to their organization. Neither one of these frames is necessarily “right” or “wrong” in a generic sense. Strategic approaches should be grounded in the context, but these examples illustrate that executives have a strong influence over how the nonprofit operates. Therefore, changes at the top can, by design or at times inadvertently, shift the way a nonprofit operates.

The influence of executives is often quite pronounced when long-time founders leave the organization. Successful founders often have excellent intuition about strategic direction and how to operate the organization (Ritchie, Kolodinsky, and Eastwood, 2007). However, if that strategy was not shared with board members, or board members deferred to the executive in ways that were not healthy, then it is possible that there might be significant differences of strategic opinion between them and a new executive. A new executive may bring a different approach, one that may be needed given the development state of the organization, yet this can lead to conflict because “that's not the way we do things around here.” If those perspectives are not well articulated, then there might be trouble. This is what happened in the earlier example of the organization providing prevention services. The shift to expand the market did not come without conflict on the board. Many board members were dedicated to the older model, and it took time to educate them about the new opportunity and the shifting resource environment.

Riding Against the Wind

One more illustration about recognizing the power of external environment opportunities might be helpful. I ride road bikes with a group of friends, and every Saturday we go for 40- to 50-mile bike rides. Imagine our group is a nonprofit organization. We have several purposes: we want to get some exercise and we want to have fun. One of things we consider when we head out is which way the wind is blowing. Imagine if you will that the resource environment is like the wind. When the wind is at our back we go faster, feel stronger, and generally have more fun, all the while we don't have to work as hard. We travel more miles with less effort. If the wind is blowing at us, we have to work a lot harder to go the same distance. We also have to coordinate our effort a lot more. By working together and taking turns at the front, we can get through the wind. We don't mind doing that sometimes because it does make us stronger. The wind isn't always at our back but, at the same time, we are not always “riding against the wind.”

The dynamics of the resource and service market are similar in that nonprofits position themselves to take advantage of the prevailing winds. If we fight the wind in every ride, we will be exhausted and potentially give up in frustration. Of course, following every breeze isn't viable either because we would never get home. So we consider how much we can benefit from the prevailing wind to make the best use of our energy while making sure we can get home. Nonprofits that ignore the resource and market opportunities are like bike riders always heading into the wind or, worse, riders who don't even know which way the wind is blowing. Some days they sail along without any effort—getting further and further from home, having a grand time. Other days the wind works against them. They are not ready and maybe even somewhat clueless about why it is so hard. External forces are quite powerful and to ignore them or to operate as if they don't matter is to operate in peril.

Committed Human Resources

With upwards of 70 to 80 percent of expenditures allocated to staffing in the typical nonprofit, human resource capabilities are the most significant lever to achieve organizational objectives. Furthermore, for many nonprofits, volunteer labor exponentially expands the workforce. Kong (2007) makes the case that “intellectual capital” makes nonprofits unique and strategic objectives should be framed to consider how a nonprofit can better utilize their people and relationships. The human resource school of strategic management also recognizes that working with people makes everything possible (Courtney, 2002). Traditional human resource dimensions include motivation factors, person-organizational fit, job design, and the like. Given the strategic management focus of this chapter, I will only introduce these topics; Part Five of this Handbook is devoted entirely to the work of leading and managing the human resource domain.

The strategic human resource management field recognizes that human resource practices make a difference in organizational performance. However, nonprofits often have some unique constraints in how such practices are utilized (Akingbola 2006; Rodwell and Teo, 2008). Part of this is explained by the small size of most nonprofits, yet some argue that nonprofits' challenges are due to a lack of discipline to implement more rigorous practices. The implementation of effective practice is further complicated by the engagement of unpaid staff members, that is, volunteers. Leading and managing volunteers poses its own unique challenges, as Jeffrey Brudney discusses in Chapter Twenty-Two. Volunteers can be difficult to control, and the ease with which they enter and exit from various roles in the organization (leadership, fundraising, program delivery) further complicates how volunteers are managed (Pearce, 1993).

Further, as discussed in depth in Chapters Twenty-Two and Twenty-Three, organizational commitment is an important issue that has significant strategic implications across the entire nonprofit “workforce.” A committed workforce, whether paid or unpaid, is motivated to work harder and achieve better results for the organization. Several studies suggest that commitment to the organization and the mission are fundamentally important and a unique advantage for nonprofits (see, for example, Brown and Yoshioka, 2003; Preston and Brown, 2005). As values-based organizations, nonprofits attract and retain workers partly because they tap into the expressive needs of employees (Mason, 1995). People join and stay with nonprofits because they want to make a difference; they believe in the values and purposes. The extent to which nonprofits emphasize the expressive benefits of and help workers “see” a connection between their work and the purposes of the organization affects the degree to which people are going to be satisfied with their role in the organization, and this increases the likelihood they will put forth the effort necessary to achieve organizational priorities.

How do we encourage commitment? It is not simple but, from a strategic perspective, nonprofit executives need to ensure a high level of alignment and consistency in values and ethical practices. This Handbook's chapter on ethical management (Chapter Seven) makes the case that nonprofits need to be able to rely on trust and cooperation because of the inherent difficulty in determining performance measures; stakeholders inside (paid and unpaid employees) and outside the organization need to be able to trust nonprofit leaders to operate ethically. Nonprofits are held to that higher standard because of the very nature of who they are. Employee commitment is partially driven by the ethical practices of leadership and supervisors. Since most nonprofits are not going to be able to pay as much as their for-profit counterparts, and most nonprofits are not able to offer the employment stability of the public sector, organizational participants expect a positive work environment that reflects the principles and values espoused by the organization. Their values propositions are potentially the most distinctive aspect of nonprofit organizations and can make them very appealing to donors, volunteers, and paid employees (Frumkin and Andre-Clark, 2000).

Collaboration and Network Relationships

Another important consideration in the development of service delivery is the potential of collaborative relationships. If an organization doesn't have adequate internal capacity, a good option may be to work with other organizations to achieve organizational objectives. This is particularly true for nonprofits in complex operating environments with multifaceted social issues and the challenges of resource limitations (Sowa, 2009). Collaborative strategies can be difficult, yet they are necessary and sometimes may even be the only approach to achieve broader objectives. (Austin and Seitanidi discuss in depth the potential for creating value through collaborative strategies in Chapter Fifteen of this Handbook.)

Less common but also reasonable to consider is the option to acquire or merge with another organization. This is less common in nonprofits, yet there are many examples of how nonprofits have been successfully acquired or merged. The merger of the Points of Light Foundation and HandsOn Network is an interesting example. The Points of Light Foundation was by all indications the historical infrastructure organization in volunteer management; it represented the national network of volunteer centers. Points of Light employed a fairly traditional model to facilitate volunteer placements with partner nonprofits. In contrast, HandsOn Network was a younger organization that framed volunteer engagement slightly differently; they were more about organizing projects and developed “make-a-difference” day. Each of these partner organizations brought a slightly different orientation toward supporting volunteers, and together they have integrated multiple approaches in an effort to enhance their sustainability and impact. This illustrates how two different types of organizations interested in the same cause (supporting volunteerism) strategically joined forces to address real challenges in the field.

Political Engagement and Lobbying

In addition to direct service collaborations to achieve program goals, nonprofits can seek to influence broader political forces. Indeed, as Avner explains in Chapter Fourteen, many nonprofits have determined that advocacy is an essential element of their strategy. The classic parable of babies floating down the river helps illustrate this concept.

The downstream town changed the system so that now it is unnecessary to save babies from the river. Nonprofits, consequently, need to provide services, but they should also work to change the system so their services are no longer needed. It is not just about finding a need, securing resources, and developing an amazing service delivery system: it is also about changing the system to limit the need for services altogether. In many instances this means changing the laws and rules to help eliminate the problem. MADD (Mothers Against Drunk Driving) is an example of a nonprofit that set out to change the rules about drunk driving. By organizing and campaigning, they helped change the way Americans thought about drinking and driving. MADD wasn't just about victim services and supporting mothers who had lost children. They were about changing the system so that there were fewer grieving mothers (MADD, 2005).

Issues in Control and Performance

The nonprofit context suggests several performance and control issues that warrant consideration, and Figure 8.4 depicts the key areas nonprofits to monitor. Other chapters in this Handbook address each of these topics in detail, so our goal in this section is to highlight some of the key strategic management dimensions of each.