by Scott Schaffer, of Public Interest Management Group, and Jim White, of Nonprofit Association of Oregon
Over the past several years, Public Interest Management Group (PIMG) and Nonprofit Association of Oregon (NAO) collaborated on an applied research study of best practices in nonprofit management. That study engaged 43 charitable nonprofits in Oregon, California and Washington, using a methodology that highlighted associations within a wide range of practices with organizational success. What we learned confirmed some of our expectations, but also raised some big surprises – cases where research findings contradict conventional wisdom in the sector. (We discuss the findings at length in a paper we authored in 2018.)
We wanted to find out how practitioners – people who are in the thick of running nonprofits – felt about the study’s findings, and what challenges they deal with day to day. So, we set up a series of six focus groups in diverse geographies across Oregon. We talked to senior staff of urban and rural nonprofits – large and small – who work in subsectors including human services, education, housing, arts and the environment. Several important themes emerged from these discussions.
Practitioners embrace the importance of a balanced organizational culture – one that values business functions along with the mission – but they face obstacles in achieving this.
The study showed a high correlation between an organizational culture that embraces business functions and organizational success. A balanced culture values not just commitment to the mission, which nearly all study participants shared, but also performance measurement goals, active budget management, the use of data in decision making and adherence to policies and procedures.
Running nonprofits “like a business” used to be a radical idea, but our focus groups suggested this is mainstream thinking now. While there were outliers, most practitioners recognize the merits of sound business practices, and a culture that supports them. Yet, they face hurdles in getting there.
One common challenge is that nonprofit staff are often drawn to the organization by the mission and may resist the kind of structure and discipline that a balanced culture requires.
A second challenge is that staff are chronically stretched to their limits. This means limited bandwidth for management and frontline employees to work on cultural development and integration. This theme was consistent across all focus groups.
A third challenge is pressure to reduce “overhead,” a result of perception by government, funders and the public that administration and infrastructure are somehow wasteful.
Still, many executive directors we talked to felt that they had made important strides in recent years.
Core operating capacity is critical to nonprofits’ success, yet it is nearly always under-resourced.
Our research study illuminated the importance of several factors associated with having a strong organizational nucleus. Yet, one of the universal truths in the nonprofit world is that core capacity, a category that encompasses administrative staffing, technology and data systems, training and management support, always seems compromised, whether an organization is comprised of all volunteers, has just a few staff members or has hundreds of employees. There are several reasons for this:
As we noted above, government and funders are often biased against core functions. Restricted funding – a concept unique to the nonprofit sector – typically cannot be spent on general operating expenses, and large grants and contracts often limit “overhead” spending to arbitrarily low percentages.
Nonprofits are commonly dealing with major societal issues, which creates pressure to devote resources to direct services and programs, and core functions often lose the budget struggles.
The two factors above can trigger a feedback loop; many organizations live in a culture of scarcity, where staff and volunteers become accustomed to stretching funds as far as possible, and “doing without.” The ambition to build a strong core is not always present.
Knowledge may also be a limiting factor. The limited core funding and focus on necessities means that nonprofit managers have limited bandwidth to identify and test new methods and technologies.
The strong staff model of leadership resonates in the field, but the roles of boards often work counter to this.
The study showed that organizations with strong staff leadership, where staff are driving strategy and implementation and the board is focused on its governance role, tend to be more successful than others. Nearly all executives, as well many board leaders who participated in focus groups, found this finding logical and expected. Yet exceptions to this apparent best practice are common.
Organizations in our study characterized by board dominance of strategic and operational decision making tended to perform poorly relative to peers in every cohort within the study population. Many other nonprofits struggle with this balance regularly, even where the board may not play a dominant role.
If the best practice is so clear, why is the balance between staff and board in organizational leadership such a common challenge? The focus groups led us to conclude that preconceptions regarding the board’s role are commonly the culprits. Presumptions can be informed by vague understandings of how boards should work, or simply by the continuation of past practices. If board leaders were to consult nonprofit sector literature, they may find ambiguous direction, with some resources emphasizing the importance of board engagement, period, and others focusing on sometimes contradictory governance models. Here, our focus group participants supported clear communications of best governance practices.
We were encouraged to find significant alignment between practitioners and our study results, even where the results defy common practices. We are pleased to find clear direction for improving management practices throughout the field. Nonprofits play critical roles in community life. Particularly where societal problems, such as homelessness, youth development and public health depend on high-performing organizations, this research can point toward more effective support and proactive change for a rapidly evolving sector.