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Not-for-Profit Organizations (NPOs) play an important role in our society, providing a wide range of services in areas such as health care, education, social support, and public awareness.
NPOs often look at themselves as organizations with lower burden of competition, where beneficiary experience is not a revenue growth driver, and accountability can often be diluted under the pretext of being heavily dependent on volunteers.
Although NPOs believe they are different, they share the same challenges as profit oriented organizations. Furthermore, the imperative of addressing those challenges becomes even more crucial as the impact of their actions touches on saving and improving lives.
In my experience supporting NPOs in their transformation journey, I have observed the following key elements as essential for any NPO to deal with its challenges and embrace the increasing demands of the community:
While profit oriented organizations, as their name indicates, strive to “create sustainable advantage relative to competitors and superior financial returns”, NPOs’ true definition of winning is to achieve their social mission by creating social change and impacting the lives of people in need. Therefore, just by considering their commitment to the community, NPOs shall have the same strategic focus as profit oriented organizations; they need to understand that the key factor responsible for their success is to ensure that the organization has developed a strategy that aligns its mission with its short- and long-term vision as well as with the expectations of its stakeholders.
The primary customers of an NPO are the service beneficiaries. While it is clear for a profit-oriented organization that it must successfully target its customer segments and build strategies that address their requirements in order to sustain profitability, NPOs do not usually act in the same focus and direction as their financial sustainability comes from a different source (funders – typically governments, corporations and private donors). Therefore, it is essential that they don’t overlook their beneficiaries’ satisfaction and needs considering their liability towards the community, the reputational risk they may incur, and the need to create a strong brand and a positive public image that will make the NPO an attractive candidate for sponsorship and donations.
As much as a strong brand is a strategic asset and an important competitive tool for any profit oriented organization, NPOs must strive to deploy the same efforts to build their brands. While some NPOs often believe, and rightfully so in some instances, that they already have a strong brand, they may not be seeking to actively manage it in order to make it sustainable. Social missions definitely require a cohesive image in order to attract support from funders, volunteers and help the NPO fulfill its mission and bring solutions to the community.
*Talent and Volunteers
Similar to any organization, NPOs would be unable to achieve their mission without their human capital. The challenge is even bigger for NPOs since they need people: (a) who believe in the organization social mission and are passionate about it, (b) are willing to sacrifice a competitive financial compensation for the benefit of getting a positive experience and achieving self-fulfillment. Moreover, NPOs rely heavily on volunteers who are willing to donate their time and expertise. If NPOs are not strategic enough in their approaches to talent development and management in order to attract and retain the right talent, then they will fail to reach their full potential and their social mission and existence will be at risk.
NPOs usually develop a culture that is less confrontational and attaches importance to informal relationships. As an implication, they might lack in terms of accountability for actions and results, open communication and feedback. While profit oriented organizations consider the existence of a culture that is conducive of good performance is key for success, and despite the fact that measuring the social impact of an NPO’s efforts is much more difficult (hence making the individual contribution very challenging to assess), NPOs must strive to put in place performance evaluation approaches that are compatible with their context in order to deliver against its mission.
NPOs are exposed to growing public accountability and liability, especially when providing healthcare services. NPOs may justify their shortcomings by the fact that they rely on volunteers and that they are providing a service to the community in the absence of proper government interventions. However, their liabilities towards the community and their stakeholders are the same as, or even higher than, profit oriented organizations considering their mission. It is crucial for NPOs to determine the inherent risks relating to their activities and address them by having streamlined processes and proper controls in place.
Organizational dynamics are usually more problematic at non-profit organizations. They often face the challenge of putting a sound governance in place as the various authorities (CEO, Management, Board, or even external stakeholders) may want to retain influence and the control of decisions. Even when the NPO is striving to establish proper governance, another pitfall is related to the fact that NPOs board members or key decision makers serve as volunteers and they may be unable to dedicate the required time and effort to diligently carry out their duties.
NPOs must consider governance as their number one priority in the same manner as profit-oriented organizations, in order to achieve their social mission. Decision makers who are volunteers should ensure that they fully understand their responsibilities and accountability before engaging in demanding roles.
A core and major stakeholder for an NPO is the funder. Funders’ willingness to donate increases when they perceive that the NPO is able to have greater levels of impact by benefiting from additional donations. To avoid reluctance of donors to fund NPOs, the latter must, in addition to embedding integrity and values in all behaviors and actions, act on the above mentioned areas.
In conclusion, as a result of the crisis that the world is witnessing from wars, natural disasters, socio-economic problems, and political unrest, many NPOs are growing in size and complexity, particularly in the MENA region. While they face many challenges to achieving their mission and meeting their stakeholders’ expectations, NPOs with strong ethical and behavioral attributes, a strategic mindset, a performance driven culture and a strong, effective governance system have a greater likelihood of success than poorly governed and managed organizations.
The views and opinions expressed herein do not represent nor reflect those of Deloitte & Touche (M.E.) LLP (DME). Opinions, conclusions and other information in this blog post which have not been delivered by way of the business of Deloitte & Touche (M.E.) LLP (DME) are neither given nor endorsed by it.