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Should Philanthropies Operate Like Businesses? - Wrong Question

Posted November 28, 2011 12:36 PM by Ted Jackson

Today the Wall Street Journal dedicated the Journal Report (section R) to nonprofit organizations. There are a lot of good articles about fundraising and joining a board, but the headliner, or attention grabbing article, is about "operating like a business." The overall question is whether donors should be looking for a return on their investment, similar to businesses? I think this is the wrong question.

In the philanthropy world, and I mean both the donors and the nonprofit organizations they fund, operating like a business has a negative connotation. It is not hard to imagine why businesses have a negative connotation. The top 1% who run businesses have left the 99% in a stagnant world while they get rich. Businesses caused the financial crisis. Big businesses have outsourced jobs overseas and hurt us domestically. Instances of criminal behavior are everywhere in business. These are just a few of the generalizations you get when you think about operating like a business.

I think it is the wrong question to ask whether nonprofits should operate like a business, but the right question is whether nonprofits should embrace some business ideas around executing strategy or performance management. Businesses have higher level goals of making long-term profits and developing sustainable, repeatable financial results. Nonprofits should put their mission at the top of their set of goals. In my opinion, the best way to do this is by using a strategy map, a similar tool to what a business would use.

Nine out of ten organizations fail to execute their strategy. This means that they do not achieve the goals laid out in their strategic plan. The principals of the Balanced Scorecard increase the odds. The Balanced Scorecard is a framework for translating, managing, and executing strategy. This framework can and should be applied to nonprofit organizations. A nonprofit should be very concerned about being able to execute its strategy. A nonprofit should be able to test to show that its actions are making a difference, even if the overall impact is hard to measure. The strategy map helps to lay out the assumptions in the strategy of the organization.

Keeping with the map analogy, an organization can see if they have missed any steps. Maybe they can describe how to get from New York to Memphis and then Dallas to Phoenix, but they may have forgotten to describe how to get from Memphis to Dallas. This gap leaves donors, employees, and volunteers wondering how to execute on that part of the mission. The map helps clarify the strategy. Think of the map as a tool to help any organization to execute its strategy. All organizations need tools and this is one that helps both for profits and nonprofits.

So it is less about operating with the stigmas of a business, and more about executing one's strategy, and I don't think any donor would argue that a nonprofit needs to have a clear strategy for achieving the mission of the organization. Producing some measurable results just bolsters the idea that the strategy is working. We have written many whitepapers to help you learn more on this topic