Monday, December 12, 2011

The "business" of non-profits

Should non-profits be operated as a business? Or does their mission-driven nature somehow exempt them from such a standard?

I am a big fan of the writings of Peter F. Drucker (1909-2005), the author of 39 books about organizational effectiveness. Often called a “management guru” – a term he hated (remarking once “that we are using the word ‘guru’ only because ‘charlatan’ is too long to fit into a headline”) - he was particularly appreciative of the importance and difficulty of work in the non-profit field. One of his legacies is The Drucker Institute at Claremont Graduate University (CA) where he taught for years. Each year the Institute sponsors three Nonprofit Innovation Awards, the winner of which receives $100,000.

In 1973, I received a MBA degree from the Harvard Business School. I entered the two-year program from the non-profit music field with the intention of returning to non-profit work, which I did. As far as I could tell only a handful of the 750 students in my class had the same background and goal. Harvard teaches using the case method and at that time there were very few cases dealing with the nonprofit field, so I had to engage constantly in mental translation of, say, a marketing case about Smucker’s jams into the not for profit arena. There were very few instances where I found this was impossible.

Here’s a provocative idea from the excellent “The Daily Drucker” (Harper Collins 2004). Drucker was fond of the concept of what he called “systematic and purposeful abandonment.” He was referring to casting off old and non-productive products and services in order to free up resources, especially people, to focus on the opportunities of tomorrow. It is especially difficult for an organization to abandon the “cherished” activity, one that has been in place for years.

He urges a systematic approach where regularly and dispassionately, if that is possible in a non-profit organization, programs are reviewed - and the question is asked: which one should we abandon? Whether it be the profit or non-profit world inevitably there are activities that are no longer as productive as they once were, yet are still being operated, because they have been going for years and/or have their internal adherents. This exercise next begs the question: OK, What do we replace it with? Drucker believes the point is that abandonment makes it possible for staff to concentrate on finding new and more productive program (s) instead of managing or providing life support to the old tired enterprises.

An abandonment analysis might be easier for the profit-making world using measures such as sales and profit/loss figures. But nonprofits can look to audience/ clients served and, even better, study program evaluations.

Here’s a distinction Drucker made that helps clarify the non-profit as business issue: “In the case of business enterprise, the end is economic; in the case of a hospital (for example), it is the care of the patient…” He always comes back to the importance of management, the task of which is: “ …to make people capable of joint performance, to make their strengths effective and their weakness irrelevant. That is what organization is all about..” Management is the critical and unifying factor that bridges any gulf between “bottom line” and “mission.” No wonder Peter Drucker called himself as “social ecologist.” He understood deeply that management is about human beings. And that is why he greatly valued and supported the non-profit enterprise.