Monday, November 29, 2010

Challenges and Opportunities Facing Nonprofit Organizations

Challenges and Opportunities Facing Nonprofit Organizations
Arthur C Brooks. Public Administration Review. Washington: Jul/Aug 2003. Vol. 63, Iss. 4; pg. 503
Three books are reviewed: 1. The State of Nonprofit America, edited by Lester M. Salamon, 2. On Being Nonprofit: A Conceptual and Policy Primer, by Peter Frumkin, and 3. Pathways to Nonprofit Excellence, by Paul C. Light.
The year 2002 was a good one for scholarly contributions to nonprofit management, thanks in no small part to new books by Lester M. Salamon, Peter Frumkin, and Paul C. Light. All three authors are prominent scholars of the nonprofit world: Salamon at the Johns Hopkins Center for Civil Society Studies, Frumkin at the Hauser Center for Nonprofit Organizations in Harvard's Kennedy School of Government, and Light at New York University's Wagner School of Public Service. Their books are bound to receive significant attention in both academia and the nonprofit sector.
By far the longest of the three at nearly 600 pages, The State of Nonprofit America contains essays written by various experts on different nonprofit subsectors and topics (Salamon edited the volume and authored or coauthored several of the essays). The book is structured in three parts: a broad overview of the nonprofit sector, surveys of the major fields (health, education, social services, arts, international relief, religion, advocacy, infrastructure, foundations, and philanthropy), and treatments of issues that are especially salient across the sector (commercialization, competition, privatization, accountability, regulation, and technology).
Salamon's aim is to provide a practical guide to the current state of the nonprofit sector in America. The book will be useful both as a reference for those working in fields adjacent to nonprofit management and as a counterpart to Salamon's other edited volumes on the sector (especially the indispensable Global Civil Society). It will also make a good principal text for an MPA-level survey course in nonprofit administration.
If Salamon's orientation is practical, Frumkin's is largely intellectual, and although On Being Nonprofit is fairly short, Frumkin packs a lot into it. Looking at nonprofit policy and management as a highly trained, multidisciplinary social scientist, he centers his discussion of the sector on what he believes are its four core functions: promoting political and civic engagement, delivering critical services, providing a vehicle for social entrepreneurship, and acting as an outlet for the expression of faith and values.
Frumkin's book ties together, in one place, many strands of thought about the nonprofit sector, and will serve as an important resource for scholars. Exceptionally well-written and easy to understand, it would also make an excellent text for a PhD seminar on nonprofits.
Pathways to Nonprofit Excellence is predicated on the common-sense notion that nonprofits need to improve their performance rather than just raise more money, and it asks what are the components of an "effective nonprofit." Light answers the question empirically, reporting on the results of a survey of 500 nonprofit executives and experts. He seeks discernible patterns in the practices of effective nonprofits.
Written while Light was the director of the Government Studies Program at the Brookings Institution, the book has the tightly focused feel of a think-tank report. It will appeal to nonprofit managers and others who are looking for portraits of effective nonprofits and their leaders, but are tired of being subjected to anecdotes masquerading as research on "best practices." It may also be useful as a support text for courses in nonprofit program evaluation or human resource management, and it fits nicely with Light's recent report Making Nonprofits Work (Light 2000).
The content of the three books is complementary. Indeed, taken together they provide an outline of the current challenges facing nonprofit managers and public policy makers in at least four areas: (1) markets and competition, (2) effectiveness and accountability, (3) policy and politics, and (4) leadership. A discussion of each of these challenges provides a useful way to contrast the volumes, even though it means neglecting a number of other topics, including many of the individual essays in Salamon's volume. (This neglect is a function of space, not interest).
Nonprofits and Markets
Books about the nonprofit sector inevitably talk about money, and these are no exception. Interestingly, these three volumes focus more on earned income (payment for services) than on any other income source (although Salamon has excellent chapters by Virginia Hodgkinson and Leslie Lenkowsky on the current state of individual and corporate philanthropy, respectively).
Light reports that the majority of experts and executives say nonprofits must focus on earned revenues to be effective and stay solvent, and both Salamon and Frumkin show that the modern growth of the sector has largely been fueled by fees (the percentage of nonprofits' income from donations fell from 53 percent to 24 percent in the 20-year period ending in 1993, despite dramatic real-dollar increases in giving). Frumkin also notes that the type of income arguably furthest from nonprofits' missions"unrelated business income," which is taxable-grew particularly quickly (by more than 250 percent across the sector from 1991 to 1997).
Despite their enthusiasm about earned revenues as an unrestricted source of income, all the authors sound a cautionary note regarding an over-reliance on fees. They believe that this can lead to a tendency to "commercialize" in order to compete with forprofits (and governments), at the expense of attention to an organization's core activity. In Frumkin's words, "The growing commercialism of nonprofit organizations ... raises important questions about mission coherence" (172). The assumption is clear: Fulfilling a nonprofit's mission and enhancing its bottom line are two different-and often incompatible-goals.
Regarding the head-to-head competition with for-profits that results in commercialization, Frumkin has an interesting discussion on the comparative advantages and disadvantages faced by nonprofits. On the one hand, nonprofits can use the "nondistribution constraint" (the requirement that profits not be distributed to their owners) to establish trust with clients in ways that for-profits cannot. On the other hand, they suffer a natural efficiency disadvantage owing to unclear channels of accountability, often inadequate financing for infrastructure, and forced inattention to bottom-line issues.
In an essay with Dennis R. Young, Salamon makes the link between earned income and commercialization most explicit. Particularly notable is their assertion that commercialization results from increased demands for accountability from nonprofits. The argument runs thus: As funders increasingly require evidence of market success as a measure of organizational effectiveness, nonprofits tend to adopt for-profit techniques to attain this success. And the outcome can be perverse: If a nonprofit's true effectiveness requires adherence to its mission, then the proof of effectiveness demanded by funders-resulting in commercialization-might actually make it less effective, not more so.
Effective and Accountable Nonprofits
This raises the question of what, exactly, is an "effective" nonprofit. In my view, Light's book is the best reference currently available for answering this question. He gets his answer straight from those who know best: hundreds of nonprofit experts, as well as hundreds of executives of nonprofits identified by the experts as "high performers." Although there are some interesting areas of disagreement between the groups, the convergence between what the executives reported doing and what experts said nonprofits should be doing is striking. The salient characteristics of an effective nonprofit organization are the tendency to (1) collaborate with other organizations, (2) diversify income sources and focus on earned revenues, (3) measure outcomes, (4) build flat, nonhierarchical, team-based workforces with open communications, and (5) keep clear lines of communication and responsibility open between staff and the board of directors.
Throughout the book, Light molds his empirical results into an argument that can be summarized as follows. First, effective nonprofits should adhere to their mission: They should be "nonprofit-like," not "business-like" (although there is certainly some overlap). Second, effective nonprofits should invest in themselves, especially in the areas of management training, performance evaluation, and technical assistance. Third, effective nonprofits should be connected to the rest of the sector through codes of conduct, best practices, and benchmarks.
As noted above, "effectiveness" is a goal often demanded by outside forces seeking accountability. These forces take many forms, as Evelyn Brody notes in her essay in Salamon's book. For example, nonprofits are accountable to governments, to the rest of the sector, to their constituents, and to the public at large. Furthermore, effectiveness (however defined) is just one dimension of accountability; others include financial stability, proper governance, mission attainment, and public trust.
There are many mechanisms for encouraging accountability in nonprofits. For example, Brody lists government regulation, private standards and accreditation, donor and client behavior, the participation of staff and volunteers, the availability of contract funding, and tax-dollar support (or lack thereof). Evidence of accountability through these mechanisms usually means constructing performance measures, a topic on which these books have surprisingly little to say, besides making the argument that measuring performance for purposes of accountability has both advantages and disadvantages. On the one hand, performance measures drive nonprofits to focus on outcomes, instead of just inputs and outputs. On the other hand, an obsession with particular measures can lead to mission drift and the cherry-picking of services and clients, such that performance looks best along just the dimensions measured.
Policy and Politics
The relationship between governments and nonprofits receives diverse treatment from the authors. Most practically, Salamon joins Kirsten Gronbjerg to summarize the most important trends in the relationship between the public and nonprofit sectors, including those involving government funding, competition, tax and regulatory policy, and the role of faith-based organizations.
Although Frumkin treats the relationship between government and nonprofits functionally in a chapter on service-delivery mechanisms, his strongest contribution to the subject comes in a discussion of civic and political engagement. He describes how nonprofits affect the public sector in a variety of ways, ranging from minimal (building social capital) to intensive (direct electoral activity). His discussion of the political significance of nonprofits relies heavily on Tocqueville, Locke, and other classical thinkers; it is impeccably reasoned and a pleasure to read.
Frumkin also explores the role of political ideology in nonprofits, noting that neither the political left nor right has a stronger claim on the sector. Indeed, whereas political liberals extol the sector as a vehicle for social advocacy, as a partner to government, and as a sphere with motives besides profit, conservatives see the sector as an alternative to government, as a means to inject religious faith into social programs, and as a source of local solutions to local problems.
This suggests that the roles of the sector accommodate disparate political beliefs. For this reason, a small demographic detail in Light's survey data (contained in the appendices) raises a potential concern about the balance and ongoing relevance of nonprofit experts. When asked how they would categorize themselves politically, 64 percent of the experts said they were "liberal" or "very liberal," and just 3 percent labeled themselves "conservative" or "very conservative" (the rest were "moderate," and 4 percent did not respond). So although Frumkin persuasively makes the point that nonprofit activity spans the ideological spectrum, Light's survey shows that nonprofit experts, in contrast, do not.
Nonprofit Leaders
High performance requires good leadership, a topic on which all three volumes make several worthwhile contributions. For example, Light, who defines terms throughout his book by referring to his survey results, characterizes effective leadership according to traits that leaders themselves feel are most important. In rank order they are honesty, fidelity, decisiveness, trust, and charisma. It would be a good leader indeed (or spouse, friend, or colleague, for that matter) who possessed all of these characteristics.
Both Frumkin and Salamon note that the drive for excellent leaders makes for a "professionalized" leadership environment. This could potentially lead to the nonprofit paradox described earlier: The struggle for effectiveness pushes firms to reward tangible results, possibly at a cost to the firm's mission.
On the subject of leadership, Frumkin explores the emerging topic of nonprofit entrepreneurship. Economists define entrepreneurs as those who combine organizational skill with the willingness and ability to take risks; the returns are the firm's profits (revenues net of all payments to resources in production). What makes the topic of nonprofit entrepreneurship difficult, therefore, is the nondistribution constraint. Frumkin neutralizes this difficulty deftly by noting that returns to nonprofit principals are largely nonpecuniary: nonprofit entrepreneurship is often a social, not financial, phenomenon. He discusses the "social entrepreneurship" seen in nonprofit executives, in volunteers who catalyze communities, in trustees who marshal large jumps in funding, and in venture philanthropists.
All three of these books contribute valuable and contrasting insights to our understanding of the challenges and opportunities facing nonprofits, and they will be appreciated by a variety of readers. Salamon's volume provides a robust entry-level overview of the sector from some of the most notable scholars currently in the field. Light's work will change the way scholars and practitioners think about nonprofit effectiveness. And Frumkin gives us the kind of intellectual tour of the sector that those of us who call ourselves "nonprofit scholars" have needed for a long time.
[Reference]  »   View reference page with links
Light, Paul C. 2000. Making Nonprofits Work: A Report on the Tides of Nonprofit Management Reform. Washington, DC: Brookings Institution.
Salamon, Lester M., Helmut K. Anheier, Regina List, Stefan Toepler, and S. Wojciech Sokolowski. 1999. Global Civil Society: Dimensions of the Nonprofit Sector. Baltimore, MD: Johns Hopkins Center for Civil Society Studies.

[Author Affiliation]
Arthur C. Brooks, Syracuse University
Lester M. Salamon, ed. The State of Nonprofit America (Washington, DC: Brookings Institution Press, 2002). 563 pp., $28.95, paper. ISBN: 0815706235.
Peter Frumkin. On Being Nonprofit: A Conceptual and Policy Primer (Cambridge, MA: Harvard University Press, 2002). 244 pp., $35, hard. ISBN: 0674007689.
Paul C. Light. Pathways to Nonprofit Excellence (Washington, DC: Brookings Institution Press, 2002). 188 pp., $14.95, paper. ISBN: 0815706251.

[Author Affiliation]
Arthur C. Brooks is an associate professor of public administration at Syracuse University's Maxwell School, and director of the nonprofit studies program in the Alan K. Campbell Public Affairs Institute. His research focuses on philanthropy, cultural policy, and the economics of nonprofit organizations. Email:

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