Nonprofits are vital to the functioning of our society. They provide important services that our local, state and federal governments can’t or don’t provide. They put the people they help ahead of a big bottom line.
But the bottom line matters too. Nonprofits can’t help the people they’re trying to reach if they don’t have the resources to make it happen. And the way a nonprofit functions can have everything to do with how successful and sustainable it is.
A team of researchers has found that nonprofits that were early adopters of practices common in the business world were more successful over the course of a decade. They were able to change quickly to become more transparent and collaborative.
The Stanford Graduate School of Business researchers, led by professor Walter W. Powell, were inspired to investigate this because of nonprofits’ reputation for being slow to change with the times and reluctant to adopt corporate practices. In the 1990s, nonprofits were urged to become more efficient by their benefactors and advisors. A research team began tracking 200 nonprofit organizations in the San Francisco Bay Area to figure out how becoming more businesslike affected them.
“In the early part of study, we saw the growing adoption of managerial processes commonly associated with business,” Powell said in Insights by Stanford Business.
Many of the organizations they were following had already started audits of internal financial practices, or had hired outside consultants to evaluate existing programs and help with strategic planning processes.
They also started assessing themselves using “SWOT analysis” commonly used in for-profit business, which breaks down an organization’s strengths, weaknesses, opportunities and threats. New emphasis on the organizations’ performance caused some of them to change the way they recruit and hire staff.
Another research team looked at the same group of nonprofits in 2016, more than 10 years later. Despite the Great Recession having dominated the economy of the decade, more than 175 of the organizations were still working away. (Though some of them had moved or changed form.)
The organizations, especially the ones that were early adopters of practices common in the business world, had become less isolated by collaborating with other organizations and gathering input from stakeholders online, the research team found. They were using social media “to get members of the community to participate in decision-making,” Powell said.
The early adopters had spent more time on strategic planning, internal efficiencies and measuring their success, he said. Through that process they had learned the importance of transparency and communication with the outside.
“This is what, in part, has helped them to reach out to their constituents through the web and share data on the impact of their work,” Powell said.
Young donors are especially interested in “high-impact philanthropy,” he said. They want evidence that their money is making a difference. Borrowing metric-capturing methods from the business world is a good way to do that.
“Part of what we’re seeing is greater openness and transparency and more engagement in working with constituents,” Powell said.
Adopting new strategies made nonprofits stronger and lighter on their feet. But the organizations also tweaked these methods to make them fit a more philanthropic model. For example, one homeless services organization involved in the study asks stakeholders during its strategic planning process if it should continue to exist. It asks the people they serve for feedback on the work it does. It even involves beneficiaries in organizational changes. That’s something most for-profit businesses would never do.
Over time, nonprofits have become more inclined to consider similar organizations as partners rather than competitors and are more willing to work with these organizations, a surprising result of adopting a more businesslike mentality.
“Organizations are becoming more porous and open to more people,” Powell said to Stanford. “And it is precisely those organizations that were focused on building up their internal capacity in 2005 that now orient their activities outward most distinctively.”