David Morrissey

MANAGING THE NONPROFIT ORGANIZATION

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AN ANALYSIS OF PETER DRUCKER’S BOOK “MANAGING THE NON-PROFIT ORGANIZATION – PRINCIPALS AND PRACTICES”
 
CRITICAL ANALYSIS OF PETER DRUCKER’S BOOK “MANAGING THE NON-PROFIT ORGANIZATION – PRINCIPALS AND PRACTICES”
By
David J. Morrissey
August 12, 2005

Analysis of “Managing the Non-Profit Organization”
 
Introduction:
In his book, “Managing the Non-Profit Organization – Principles and Practices”, Peter Drucker lays out principles for managing the non-profit organization that allude to the nonprofit as both business and political enterprise, but not wholly either.  His essays and interviews attempt to clarify what makes the non-profit unique and worthwhile and what makes them an especially American (and democratic) establishment.  With the mission as a foundation and performance goals as the blueprint, he is like the expert architect teaching an apprentice how best to design, build and manage the organization, through effective management of focused resources that circulate throughout the successful nonprofit.  The book attempts all this by alternating between conversational interviews and point-by-point essays on five key topics 1) The Mission, 2) Marketing for Performance, 3) Managing for Performance, 4) People and Relationships, and 5) Developing Yourself.
 
Drucker’s book becomes more pertinent today than when it was first published in 1990.  In the ensuing fifteen years we have seen 9/11, recessions, the market crash, accounting scandals, two wars, genocides, and the dominance of the internet.  Nonprofits seem more sensitive than governments and businesses to ever-increasing changes we feel powerless over.  Nonprofits, along with the military, are often the first to minimize or repair the damage left by a disaster.   Nonprofits are the first sector to suffer from a decline in the economy.  Today we have an ever-increasing focus on “multiple bottom lines” in corporations, reflecting a developing conscience one can say was gleaned from nonprofits.  Drucker mentions in the preface a 40-year trend he noticed in his career leading up to the book, where the nonprofit became central to society.  That trend continued into the new century and will likely continue.   We need Drucker’s common sense “Action Implications” more than ever. 
 
The Author’s Perspective:
Mr. Drucker wrote his book in the late 1980s post-Reagan era which virtually romanticized the non-profit sector as “a thousand points of light” (G. H. W. Bush).  That period could be considered a “hey-day” in the tertiary sector, which coincided with a heyday in the stock market.  Elizabeth Dole’s tenure as president of the American Red Cross is one example of the tremendous growth in corporate fundraising efforts that went on in top organizations of the period.
Of course, the events that followed in this decade have stressed the sector beyond what could have been foreseen then.  However, Drucker’s perspective is one of focusing on long term growth rather than on the short term gain mentality of the private sector, and he has a winning ability - a “helicopter” perspective on problems - to understand and also transcend the short-term environment.  His writing style is compact and contemplating his points yields more answers than first perceived.
 
Main points of the book: 
Citizenship, Leadership and the Mission:
Drucker’s message is based on the notion that the nonprofit defines American citizenship.  He discusses the commitment of believing in an “eternal mission”, as contrasted with the short-term goal orientation found in the private sector.  The nonprofit becomes an avenue for citizenship through its mission.  The United States, a country born of idealistic (mission-oriented) immigrants, seems to have led the growth in nonprofits.  Narrowly defined goals are needed to focus scarce resources.  Ask “What can we do well?” and use that to correctly define or adjust the mission statement.  Fruitful nonprofits set their sights on missions they do well, minimizing or eliminating other activities.  The example given is that hospitals comfort the sick and are therefore not as good at prevention, while clinics dealing with prevention are not as good at comforting the sick.  It seems simplistic, but still appropriate today.
 
Drucker spells out that leadership with such a mission includes tough decisions and is a “foul weather job”.  Management must anticipate crises with innovation while growing and adapting with every success.  Upswings in the enterprise’s environment must be maximized as the best time to conduct an operations review.  A wise leader uses such opportunities to establish trust in the staff. 
Picking the right leadership means matching a person’s strengths to what needs to be done.  It means picking someone who has integrity, is comfortable with high visibility, and has obsessive attention to multiple bottom lines.  To paraphrase the American Red Cross slogan, “when disaster strikes”… you want these qualities in charge.  
 
The first step in picking such a leader is to determine a candidate’s strengths and what they have done with those strengths.  If the organization’s needs match the person’s strengths, analyze their integrity.  The leader will be a model for the entire organization, and must be comfortable with high visibility. 
On a personal level, the leader must listen and communicate well, avoid alibis, and possess a degree of humility.  Tom Watson, founder of IBM, is quoted as saying “Your people teach you”.  Expect kids to learn.  Volunteers thrive on high expectations.  Setting a diversity of goals for everyone covers your flank.  This includes oneself.  “Know thyself”, Drucker warns – i.e., know your degenerative tendency and try to counteract it.
 
Multiple bottom lines force an organization to “Do it well or don’t do it at all.  Perfection is the goal.”  The “balance decisions” are what they need nonprofit leaders for.  Risk management includes getting opinions.  “The task matters, not you.” 
 
Looking Outside, Changing Inside:
The organization must be market-driven, serving the changing, “discovered need”, seeking targets of opportunity – people willing to try changes.  Start with setting the standard high for volunteers, and treat them like “unpaid staff”.  Giving them meaningful work, self-realization, and good social relationships is key.  The art of being sparing with praise, and yet always encouraging is important.  Reward mentorship when it happens.  Everyone needs to know what the leader feels about their contribution to the organization, and the leader needs to know the key activities of the team.  The analogy of the team as a body – and analyzing how adaptive it is – was interesting.  Adapting to a successor should be enabled, although the leader does not pick his or her successor.  Drucker emphasizes these things as the differences between a manager and a leader.
 
Drucker advocates a living mission statement, ever-adapting, with long range attention and refocusing regarding the shifting demographics and accomplished objectives of the organization.  To me, in a post-9/11 world, his beliefs about adaptability are poignant.  His arguments reflect the period in which he wrote, what I would call the “Japanese/Demming hero worship” of the 1980s.  Adaptability of operations was everything, and Japan was dominant by practicing this.  There have been some qualifications to such ideas since Drucker wrote his book, but his comments are still valid.
 
He starts by looking to the outside for opportunities, and thinking through priorities.   He considers all actions in terms of the mission statement, asking Is this a diversion or does it serve the goal?  The “doing” of leadership involves constant stock-taking, and (when things are successful) elimination of waste, abandoning parts of the mission, then taking in the new resources and building again.
 
Drucker focuses on the nonprofit as marketing a concept, not a product.  Focus on your competence.  The customer is a person who can say no – what are their values, and how do you reach them?  Since donors are not beneficiaries, they should be marketed to as participating members.  This facilitates what Drucker calls “fund development” as opposed to “fundraising”.
 
The board must actively raise money.  It helps to sell the marketing plan if they themselves are also major donors.  Their job is also to audit the balance between money and mission.  In this way they develop a “mass base” through example and leadership.
 
The manager needs to define the results the organization is looking for, and report back to the donors whether the results were achieved.  They also educate the donor in the process.  In this way, donors begin to align themselves with the institution and giving becomes self-fulfilling. 
 
The manager must improve what the organization already does well, setting goals twice as high as is needed.  Define qualitative goals first.  Daydream of the possibilities.  Then act on the unexpected success or service – such as in the example Drucker provides of the Indian motor bike motors selling well because they were being used for the unexpected application of providing irrigation in farming fields.  When the unexpected success arrives, the organization should ask “How can this give us a chance to contribute?”  Find someone else who believes in it – internally or through partnering - and develop a market strategy (he uses IBM’s “Creative Imitator” and P&Gs “Be first and dominate” as sample marketing strategies.  Test marketing helps to develop the strategy.  Be prepared to redesign, rather than patch a strategy.  Try it twice before abandoning a failing strategy.  Use Marketing “STP” – “Segmenting, Targeting, and Positioning”.  “You need to think through to whom you make sense, and then appeal to them in a very forceful, forthright manner” (page 88). 
 
Constituents: Donors, Volunteers, Clients and Customers:
In my experience, donors today are a bit numb to the appeals they receive.  The question is how to appeal so donors will not simply shift their giving away from others like you – i.e. to appeal without competing on that level.  Offering a personal membership relationship with the nonprofit is one way to counteract that.   As Drucker points out “every donor is precious” (page 90).  Each is worth developing a membership relationship with.  
 
In Europe, social giving is often mandatory.   Here in the U.S., marketing campaigns are used to appeal to donors on both the rational and emotional levels.  For example, telling of the urgency of a need in the community and then recommending a tax deductible gift amount.   We develop market segments and market value expectations based on past response levels or rational goals we establish for a prospect list.  We communicate to educate as well.  At the very least we try to make the prospect know about the mission.  We establish value groups, not just special “one off” events.  The formula for table growth is excellent care, treatment, and cultivation of donors, and then asking for what they are capable of contributing.  
 
A high investment in donor acquisition should translate into high cultivation of donors.  Drucker’s concept of “Fund Development” replacing “Fund Raising” incorporates much more than mere dollars and cents, though.  You develop a support base of people as donors and volunteers that have human satisfaction in the process.  Here volunteer prospectors can help, because they are so sold on the cause to begin with.  Drucker’s example of WWII volunteerism at VA offices, funeral parlors shows how the nation cared for those who made tremendous, sometimes ultimate, sacrifices.  A volunteer’s care often translates into the best recruitment effort for future volunteers.
 
The book uses the Greek term “Kairos”, meaning to “exploit the point when the new is received”.   Strategically, you start with the donor.  Successful nonprofits make the donor a recipient of a service.  The appeal to join becomes “this is what you need and what we do for you” (page 100).  You then train paid and unpaid staff in appropriate behaviors, and locate “multipliers” – believers willing to make it succeed big.  (My role is along these lines.)  Next you analyze and try to abandon your “weakest links”.  The mission evolves into a work plan and the work plan into a tool kit for subordinates and volunteers.  We must respect donors (as well as the customers we serve) and listen to their values and understand their satisfactions. 
 
The Structure and the Bottom Line:
The nonprofit does not get paid for performance like a business does, but performance justifies further fund development.  The book encourages us to quantify what bottom line results are desired, performance measurements to “serve a need, create a want”.  You need to get all the constituents to agree on a set of long term goals.  Otherwise you lose respect, credibility and support.  You need to project the ultimate goal of the organization onto the constituency.  Moral and economic causes must be separately defined.  You allocate economic resources where results are being achieved.    You ask staff how to measure results. 
 
I like to consider the analogy of the family unit as a nonprofit organization.  Many in my generation are experiencing the cultural changes of adult children caring for their elderly parents, just as they are sending their children off into the world.  How do you measure success at this?  Choices of nursing homes vs. senior villages are both qualitative (moral) as well as quantitative (economic) measurements. 
 
Drucker warns us to not tinker with transitioning the structure of the organization until one understands the congruency between ones organizational structure and the reality of the current operations as they have evolved – i.e., without understanding the “what and why”.  You ultimately need to build your organizational culture around information and communication, not hierarchy.  Everyone should be able to understand what information they need to get, what information they need to share, and do it with courtesy.  Trust level must be high, with everyone on the same page.  The organization must send important information up and down the chain.   Those who delegate are still responsible for performance, and those who they delegate to need to report the unexpected.  Set high goals for customers – those you provide the service to as well as those who enable the service - but start out slowly.   
 
Set clear standards to balance autonomy with conformity for each “franchise”, and be credible enough to veto; the top serves the body as their conscience.  Top management in the nonprofit must constantly visit local chapters, while the volunteers and staff represent the organization to the community.  Nonprofits borrow from military study, just as for-profits.  Just as in the military, force people out into the field, rotating officers into troop command regularly.  Feature the top performers as teachers to the rest.  When appraising someone or something, state the positive first, and attempt to neutralize weakness. 
 
Setting the Stage for Decision-Making:
Aristotle is quoted “In essentials, unity, in action, freedom, and in all things, trust”.  Trust requires dissent to come out into the open for honest disagreement to take place.  Major decisions should be controversial.  Assume two dissenting individuals have two separate realities – i.e., that they are presenting two correct answers to two different questions (Mary Parker Follet).  Drucker maintains there are four ways to avoid problems with decisions: 1) Include everyone impacted in the decision, 2) Try out the idea in testing locations, 3) designate one person to carry it out, and 4) think through what you have to do, who needs to do what, follow up who will bail out the problems.  He uses the example of schools.  Engaged learning means the onus is on the kids.  The focus should be on kids as workers, not on teachers as teachers. 
 
When hiring someone, assign a mentor, a teacher, a judge, to evaluate progress, and you yourself (as top management) be an encourager.  Place a person’s strengths where needed, make stringent demands, then take the time and trouble to review performance.  Always look at performance, not promise.  The mission has to be clear, simple and big, and lift peoples’ vision.  If they try, work with them.  To keep the flame alive, bring 6-10 people together and ask them “What can we be proud of? What did we accomplish lately?” and focus on that.
 
Executive Self-Renewal:
Three ways of self renewal are given: teaching, going outside the organization, and serving down in the ranks.  See the whole world as nourishment for your growth.  What do you want to be remembered for?   My answer to this question is to be remembered as a communicator, performer and facilitator who showed the truth as he saw it, both the problems and the solutions.
Ask yourself who the customer is, and what do they consider value.  To the actor, the audience is the customer, and they value excellent performance at the right price for the right cause.  Always stay in touch with your constituents.  They may change, and the result will be that you have to change also.  Look at matrix organizations as opportunities, not a loss of power.  
 
Drucker’s credibility and validity of point of view and arguments:
Peter Drucker is a guru for nonprofit managers.  Like a charismatic evangelist he plants the seeds of the faith and moves on, leaving to us the task of growing the kernels of truth into our daily managerial lives.  He compares the nonprofit to business and government to distinguish the competitive advantage the nonprofit possesses – the high moral ground.  To the degree the organization functions with integrity and as a living, adapting organism, it will thrive.  The goal of perfection, as illustrated in his exhortation to expect kids to learn and “Do it well or not at all”, show his passion for the sector.  His sights are set very high for the future. 
 
Drucker’s ideas about the boardroom are more open to criticism.  Saying a board member is best “not elected, but recommended” may not be a politically correct or democratic thing to say.  However, it is probably true that they will be more effective if recommended.  Unlike for-profit corporations, which are required to allow shareholders to elect a board, most nonprofits do not have this in their bylaws.   The exceptions, such as unions, are case studies in why this is so.  The high trust level required within nonprofits, and the volunteer nature of most nonprofit boards, make recommended board membership the preferred means.
What makes Drucker’s book especially worthwhile reading is the length and breadth of his experience in the nonprofit field.   When one spends so much time observing the nonprofit world, overarching trends become apparent.   With his sights set high on the horizon, he leads with a mantra of responsiveness and continuously productive re-creation.  Standing the test of time, his ideas are an eclectic mix of common sense, sage advice, innovation and integrity.  He brings top leaders in the field together to help describe the principles and practices of successful organizations.  His interviews are driven by a no-nonsense attention to a subject he obviously cares deeply about.  He abhors unnecessary failure, and exposes the trappings of success.
 
The Book’s Usefulness To the Not-For-Profit Management Field:
Since Drucker’s writing the nonprofit word has had tremendous conservative movement.  Political Action Committees, Lobbyists and Fundamentalists have grown in representation.  More attention is placed on the effects of terrorism than in 1990, which was before the first world trade center bombing.   Nonprofits are more likely to be in conflict with other nonprofits (as in political organizations), and sometimes to terrible disastrous effect (case in point: Al-Qaida vs. Doctors without Boarders).  With so many additional constituents’ mouths to feed, a nonprofit could easily turn into a codependent fire extinguisher without a solid understanding of what it can and cannot do.  Drucker takes us back to basics. In the spirit of the founding fathers who created a new nation, pragmatic individuals can today set out to harness the changes in the world to make it a better place.  Drucker’s book makes a clear, rational argument for developing leadership for the long haul.
 
A Personal Perspective in Support:
My experience consulting for nonprofits has led me to agree with Drucker’s belief that proper communication of the mission has to be central in order to succeed.  Even the organization’s third party vendors need to be aware of it to a greater degree than one thinks initially.  They, too, need to be on board with the urgency of a particular delivery.  They need to be just as responsive to the needs of the clients as the paid and volunteer staff.  If supplies are not brought out, if letters are not delivered properly, it touches the credibility of the organization.  Every member of the vendor’s team should be on board as much as possible.  Outsourced databases of donor records need diligent privacy practices adhered to.  Outsourced customer service needs to hold fast to the mission.  These cannot be shrugged off as superfluous eccentricities.   Trust in the mission is at the heart of all the nonprofit’s relationships.  The nonprofits that have communicated these standards clearly to their vendors and community do much better in the long run. 
 
With regard to the general community they serve, I have seen that the nonprofits that embrace philanthropy pragmatically usually have funds to survive economic dry spells and storms.  The ones that spend the time to know each constituent segment and bring each closer into the fold with a customized message develop a loyal following.  Those who encourage pride and empowerment for everyone carrying out the mission and also help them to keep traditional rules and qualitative goals clear in mind create value and self-respect for the entire community.  Those who need to renew their mission, discarding unproductive parts and reinventing themselves periodically, adapt in tough times.  In my experience, such organizations continue to thrive.  
 
Conclusion: Understanding the Issues and Problems: 
Peter Drucker’s book has provided clear cut down to earth explanations of the problems facing the nonprofit.  One expects him to say “fish or cut bait” to the fundraiser stick in the fear of politically charged situations, or “cut the gangrenous limb to save the body” when a bad project drains much needed funds and life out of an organization. 
 
Drucker’s long range perspective on the nonprofit field and his success at starting the process of shaping “best practices” makes him an authority on nonprofits.  His concept carries forward the American Experiment and spirit of constant reinvention.  His motive appears to be to yield more respect for the sector, bring greater efficiency in its members, and ultimate fulfillment of the missions the hold dear.  His message is essentially timeless, because he addresses fundamental human frailties in management.  His perspective is distinctly American, Judeo-Christian, and his values are based in humility.
 
Over the years as a consultant of nonprofits, I have come to understand the concept of segmentation and target markets, but after reading his book I have a new appreciation for his holistic approach in his treatment of donors, volunteers, clients and customers. Although a standard vernacular is still desperately needed, Drucker gets the idea across that attention to opposites yields insights: the organization can minister to the needs of volunteers and donors; volunteers make up the largest employer segment in the country; clients sometimes do more for us than we do for them.