Nonprofit Consulting Essentials

What Nonprofits and Consultants Need to Know

Penelope Cagney

• Publisher: Jossey-Bass
• Year: 2010
• ISBN:
  9780470872314
• Edition: 1
• Topic: Business
• Subtopic: Consulting
• Index: Business

Consultants are playing an increasingly important role in the challenging world of nonprofits. Yet despite the demand for consulting services, nonprofit professionals often lack the necessary insight into how best to choose and work with a consultant.

Nonprofit Consulting Essentials is a vital resource both for nonprofit leaders selecting and working with a consultant to guarantee the best use of their agency's resources, as well as consultants seeking a clear understanding of the more subtle dynamics that define a successful consulting practice working with social sector organizations.

Drawing on Penelope Cagney's years of experience as a top-level nonprofit consultant, Nonprofit Consulting Essentials is filled with keen insights and in-depth interviews with the founders and leaders of influential consulting firms. Throughout the book, Cagney outlines a number of concrete consulting strategies that can serve as additional tools for managers seeking to resolve complex organizational development issues.

Nonprofit Consulting Essentials also offers recommendations to nonprofit leaders and consultants to make their relationship the best it can be. Once a solid alliance is formed, they can tackle complex organizational challenges together, such as fundraising and marketing, governance and management, and organizational development.

Cagney explores what it takes to make the consulting experience a success and covers vital topics such as: the key differences between consulting with nonprofits versus for-profit organizations, the primary areas of nonprofit consultation, making the consulting relationship work, the special ethical considerations of consulting in the sector, and understanding emerging trends in consulting.

Nonprofit Consulting Essentials reviews the best practices and thinking in the nonprofit consulting practice, providing leaders and consultants a way to ensure a robust organization in the future.

1

What Nonprofits Need from Consultants

NONPROFITS HAVE A RANGE of consulting needs that differ from those of their for-profit counterparts, including fundraising assistance and specialized help in governance. They also need support beyond expertise in areas specific to nonprofits. They must work with consultants who know how to work with them—who can use nonprofit strengths to advantage and shore up their weaknesses, who respect their uniqueness and are aware of how they differ from business—consultants who know when it is appropriate to apply for-profit thinking but also when it is best to develop their own.

Many of those working in the nonprofit world may not even be aware of the more nuanced differences between nonprofits and for-profits because they often don’t have the occasion to stand outside their sphere to analyze these differences. Therefore, it is essential that both parties in the consulting relationship see and appreciate some of the elements unique to each.

Another area that both parties have to consider is the degree to which for-profit thinking drives their assumptions and perspectives. It’s not just that consultants come to nonprofits with for-profit assumptions, which of course they often do. Beyond that, and perhaps more insidious, is the prevailing idea in our culture that for-profit thinking is the better thinking. Before I explore the subtle differences between nonprofits and for-profits, I would like to shed some light on the dominance of for-profit thinking and then question its usefulness.

The Influence of For-Profit Thinking in the Nonprofit Sector

Home of much of education, arts, sciences, and health care, the nonprofit sector has produced countless original ideas. Many of our greatest thinkers reside here. So do some of our best consultants, who develop their thinking in nonprofit academia. For instance, James O. McKinsey was an accounting professor at the University of Chicago prior to launching his famous consulting firm. Strategy expert Michael E. Porter is the Bishop William Lawrence Professor at Harvard Business School (incidentally, named for one of the early great fundraisers) and is also founder of the consulting firm to nonprofits FSG-Social Impact Advisors and a cofounder of the Monitor Group. Yet in many respects, thinking about management has flowed in one direction only. It is handed down from the for-profit sector to the nonprofit sector. The assumption of the superiority of for-profit over nonprofit management practices is deeply rooted even in nonprofit leaders. The management consulting firm Bain & Company has cited “growing interest in adopting traditional business practices” as one of the three main trends characterizing the nonprofit sector.¹

This assumption has troubled the thoughtful. Late in life Peter Drucker turned his attention to the nonprofit world, creating a foundation to focus on leadership in this sector. He believed that nonprofits lead society in meaning and purpose—much more so than corporations do. In his book On the Profession of Management, he noted, “The Girl Scouts, the Red Cross, the pastoral churches—our nonprofit organizations—are becoming America’s management leaders. In two areas, strategy and the effectiveness of the board, they are practicing what most American businesses only preach. And in the most crucial area—the motivation and productivity of knowledge workers—they are truly pioneers, working out the policies and practices that business will have to learn tomorrow.” Nevertheless, as the Atlantic magazine’s senior editor Jack Beatty observed, much of Drucker’s actual advice to nonprofits was just a retread of what he had already offered corporations. Even this genius was trapped in the current paradigm.²

What would it look like for nonprofits to define their own brand of excellence? This is the question Jim Collins addressed in his 2005 book Good to Great in the Social Sector, in which he explores how his “good to great” model for businesses to achieve excellence might be applied to the nonprofit sector. Authors and consultants Leslie R. Crutchfield and Heather McLeod Grant tell us that although for-profit ideas can certainly benefit nonprofits, they aren’t enough. They say: “Better management practices can create only incremental, not breakthrough, social change. And even the best businesses cannot tell us how to change the world, because that is not their primary purpose.”³

Some experts, such as Bill E. Landsberg, author and executive director of the Pikes Peak Foundation for Mental Health, warn that business practices are actually dangerous to nonprofits: “The business practices the nonprofit embraces to assure its survival threaten to undermine its culture, mission, and public image. In an effort to save its bottom line, the modern nonprofit risks losing its soul.”⁴

In spite of these concerns, business thinking does in fact continue to exert influence on the nonprofit sector. There are four main reasons for this:

There is a long tradition.

There is a tendency for the less successful (ostensibly, nonprofits) to imitate the successful (presumably, business).

Both consultants and nonprofits benefit from business models.

Most important, business ideas succeed in the sector.

Reasons for Dominance of For-Profit Thinking

First, there is long-standing precedent. In the early part of the last century, corporate CEOs, as nonprofit board leaders, hired the same consulting firms for nonprofits as they did for their own companies. Oxford business historian and professional service firm expert Christopher McKenna explains the purpose of consultants is to offer “economies of knowledge.”⁵ Having had broad exposure and multiple experiences, consultants bring a perspective unavailable to those inside the organization, framed in detachment and objectivity. So, like Johnny Appleseed, the consultants sowed a handful of organizational models across sectors.⁶ (See Resource A for more history.) Today 89 percent of the expertise represented on nonprofit boards is in business management,⁷ favorably predisposing boards to for-profit models.

Second, there is a tendency to imitate those perceived to be more successful. The corporation is king in capitalist societies, and nonprofits model themselves after the winner. This creates nonprofits with language and structure in common with business, and consequently language and structure more similar to those of other nonprofits. Isomorphic (meaning: corresponding or similar in shape, form, or structure) organizations become more alike even as they pursue change; nonprofit apples begin to resemble for-profit oranges as well as other nonprofit fruit. (In some ways this is actually a good thing; it allows greater ease in collaboration between organizations and between sectors.)

Third, consultants have benefited from bringing for-profit models into the third sector. Twentieth-century consultants turned to government and nonprofits as secondary markets after they had exhausted opportunities in the corporate sector (see Resource A). They offered the same models, such as “decentralization,” that they had developed for businesses. “Unfortunately, by adopting the organizational structures of corporations in the postwar era, nonprofit organizations implicitly accepted the consultant’s ideology that for-profit business necessarily represented the superior organizational form,” says McKenna.⁸ Even today some consultants offer convenient (and profitable) one-size-fits-all models. They trade in readymade for-profit ideas and nonprofits still obligingly buy them off the hanger. As one anonymous consultant on the balanced scorecard (a strategic planning and management system that originated in engineering and that was pioneered by General Electric in the 1950s) puts it, “I found that after I had run out of corporate clients, my business trickled down to nonprofits, and that is where I do most of my work now.”

Fourth, nonprofits also benefit. Corporate managers may be no more efficient than their nonprofit counterparts, but they know how to “talk the talk.” Savvy nonprofit managers know they can relate better to corporate-minded board members and donors when they come across as businesslike. It can often be an advantage to nonprofit leaders and managers to familiarize themselves with for-profit management thinking.

Fifth, the most compelling reason is because many business ideas actually work in the nonprofit sector. For instance, some nonprofits swear by the balanced scorecard. This performance measurement framework, widely used across sectors, adds strategic nonfinancial performance measures to traditional financial metrics to bring managers and executives a more “balanced” view of organizational performance. Given the challenge of finding measures other than profit to ascertain effectiveness, you can see why this is popular with nonprofits. This is a helpful tool for planning, but it still cannot be said that balance scorecard nonprofits are necessarily better performers than others.

It has never been proven that wholesale transfer of for-profit thinking into nonprofits has actually improved nonprofit performance. Nevertheless, those with little real experience in nonprofits may assume that the only thing nonprofits need to do to prosper is be a little more like business. Complains one nonprofit employee: “When business or military people come to work in nonprofit development aid, they believe they are bringing new solutions and skills to the table. They are stunned to find highly skilled experts with many years of complex emergency response and development operation experience already at work here. Their shiny ‘new’ ideas are often not really very new. Misconceived efforts to ‘fix’ things go awry—what works in the private and public sectors doesn’t necessarily apply here and often has already been tried.”

In Defense of Nonprofit Organizational Strengths

One major criticism of nonprofits that comes from for-profit thinkers and consultants is that they aren’t as efficient as business. When we scold nonprofits for this lack of efficiency, what do we really mean? Christopher McKenna points out that what constitutes “inefficiencies” in mission-driven organizations may actually contribute to their success. For instance, religious and educational organizations often engage in slow and laborious collective decision making. Just a waste of time? These process-minded institutions have achieved unmatched organizational longevity. McKenna asks, how many corporations have lasted hundreds of years, as some universities and faith-based organizations have?⁹ With visions stretching into eternity, nonprofits endure.

One wonders what our world would look like today if the transference of ideas had been reversed, or at least been more reciprocal. What if businesses had become more like nonprofits? One nonprofit manager says, “I’m NOT saying that private sector folks have nothing to offer us, but I think we have a heck of a lot to offer the private sector. But we don’t do a good job of marketing our own tools and best practices.” For example, business may benefit from adopting such nonprofit virtues as strong emphasis on mission. “Persuading people for the greater good could be a powerful tool for corporations. I’m certain that they would love to have people willing to work for salaries below market level, as nonprofit employees do,” muses McKenna.

Or perhaps greed wouldn’t have precipitated the 2008 collapse of Lehman Brothers. Perhaps Sarbanes-Oxley (a federal law enacted on July 30, 2002, created to rebuild public trust in the corporate community in the wake of corporate and accounting scandals) wouldn’t have been necessary.

Imagine a parallel universe in which nonprofit ways of thinking are prized. In this world, corporate leaders first measure benefit to constituents and to the community before glancing at the bottom line. Mission-driven employees gladly work for substandard wages or even waive their salary entirely. Businesses are trusted to act in the public interest, and regulatory activity is minimal. Picture a world in which ancient corporations (let’s say, more than a thousand years old) welcome generation upon generation of devoted customers. As Accenture Development Partnerships director Gib Bulloch points out in ADP’s 2009 publication “Development Collaboration: None of Our Business? Non-Governmental Organization Transformation and the Evolution of Cross-Sectoral Partnerships in the 21st Century”: “There are many areas in which NGOs are better qualified to excel than are businesses. Levels of public trust in NGOs would be the envy of most corporate relations departments, and the most effective NGO advocacy campaigns would put some of the best-resourced corporate marketing departments to shame.”¹⁰

Whether or not the rest of the world ever acknowledges the value of non-profit ways, nonprofits need to develop more of their own brand of thinking. This means developing more ideas in the sector for the sector. An example is presented in the last chapter of this book. Here a consultant, an expert in organizational models, tired of attempting to retrofit nonprofits with for-profit models, developed one specifically for nonprofits. No question that this asks more of consultants—to straddle thinking in both sectors and learn as much as possible about the array of methodologies available across sectors in order to create new ones for nonprofits. This does not mean that exchange of ideas between sectors is unproductive or should cease. It does mean that nonprofits and consultants should demand the options that are truly appropriate for them. If consultants are truly “thought leaders,” as Drucker dubbed them, they may even come to help nonprofits better value and understand their own unique assets and character.

How Nonprofits Are Different

The differences between sectors are not always clear-cut. Although 501(c)(3)s may exist to support some issue or matter of private interest or public concern for noncommercial purposes, government might also make this claim. Then there are new hybrid legal models, such as L3C (low-profit limited liability corporation) and B corporation, somewhere between a nonprofit and a corporation. I discuss these models later in regard to their implications for consulting in governance and management. Some of the differences between the nonprofit and for-profit sectors, however, are obvious. The driver of mission over profit helps distinguish nonprofit from business. Nonprofits are exempt from most taxes. For-profits fund growth and new initiatives through retained earnings, stock sales, or borrowing, while nonprofits rely on contributions, memberships, and some earned income such as ticket sales or tuition. Nonprofits cannot use investment strategies such as commodity and options trading. Corporate investors can exercise total control over their organization; in nonprofits, contributors are prohibited from this kind of control (at least in theory, if not always in fact, if board members are also founders or major contributors).

Consultants unfamiliar with nonprofits need to know that they are more complex than for-profits. They have more “working parts” in terms of constituents and leaders, with their larger boards. They lack a bottom line to anchor them. In the last few decades nonprofit life became more complicated—at least as complicated as corporate life. The “law of non-profit complexity” is that nonprofits “tend to be mor...