Human Resource Management in Nonprofit Organizations

Alina McCandless Baluch

• Publisher: Routledge
• Year: 2011
• Print ISBN: 9780415896177
• eBook ISBN: 9781136509544
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Human resource management (HRM) can aid nonprofit organizations (NPOs) in facing uncertain, changing environments of funding pressures, increasing competition and demand for services as well as internal challenges. As the distinguishing features of NPOs can render the professionalization of HRM different from the private and public sectors, this book fills a gap in the literature by offering an in-depth look at how this distinctive nature of NPOs shapes the development and implementation of their HR practices. Timely and topical, this book addresses the professionalization of HRM in the nonprofit sector using examples from an exploratory multiple case study of NPOs selected across different fields. Not only does it offer both students and practitioners in the field of HRM and nonprofit management a better understanding of the specific challenges for HRM that stem from the management of several, contradictory bottom lines in NPOs, but it also highlights the opportunities that distinguishing nonprofit features create for the development and implementation of HR practices. By illustrating how NPOs can invest in learning and adapting processes that aid them in the alteration of HRM, this book is an essential resource for those involved in designing, implementing and studying HRM in NPOs.

1 Introduction

More than 20 years ago, Kramer (1990, p. 13) aptly pointed out the challenges that many voluntary or nonprofit organizations (NPOs) still face today when stating they “will have to adapt to some major changes in their environment. There is considerable variation among voluntary agencies in their ability to recognize and to deal effectively with such changes.” These external and internal challenges include, e.g., resource constraints and funding pressures, increasing competition, the growing demand for services, and difficulties in recruiting and retaining qualified employees (Anheier & Seibel, 2001; Bode, 2003; Salamon, 2002a; Simsa, 2002). As a result, calls for a new style of management of efficiency have emerged as NPOs need to improve their performance while spending fewer resources. Demands for the efficient and transparent use of resources as well as improved accountability have led to varied responses of increasing commercialization and professionalization within the sector. Furthermore, recent cuts in state subsidies are causing a shift toward more performance-related management in NPOs (Zimmer et al., 2001). In light of this tendency toward a more market-centered orientation, human resource management (HRM) has increased in relevance in NPOs. HRM has especially been noted for its role in aiding organizations in responding to their external and internal challenges. As mentioned above, however, NPOs vary in their ability to adapt to change.

CONTEXT OF CHANGE IN THE NONPROFIT SECTOR

Although there is a lack of consensus on which organizations make up the sector and how to term them, ranging from organizations that are nonprofit, charitable, independent, voluntary, tax-exempt, quangos, and voluntary to non- and para-governmental organizations (Lewis, 2007; Osborne, 1996; Parry et al., 2005), in the following study, the term nonprofit organization will be used to signify voluntary, charitable, independent, tax-exempt organizations because it best captures the wide array of organizations in the sector that are non-profit-distributing. The Johns Hopkins Comparative Nonprofit Sector Project considers NPOs to be formally structured, private, non-profit-distributing, self-governing, and voluntary (Salamon & Anheier, 1992). For the purpose of this book, the term nonprofit sector is understood to encompass organizations that meet the characteristics of the structural-operational definition because this definition fits the various types of organizations accorded with the nonprofit status and is best suited for comparing a broad range of NPOs.

Exploring the myriad of external and internal challenges that NPOs face, the resource constraints and funding pressures to which NPOs are subject feature most prominently in the literature. In particular, NPOs that are predominantly publicly financed are facing financial cuts (Simsa, 2002). In the fields of health care and social services, the crisis of public financing is jeopardizing the development of the nonprofit sector (Zimmer et al., 2004). Human service organizations find themselves especially dependent on public funding and vulnerable to cutbacks. In addition, the environment for social service provision has undergone major changes as fiscal crises have spread to the social insurance systems (Anheier & Seibel, 2001). Contract-based payment schemes with the state are replacing the previous system of full coverage (Ridder et al., 2004). Legal changes regarding health care and long-term care have aimed at containing costs and increasing efficiency (Anheier & Seibel, 2001). With regard to the social services field, Bode (2003) notes how nonprofit providers are increasingly forced to prove their efficiency in order to gain public money. As a result, funding is occurring more through contracts for projects rather than block grants, and these contracts are accompanied by terms or conditions and demands for professionalization (Akingbola, 2004; Brandl et al., 2006).

Not only the aforementioned financial constraints but increasing competition is also pressuring NPOs to make efficient use of their resources (constraints but increasingvon Eckardstein & Simsa, 2004). The nonprofit environment is highly competitive given the increasing demand for services and competition for contracts with the public and for-profit sectors and a tighter government funding source (Kong, 2007). This competitive and professional environment is marked by higher regulation and a strong performance-driven emphasis (Frumkin & Andre-Clark, 2000; Tonkiss & Passey, 1999). NPOs are even confronted by greater competition with other nonprofits for scarce resources (Jurkiewicz & Massey, 1998). In addition to the expanding number of nonprofit providers, commercial firms are competing as well in traditionally nonprofit areas of activity. For-profit agencies vie for contracts and clients given the devolution of previously state-funded programs (Alexander, 2000; Alexander et al., 1999). In particular, due to the deregulation of Europe’s social services and social security systems, nonprofit providers face growing competition with for-profit organizations. For example, EU legislation has weakened the position of the free welfare associations in Germany by opening up their fields of services to other competitors (Anheier & Seibel, 2001; Ridder et al., 2004). The nonprofit providers are forced to compete at the local level in order to gain contracts with the public authorities (Bode, 2003). Furthermore, NPOs are also in competition for board members, clients, contracts, individual donor support, employees, volunteers, and so on (Alexander, 2000; Kong, 2007; Salamon, 2002a). This competition for skilled staff, dedicated board members, clients, and even the attention of the community is fierce. Several studies confirm that NPOs are experiencing difficulties in recruiting and retaining qualified employees (Ban et al., 2003; Fenwick, 2005; Parry et al., 2005).

Furthermore, given the turbulent and competitive external environment, NPOs are subject to the push toward performance management as they face demands from clients, funders, staff, and the public for better-managed change. Whereas funders are interested in contracts with performance requirements, the public seeks accountability (Hudson, 1999). There is greater emphasis on demonstrating efficiency, economy, and effectiveness in order to sustain funding as NPOs are under pressure to legitimize themselves economically. Yet in this respect, NPOs are criticized for acting like special interest groups seeking to expand public funding as well as for becoming too professional and thus losing touch with their client base (Salamon, 2002a). In this tight funding environment, the rules for organizational survival are being reconfigured. NPOs are forced to professionalize their management practices, display accountability, have measurable outcomes, and reduce their costs (Alexander, 2000; Alexander et al., 1999).

Finally, coupled with the decrease in state funding is an increase in the demand for programs and services delivered through NPOs (Jurkiewicz & Massey, 1998; Pynes, 1997). As public services are being transferred to NPOs, they are forced to juggle the provision of more services while receiving less state funding (Cunningham, 2010b; Simsa, 2002). Additionally, NPOs face current challenges such as demographic changes, shifts in policy and public attitudes, as well as technological and lifestyle changes. These sociodemographic changes have resulted in increased demand for nonprofit services (Salamon, 2002a), in particular in the areas of health and human services (Ridder et al., 2004). Moreover, NPOs in these areas are being confronted with dynamic market developments given changing client needs. As a result of these shifts in service demands and users’ needs, there have been increasing calls for privatization in which the government plays a reduced role and the private sector takes on greater responsibilities (Anheier & Seibel, 2001).

NONPROFIT ORGANIZATIONS’ RESPONSES TO THEIR CHANGING ENVIRONMENTS

From this discussion of the challenges that NPOs currently face, it becomes apparent that the need for a new style of management, one marked by efficiency, competition, and the search for new resources, has emerged as NPOs seek to improve their performance while spending fewer resources. Yet, as mentioned above, NPOs differ in their capacity and strategies used to cope with these challenges. For example, research suggests that a strategic response of differentiation is being adopted by NPOs when facing competition, such as cooperating with other organizations, increasing resources for fundraising, or diversifying revenue streams (Barman, 2002). However, one of the main responses of NPOs to these challenges can be seen in terms of commercialization. As a result of the withdrawal of government support to NPOs for delivering various services, organizations rely more heavily on fees and charges (Anheier & Seibel, 2001). NPOs face the contradiction of responding to these government cutbacks by increasing their commercial activities while simultaneously being under pressure to avoid increasing their entanglements (Weisbrod, 1998). In addition, given the decrease in private donations, NPOs are also becoming more dependent on commercial activity. Raising fees and emulating private firms, NPOs use revenue-generating activities to attract more clients and donors and to cope with these budget cuts and increasing performance expectations (Kim, 2005). Even the large welfare associations are employing more market-oriented ways of service provision and resource mobilization (Bode, 2003), suggesting that the nonprofit sector may develop more in the direction of organizations that are self-financed and rely heavily on volunteers (Zimmer & Priller, 2001).

However, the changes in the sector call for a professionalization of management in NPOs (Ridder et al., 2004). Evidence reveals that NPOs are becoming more business-like. In addition to hiring professionally trained managers, they engage in strategic planning, market analysis, cost-benefit analysis, financial information systems, and fundraising (Hall, 1990). Salamon (2002a) points to the adoption of the market culture into the operations of NPOs, affecting organizational practices and structures, as well as interorganizational behavior in the form of strategic partnerships between NPOs and businesses. Nonprofit responses to financial cutbacks have included cutting programs and rationing services, increasing marketing for charitable donations, expanding networks, increasing staff workloads to raise productivity, and relying on volunteers and recruiting board members with fundraising skills (Alexander, 2000). Moreover, NPOs exhibit copy-cat behavior to help cope with increasing financial uncertainty, thereby substituting management with financial management. Several authors provide evidence that NPOs are facing demands from the government and funders to copy for-profit practices and structure (Alexander et al., 1999; Cunningham, 2010b). In facing this competitive and performance-driven environment, the nonprofit sector has experienced rapid professionalization with professional staff developing performance measurement standards as well as drawing on reengineering processes, quality management systems, and benchmarking (Frumkin & Kim, 2001). NPOs are confronted with increasing pressure to measure performance in order to demonstrate competency, achieve legitimacy, and gain funding. Yet evaluating performance is made more difficult in the nonprofit sector because there is no single, shared criterion for success, especially given the often conflicting expectations of multiple stakeholders (Kanter & Summers, 1987; Kendall & Knapp, 2000). Research shows, however, that NPOs are using performance measurement given outside pressures of meeting grant requirements and that this has resulted in program changes, changes in general management practices, and improving accountability measures (Zimmermann & Stevens, 2006). Not only are NPOs introducing performance-related best practices from the for-profit sector in financial management and strategic planning, but recent studies suggest that NPOs are undergoing increasing professionalization in HRM as well by adopting practices from the for-profit or public sectors (Cunningham, 2010b; Hurrell et al., 2011; Kellock Hay et al., 2001; Parry et al., 2005).

INCREASING RELEVANCE OF HRM

Given this shift toward a more market-centered orientation equipped with a focus on performance-related management, HRM has grown in relevance for its role in confronting the changes in the sector. In this respect, the ability to respond to these changes is linked to HRM, especially given the labor-intensive services provided by NPOs and the relevance of employees as a primary asset (Akingbola, 2006a; McMullen & Brisbois, 2003). Nonprofit scholars have noted that “the core challenge in the nonprofit sector is to improve the efficient use of financial and human resources in the accomplishment of mission” (Chetkovich & Frumkin, 2003, p. 565). Employees are viewed as a strategically important, indispensable resource to achieving the goals of the organization’s mission (Letts et al., 1999). Thus, it is clear that NPOs need to invest in their employees when facing their changing environments (Ridder & McCandless, 2010). Indeed, an improved HR function is deemed crucial for the change the nonprofit sector is undergoing (Conway & Monks, 2008). Previous research on adapting to change in NPOs reveals that many organizational responses involved their HR, such as increasing employee skills and employee participation in decision making (McMullen & Brisbois, 2003). Even HR development strategy has become more important in NPOs given the faster rate of change (Beattie et al., 2005). In summary, the need to adapt to the changing environment is linked to HRM because it can ensure that NPOs are open to change and learning (Akingbola, 2006a; Cunningham, 1999; Parry et al., 2005).

HRM is understood broadly in this study in terms of the “management decisions related to policies and practices which together shape the employment relationship and are aimed at achieving individual, organizational, and societal goals” (Boselie, 2009, p. 92). Thus, it involves the design and implementation of a wide range of HR programs and practices by both HR and line managers (Guest, 1997). In the literature, HRM has been differentiated into its component parts of HR principles, policies, programs, practices, and climate (Arthur & Boyles, 2007). This holistic understanding of HRM focuses analysis on the underlying HR policies in terms of the objectives for managing human resources. Furthermore, this approach enables an emphasis not only on the sets of formal HR practices but also the guiding HR principles that determine the choices of HR policies within organizations (Lepak et al., 2004) and represent the values that are held by the managers and drive the HR practices in the organization (Arthur & Boyles, 2007).

One strand of research in the nonprofit literature on HRM focuses on whether NPOs are becoming similar to for-profit organizations by imitating their HR programs and practices. The ongoing debate in the literature centers mainly on the transfer of best practices from the for-profit sector (Brooks, 2002; Helmig et al., 2004; Speckbacher, 2003). This is reflective of a growing body of nonprofit literature from the perspective of the neoinstitutionalist approach (DiMaggio & Powell, 1983) that points toward increasing institutional isomorphism between and among the sectors (Bies, 2010; Leiter, 2008; Ramanath, 2009; Verbruggen et al., 2011). Several studies provide evidence of coercive isomorphic forces in the nonprofit sector with regard to HRM, as NPOs are professionalizing due to public sector funders’ pressures and hence converging in their HR practices with public and for-profit organizations (Cunningham, 2001, 2005, 2008b, 2010b; Kellock Hay et al., 2001; Palmer, 2003; Parry et al., 2005). However, contradictory evidence suggests that NPOs may not be equipped to develop and implement their HR practices because they often lack the capabilities, resources, and expertise in HRM (Ban et al., 2003; Kellock Hay et al., 2001; McMullen & Brisbois, 2003).

Yet despite the isomorphic behavior that is present in the sector, the second strand of research in the nonprofit literature reflects that NPOs exhibit unique characteristics. As a result, they may also face different challenges in their HRM than their private or public sector counterparts, necessitating research that takes these differences into account. Overall, measuring mission impact, monitoring strategic success, and achieving strategic alignment are considered to be more difficult in NPOs (Backman et al., 2000). Not only do NPOs possess ambiguous organizational goals that are linked to the mission and numerous bottom lines, but they also lack universal measures of success. In addition, NPOs have to juggle multiple stakeholders’ demands, manage their associative nature with shared organizational goals, operate under a range of financial sources with irregular funding and different employment structures, and tend to participate in discursive decision-making processes. Furthermore, the importance of values, employee commitment to the cause, and accountability to different interest groups are claimed to make HRM in NPOs more challenging (Akingbola, 2006a; Armstrong, 1992; Merlot et al., 2006; Palmer, 2003; Parry et al., 2005; Ridder & McCandless, 2010). As a result, there is a need for research on the professionalization of HRM that takes these specific nonprofit characteristics into consideration. Although these characteristics do not completely distinguish NPOs from other organizations, it is argued that NPOs have less of a possibility to cope with these conflicting demands by prioritizing them (Simsa, 2002). In light of this line of research, the purpose of this study is to empirically examine the topic of the alteration of HRM in NPOs. Investigating into this subject can provide a better understanding of the specific challenges that NPOs face in developing and implementing their HR practices.

Stemming from this brief discussion of the nonprofit literature, it can be seen that NPOs are facing uncertain, changing environments, and HRM is assumed to aid NPOs in coping with their internal and external challenges (Conway & Monks, 2008; Cunningham, 1999; McMullen & Brisbois, 2003). An in-depth review of the literature in Chapter 2 will further show that although research suggests that NPOs are undergoing professionalization of their HR practices as a response to their increasingly competitive and performance-driven environment (Kellock Hay et al., 2001; Parry et al., 2005), few studies actually examine the alteration of HRM in NPOs. Instead, this is an underdeveloped research area in which the main constructs, dynamics, and relationships are poorly understood. First, there is a lack of research that explores the various influences on the introduction of HR practices. It remains to be seen whether the distinguishing characteristics of NPOs make the alteration of HRM more challenging. In addition, while the current studies provide some insight on what is causing HRM to be altered and the implications thereof, there is still scant empirical research on how and why the alteration of HRM occurs, namely, the actual processes involved in the introduction of HR practices. These processes can be understood as the set of activities through which NPOs develop and implement their HR practices during the alteration of HRM. This book aims to bridge this gap by examining the development and implementation of HR practices and the various influences on these processes in order to better understand the specific challenges NPOs face in altering HRM. In light of this research gap, the following core research questions emerge:

How and why do NPOs develop and implement their HR practices?

and

How and why do the distinguishing nonprofit characteristics influence the development and implementation of HR practices?

RESEARCH AIMS AND CONTRIBUTIONS

The purpose of this study is to examine processes involved in the alteration of HRM in NPOs; hence, a theoretical perspective is necessary to provide the underlying logic for understanding change. The theoretical background of the dynamic capabilities approach aids in examining the organizational processes through which organizations alter their resource base to adapt to internal and external change (Eisenhardt & Martin, 2000; Helfat et al., 2007; Teece, 2007; Teece et al., 1997; Zollo & Winter, 2002). Dynamic capabilities have been defined as the “capacity of an organization to purposefully create, extend or modify its resource base” (Helfat et al., 2007, p. 4). Stemming from its focus on organizational processes, this theoretical background provides guidance in analyzing the processes or set of activities through which NPOs alter their HRM to respond to internal and external changes.

Learning processes play a central role within the dynamic capabilities approach; therefo...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Dedication
• Contents
• List of Figures
• List of Tables
• List of Abbreviations
• Acknowledgements
• 1. Introduction
• 2. Change and HRM in NPOs
• 3. Applying the Dynamic Capabilities Approach to Understand Change in NPOs
• 4. Research Methods
• 5. Multiple Case Study
• 6. Discussion, Conclusions, and Implications for the Alteration of HRM in NPOs
• Appendix
• Bibliography
• Index