Three Questions That Will Ensure Your Not For Profit Survives

There are three questions that a not-for-profit board should address to be confident it will survive into the future, writes Doug Taylor, a director at welfare provider Uniting.

Recently I caught up with a friend who had just joined the board of a not for profit organisation. He had attended a few board meetings and was desperate for some sense of whether or not this organisation had a future.

I suggested three questions that his board should address to be confident they will survive and I also provided some context for the challenges his organisation and other not for profits are facing. You can only understand these questions if you also have some appreciation for the changes these organisations face now and into the future because they are of a very different order to what has been seen in the past.

Socially there are seismic shifts underway in the wider Australian society. Given that not for profits are directly impacted by these shifts, one would expect to see considerable changes in the way their services are delivered and for whom they are provided. Most notable is the retirement of the Baby Boomer generation which will increase demand for health and ageing services and peak in the mid-2020s. In addition to this, the continuing rate of migration will continue to change the profile of many urban centres across the nation and requires not-for-profit organisations to consider their customer and employee value propositions anew.

Running parallel to these demographic shifts are the economic transitions. Australia is moving away from being a protected agricultural and manufacturing based economy to one that will be increasingly globalised and compete on being knowledge based, highly skilled and service focused. This transition might have been aided by booms in the export resources sector, but there have also been important casualties – there are now 2 million people unemployed and underemployed. Further pressure will be placed on employment in traditional middle class, professional and white collar jobs by the increase in automation and the introduction of artificial intelligence.

Australia’s 22-year historic record of unbroken economic growth will be challenged by the reduction in the number of working age Australians (15 to 64) per older Australians (65+), which is decreasing from 7.5:1 to 2.5:1 over 80 years. All of that means we will have fewer people paying taxes and more people needing support.

This diminishing base of taxpayers will put increasing pressures on not-for-profit organisations as governments look for greater efficiencies in how funds are spent. Key in this development has been the deregulation of community services typically delivered by government and not-for-profit sectors and the move to market-based competition. The removal of some of the barriers to entry has turbo charged the growth of numerous organisations, not for profit and for profit alike, and has undoubtedly resulted in some benefits for the Australian social economy, including the introduction of choice for consumers. Just like the outsourcing of employment services in the 1990’s from the old Commonwealth Employment Service (CES), the outsourcing and deregulation of government services has accelerated with rolling out of the National Disability Services and deregulation of Home Care services for seniors.

As well as these broader social and economic changes, there are also considerable challenges for those experiencing disadvantage. A snapshot of these issues is cause for concern given the seeming lack of significant progress across a range of indicators. Some key headlines include 20 per cent of Australians who experience a mental illness, 700,000 children who live in poverty and 100,000 people who are homeless. Consistently Indigenous Australians find their people on the bottom of these social and economic indicators.

We also know from reports over many years from the late Tony Vinson that about 15 per cent of Australians experience multi-faceted disadvantage and that often these population groups are located in the same disadvantaged communities.

It’s pretty sobering and I can totally understand my friend’s bewilderment at all these challenges. The identification of the raft of changes at work is pretty straightforward; the real challenge is working out the best way not for profits can ensure they have a future.

I’ve always loved the notion that leadership is about doing the right thing (by contrast with management which is about doing things right.) The leadership challenge in this context cannot be highlighted enough because as a leader you only get a few opportunities to significantly intervene and drive change in your organisation because of the demands of day to day operations. This means you have to focus and ask yourselves the right questions that will best respond to these contemporary challenges.

As I reflected with my friend on these challenges there are three questions that I suggested his board and every leader should be asking about their not for profit to ensure they can survive the enormous challenges in the future.

1.       Are your business and social impact models fit for purpose?

The changes faced by not for profits today are forcing leaders to reconcile their social and commercial objectives. In the past most organisations could get away with just doing “good works”.The future will be very different in two ways – organisations will need to demonstrate their social outcomes and this work will need to be supported by new types of business models to ensure the work is sustainable.

The contemporary not for profit must be able to show a direct line between their stated purpose and their work they do. In addition to this their work must demonstrate evidenced-based outcomes to prove they are creating change that people want and need and not just generating new activity. This has always been important but is more critical in the future because of the increasing expectations from funders and customers to prove that what you do actually works.

Not only will not for profits be required to deliver social outcomes, they will also need to deliver these in markets where they will have to compete with other organisations with deep pockets and efficient operations. This means attention must be paid to developing effective business models that force focus and require organisations to be deliberate about who they are here to serve, the value they are trying to create and the resources they need to do this work well. As community services become more consumer directed, a focus on business model development is mandatory. For some, this work is an unnecessary intrusion of businesses into the social sector but in reality it’s an opportunity to ensure the work is sustainable.

2.       Have you got an effective ecosystem of leadership?

Leadership has always been the key to successful not-for-profit organisations but this new future will necessitate a few key shifts. The most sustainable organisations always have in place an ecosystem of good leaders. It’s never just the CEO or chair but a network of people who are in formal and informal roles committed to taking the organisation forward. This is more important than ever because the depth and breadth of changes faced by not for profits are way beyond the capabilities and capacities of one or two leaders in an organisation.

The organisations that survive this brave new world will have in their ecosystem a mix of people who are commercial, collaborative and creative and reflect the diversity in our community. Not for profits attracting people with business experience to their boards and executive teams is not a particularly new trend but what is new are the skills sets that are being recruited. Increasingly skills in strategy, product development and customer experience are being sought. This reflects the marketisation of community services and increasing drive to consumer directed care. It means that not for profits now need the skills to make strategic choices about who they serve, where they work and how they will differentiate their services.

The drive to have leaders better able to collaborate comes from external and internal pressures. Externally human services are delivered in a mature and complex service delivery system which means that if you are serious about impact you are also serious about collaborating with individuals and organisations. This is because of the complexity of the issues now faced and the fact that no problem can be solved by working independently. The same could be said about the importance of internal collaboration. Smashing down silos and seriously looking at service integration is the new frontier in efficiency and effectiveness for not for profits.

On both fronts it means attracting leaders who can boldly and deliberately take on the challenge of working with others in ways that have not predominated our practice to date. The ability to contemplate and imagine different and larger perspectives will be a critical skill as well as the ability to connect people to a larger purpose to harness intrinsic motivation.

The other skill set required in leadership is creativity which is really code for the ability to intentionally innovate. Not for profits have a history of pioneering social innovation and in more recent years have become much better at adopting continuous quality improvement practices. These are important building blocks but are not the complete story.

Leaders in the future will be required to move into the new frontier of using community and customer insights to create new products as well as developing initiatives that solve complex problems. This will require systems thinking and will also mean looking seriously at developing or partnering in obtaining human centred design practices. It also means thoughtfully considering how best to organise your not for profit to support innovation because without a pipeline for new innovations you have no future as old practices mature and become redundant. Besides, there are many people in our community that face serious challenges looking for organisations to work with them to create a better future.

3.       Have you got sufficient working capital?

So finally we get to the inevitable conversation about money. The challenges not for profits will face in the future and the requisite responses will all cost money. The effort required is nothing short of organisational transformation, it’s that significant. It will mean investing in your organisation’s capability, systems and processes and repositioning existing services. In practical terms it means spending money from reserves on things like a new and more relevant brand, above the line marketing campaigns, customer strategies that provide market differentiation, social outcomes frameworks, technological platforms that create efficiencies and a better experience for staff and customers.

The key question here is not just the size of your balance sheet but how much cash you have on hand now and into the future to invest in this transformation process. If you don’t have much cash on hand it may mean realising the value of your non-current assets to create more working capital for the transformation journey. As well as this you will need resources for the inevitable peaks and troughs of operating in an increasingly consumer directed environment.

In addition to looking at your balance sheet it will also be critical to have a hard look at the revenue streams on your consolidated profit and loss. Are you diversified enough in your revenue types to ride out market volatility and are your different service types generating enough gross margin and ultimately net profit? In times gone by it was ok not to generate reasonable net profits but targeting 5 per cent is a minimum to ensure you are reinvesting in your future so you can withstand whatever challenges lay ahead.

So that’s the context and set of questions I shared with my friend as he works out a future for his not for profit. These organisations face some significant challenges ahead and I’m certain that they are worth fighting for because they play a vital role in keeping our nation on track.

About the author: Doug Taylor is a director at Uniting and responsible for Early Learning, Disability and Home Care Services. He has built a 20-year professional career in the social sector, was previously the CEO of United Way and has an active life in volunteering. These interests are evident in his membership on the Australian Centre for Social Innovation Board, the Centre for Social Impact Advisory Board and as a proud Trustee of the Steve Lawrence Social Innovation Fund. Taylor is a Community Fellow of Western Sydney University, Graduate of the Australian Institute for Company Directors, the Stanford Not for Profit Executive Leadership program and Sydney Leadership. www.blogaworkinglife.wordpress.com