Theory, management, policy Helmut K.Anheier Nonproﬁt Organizations First published 2005 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group © 2005 Helmut K. Anheier All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Anheier, Helmut K., 1954– Nonproﬁt organizations: theory, management, policy/Helmut K. Anheier. p. cm. Includes bibliographical references and index. 1. Nonproﬁt organizations. II. Title. HD2769.15.A538 2005 060—dc22 2004011854 ISBN 0–415–31419–4 (pbk) ISBN 0–415–31418–6 (hbk) This edition published in the Taylor and Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” ISBN 0-203-50092-X Master e-book ISBN ISBN 0-203-33725-5 (Adobe eReader Format) Chapter 8 Nonproﬁt behavior and performance This chapter looks at the behavior and performance of nonproﬁt organizations against the background of both nonproﬁt and organizational theory. The chapter also examines the functions and contributions of the voluntary or nonproﬁt sector in different ﬁelds, and explores if, and under what conditions, the sector performs distinct tasks. This includes a discussion of performance measurement models and approaches. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 LEARNING OBJECTIVES Against the background of the economic theory of nonproﬁt organizations and the organizational theory just presented, what can we say about the behavior and impact of this set of institutions? After considering this chapter, the reader should: have a basic understanding of the organizational behavior of nonproﬁts; know some of the major functions performed by nonproﬁt organizations; be able to discuss whether institutional form matters for organizational behavior; understand the difference between efﬁciency, effectiveness, and impact; be familiar with some approaches of measuring nonproﬁt performance. KEY TERMS Some of the key terms introduced in this chapter are: balanced scorecard benchmarking corporate dashboard economy effectiveness efﬁciency 173 INTRODUCTION This chapter is primarily concerned with organizational behavior and performance. More speciﬁcally, how does the distinct set of characteristics associated with the nonproﬁt status affect the functions and behavior of nonproﬁt organizations relative to government agencies and business ﬁrms? Let’s look at functions ﬁrst. FUNCTIONS By function we mean the normal tasks or roles that nonproﬁt organizations can be expected to perform. Researchers have identiﬁed several such contributions: the service-provider role, the vanguard role, the value-guardian role, and the advocacy role (Kramer 1981). Speciﬁcally: Service-provider role: since government programs are typically large scale and uniform, nonproﬁts can perform various important functions in the delivery of collective goods and services, particularly for minority preferences. They can also be the primary service providers, where neither government nor business is either willing or able to act. They can provide services that complement the service delivery of other sectors, but differ qualitatively from it. Or they can supplement essentially similar services, where the provision by government or the market is insufﬁcient in scope or not easily affordable. Vanguard role: nonproﬁts innovate by experimenting with and pioneering new approaches, processes, or programs in service delivery. Less beholden than business ﬁrms to the expectations of stakeholders demanding some return on their investment, and not subject to the electoral process as are government entities, nonproﬁt organizations can, in their ﬁelds, serve as change agents. If innovations prove successful after being developed and tested by nonproﬁts, other service providers, particularly government agencies with a broader reach, may adopt them, or businesses might turn them into marketable products. Value-guardian role: governmental agencies are frequently constrained—either on constitutional grounds or by majority will—to foster and help express diverse values that various parts of the electorate may hold. Businesses similarly do not pursue the expression of values, since this is rarely proﬁtable. Nonproﬁts are thus the primary 174 equity goal displacement mission statement niche control production of welfare framework resource-dependency theory vision vs. mission NONPROFIT BEHAVIOR AND PERFORMANCE mechanism to promote and guard particularistic values and allow societal groups to express and promulgate religious, ideological, political, cultural, social, and other views and preferences. The resulting expressive diversity in society in turn contributes to pluralism and democratization. Advocacy role: in the political process that determines the design and contours of policies, the needs of under-represented or discriminated groups are not always taken into account. Nonproﬁts thus ﬁll in to give voice to the minority and particularistic interests and values they represent and serve in turn as critics and watchdogs of government with the aim of effecting change or improvements in social and other policies. While these roles apply to nonproﬁt organizations more generally, analysts such as Prewitt (1999) suggest that philanthropic institutions, in particular endowed foundations, can fulﬁll four separate basic functions: redistribution, i.e. foundations channel funds from the better off to the less afﬂuent parts of the population, thereby either directly or indirectly adding to the redistribution efﬁciency of the taxation system in place; efﬁciency, i.e. foundations offer services and allocate philanthropic funds more efﬁciently than markets and government agencies could. Cost-to-beneﬁt ratios for foundations are higher; social change, i.e. foundations, unbound by market considerations and the constraints of the political process, can trigger and support desired change processes; and pluralism, i.e. foundations promote diversity and differentiation in thought, approaches and practise of advocacy, service provision and “search procedures” looking for causes and solutions to a variety of problems and issues. The extent to which foundations fulﬁll these roles or functions remains a matter of disagreement among analysts (see Anheier and Leat 2002), and some have suggested that only the pluralism argument could withstand closer empirical scrutiny for serving as the “legitimating theory” of foundations. Although foundations might well create and preserve pluralism and thereby increase the problem-solving capacity of societies, they might not, or might only to some limited degree, be redistributive, efﬁcient, and change-oriented. Similarly, the contributions of nonproﬁt organizations are also subject to debate, and, as we shall see below, much current research activity is devoted to the question of organizational behavior. In particular, researchers are interested in ﬁnding out if the non-distribution constraint or some other factor makes nonproﬁts behave differently, and with different results from either forproﬁts or public agencies. Salamon et al. (2000) reach a basically positive conclusion. Within the context of the Johns Hopkins Comparative Nonproﬁt Sector Project (see Chapter 4), researchers in more than thirty countries employed a common, multi-layered methodology to explore the extent to which nonproﬁt organizations performed the roles attributed to them. After conﬁrming that the hypothesized roles were indeed valid in the diverse range of countries involved in the study, the study focused on performance in speciﬁc subﬁelds of nonproﬁt activity, i.e. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 175 NONPROFIT BEHAVIOR AND PERFORMANCE traditional human services, pursuit of economic opportunity, and promotion of human rights or expression. Preliminary results from eleven of those countries (Salamon et al. 2000) indicated that nonproﬁt organizations did perform a distinctive role as service providers. While some nonproﬁts were found to be lower in cost and others to provide higher quality services than either government or business providers, the most commonly cited distinction was higher equity content. Furthermore, nonproﬁt organizations proved to be more innovative—therefore fulﬁlling the vanguard role—both in terms of the approaches they used and of the type of service they offered or clientele they reached. Evidence that nonproﬁts perform a strong advocacy role was also signiﬁcant. Indeed, nonproﬁt organizations were generally perceived as “credible advocates for larger community interests” (Salamon et al. 2000: 21). Notably, human service nonproﬁts appear to perform the advocacy role to the same degree as those directly engaged in promoting human rights and free expression. According to Salamon and his team (2000: 21): “Despite fears to the contrary, nonproﬁts appear to be combining a service delivery and advocacy role to a greater extent than many expect.” What appears to be the most distinguishing feature of nonproﬁt activity, according to these preliminary ﬁndings, is the linkage of roles: for example, service and advocacy, innovation and advocacy, etc.: “Even when they were delivering services that are quite similar to those provided by forproﬁt businesses or the state, therefore, nonproﬁts tended to provide them with a ‘plus,’ with some other activity” (Salamon et al. 2000: 23). Despite the geographical breadth of this study, it is largely based on the qualitative judgments of nonproﬁt practitioners and experts, and is certainly more optimistic than some of the ﬁndings that look at nonproﬁt behavior using a quantitative, cross-form comparison (see below, pp. 184–7). The results of the study profoundly demonstrate the importance of values behind the functions performed by nonproﬁt organizations (Salamon et al. 2000). James (1987) and Rose-Ackerman (1996) remind us that religious and otherwise ideologically motivated entrepreneurs are the most frequent founders of nonproﬁt organizations; and economists such as Steinberg (2003) and Weisbrod (1998a and 1998b) emphasize the importance of “sorting effects” that channel staff, volunteers, members, users, and clients to organizations that are closer to their own values and ideological dispositions, thereby reinforcing the value orientation of nonproﬁts. Some nonproﬁts state their values explicitly, as shown in Box 8.1. MISSIONS AND VISIONS The functions and values of nonproﬁt organizations ﬁnd their expression in missions, or, more precisely, in mission statements. The mission is the principal purpose of the organization, and the very reason for its existence. Mission statements serve boundary functions, act to motivate staff, volunteers, and members, and help in evaluation and orientation. A good mission statement articulates: the organization’s purpose and long-term goals; the needs that the organization ﬁlls; 176 NONPROFIT BEHAVIOR AND PERFORMANCE 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 NONPROFIT BEHAVIOR AND PERFORMANCE BOX 8.1VALUE STATEMENTS BY NONPROFIT ORGANIZATIONS Independent Sector, a US umbrella and advocacy organization commitment beyond self; commitment beyond the law to the public good; respect for the value, dignity, and beliefs of individuals; responsible citizenship; openness, honesty, and accountability; prudent stewardship of resources; obedience to the rule of laws; embracing a wholeness that incorporates diversity; open, constructive response to change; appropriate risk-taking; honoring the roots of philanthropy and voluntary action while building for the future; excellence; collaboration and inclusiveness; commitment to social justice and to improving the quality of life in communities. Goodwill Industries, a nonproﬁt helping the poor, disabled and unemployed respect for those we serve; service to the individual; assumption of responsibility by the individual (a hand-up, not a handout); quality service; thinking globally and acting locally; collaboration; the power of work; stewardship, ﬁnancial responsibility, and efﬁcient use of resources; autonomy of the member organization; best practices and innovation; diversity; heritage; volunteerism. Catholic Charities of New York Our belief that all people are made in the image and likeness of God requires both social service and social action to help empower people and to overcome injustices which prevent their full participation in the life of the community. To promote a just and compassionate society, Catholic Charities provides direct service to people who have been homeless, ex-offenders and the families of people in prison. Support is given to parishes and groups working to improve local neighborhoods. 177 the organization’s core values and operating principles; and the organization’s aspirations for the future (vision statement). Mission statements both constrain and enable; they constrain because they set the boundaries of the organization’s work, and they enable because they help prioritize objectives and tasks. A mission statement answers the questions: “What do we stand for?” and “Why do we exist?” In other words, a mission statement brings out the value base of the organization, and thereby offers guidance for its operations. As Bryce (2000: 31–2) suggests, good nonproﬁt mission statements have ﬁve characteristics: a social contract between the organization (and its members) and society at large that spells out what the organization stands for and what it seeks to achieve; it should state the common values, beliefs, and aspirations of the organization; permanence in the sense that the mission is adopted with a long-term vision in mind that will make frequent mission changes unnecessary; clarity in its formulation; it should clearly communicate the organization’s purpose; approval in the sense that the mission is seen as legitimate and relevant by the board and key constituencies, and in compliance with legal requirements; and 178 The Charles Stewart Mott Foundation The Charles Stewart Mott Foundation afﬁrms its founder’s vision of a world in which each of us is in partnership with the rest of the human race – where each individual’s quality of life is connected to the well-being of the community, both locally and globally. We pursue this vision through creative grant-making, thoughtful communication and other activities that enhance community in its many forms. The same vision of shared learning shapes our internal culture as we strive to maintain an ethic of respect, integrity and responsibility. The Foundation seeks to strengthen, in people and their organizations, what Mr Mott called “the capacity for accomplishment.” Muslim Aid, England, an organization providing humanitarian assistance to developing countries We are fortunate to have sufﬁcient means to live a quality life, but there are millions of people who are less fortunate than ourselves. It is our duty to help them—that is why helping the poor and destitute is emphasized again and again in the Qur’an. The rewards for being charitable are also manifold: charity puriﬁes our wealth and Allah, Most High, has promised us a great reward for being charitable towards our fellow human beings. “And be steadfast in prayer and regular in charity. And whatever good ye send forth for your souls before you, ye shall ﬁnd it with Allah: for Allah sees Well all that ye do” (Qur’an 2:110). NONPROFIT BEHAVIOR AND PERFORMANCE 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 NONPROFIT BEHAVIOR AND PERFORMANCE BOX 8.2 EXAMPLES OF MISSION STATEMENTS Goodwill Industries International, a network of 207 community-based, autonomous member organizations from 24 countries that serves people with workplace disadvant.ages and disabilities by providing job training and employment services, as well as job placement opportunities and post-employment support. Vision: We at Goodwill Industries will be satisﬁed only when every person in the global community has the opportunity to achieve his/her fullest potential as an individual and to participate and contribute fully in all aspects of a productive life. Mission: Goodwill Industries will enhance the quality and dignity of life for individuals, families, and communities on a global basis, through the power of work, by eliminating barriers to opportunity for people with special needs, and by facilitating empowerment, self-help, and service through dedicated, autonomous local organizations. Independent Sector, an umbrella and advocacy organization for US nonproﬁt organizations Vision: A just and inclusive society of active citizens, vibrant communities, effective institutions, and a healthy democracy. Mission: “To promote, strengthen and advance the nonproﬁt and philanthropic community to foster private initiative for the public good.” CIVICUS, a membership organization devoted to civic commitment and involvement worldwide Vision: A worldwide community of informed, inspired, committed citizens engaged in confronting the challenges facing humanity. Mission: CIVICUS is an international alliance dedicated to strengthening citizen action and civil society throughout the world. Catholic Charities of Los Angeles Vision: Through the power of the Holy Spirit, Catholic Charities of Los Angeles commits to serve the vulnerable and to strive for a just society. Mission: Catholic Charities is committed to manifesting Christ's spirit through collaboration with diverse communities, by providing services to the poor and vulnerable, by promoting human dignity, and by advocating for social justice. 179 proof, meaning that the mission’s achievement, or lack thereof, is demonstrable, i.e., it can be examined or monitored with help of performance and impact measures, which we will review below. Box 8.2 provides examples of mission statements. They are succinct descriptions of the basic purpose of the organization; they help guide decision-making, in particular strategic decisions, and serve as useful descriptions of what the organization seeks to do and stands for. Behind every mission is a vision, either explicitly formulated as in vision statements (see also Box 8.2) or implicitly. A vision conveys the ideal future of the organization, its aspirations, and hopes of what it will become, achieve, or contribute. The purpose of the vision statement is to inspire, and help frame the wider context in which the organization’s mission is formulated. For example, in the late 1990s the vision of the Royal National Institute for the Blind (RNIB) in England was: RNIB wants a world in which people with a visual impairment enjoy the same rights, freedoms, responsibilities and qualities of life as people who are fully sighted. 180 The Ford Foundation Mission: The Ford Foundation is a resource for innovative people and institutions worldwide. Our goals are to: strengthen democratic values; reduce poverty and injustice; promote international cooperation; and advance human achievement. The Metropolitan Museum of Art Mission: The mission of The Metropolitan Museum of Art is to collect, preserve, study, exhibit, and stimulate appreciation for and advance knowledge of works of art that collectively represent the broadest spectrum of human achievement at the highest level of quality, all in the service of the public and in accordance with the highest professional standards. The World Wide Fund for Nature Mission: WWF’s mission is to stop the degradation of the planet’s natural environment and to build a future in which humans live in harmony with nature, by: conserving the world’s biological diversity; ensuring that the use of renewable natural resources is sustainable; promoting the reduction of pollution and wasteful consumption. NONPROFIT BEHAVIOR AND PERFORMANCE In the context of this vision statement, RNIB’s mission statement (1999) read: Our mission is to challenge blindness. We challenge the disabling effects of blindness by providing services to help people determine their own lives. We challenge society’s actions, attitudes and assumptions. Many barriers are put in the path of people with a visual impairment—our task is to help dismantle them. And we challenge the underlying causes of blindness by helping to prevent, cure, and alleviate it. For Hudson (1999), vision and mission statements speak to the hearts and the minds of organizational members, but they are also important planning tools, as we will see in Chapter 12. THE BEHAVIOR OF NONPROFIT ORGANIZATIONS1 One of the key approaches in understanding the behavior of nonproﬁt organizations has been to compare them to business ﬁrms and government agencies. Several analysts including Kramer (1981; 1987), Horch (1992), Najam (1996), and Zimmer (1996) have developed lists of characteristics that allow ideal–typical comparisons (see Table 8.1). These authors suggest that the different sectors pursue fundamentally different objectives. Government is generally concerned with optimizing overall social welfare by redistributing resources and providing for basic needs that are not otherwise met. Outputs are pure and impure public or collective goods that are not privately provided, either as a result of the free-rider problem (Olson 1965), or because market provision would lead to socially inefﬁcient solutions. Equity and social justice are the primary distribution criteria for publicly provided goods and services. Private ﬁrms pursue the key objective of proﬁt maximization for owners through the production of private goods that can be sold in markets. Production is regulated by the interplay of supply and demand, and distribution is based on exchange. Finally, nonproﬁts typically aim at maximizing member beneﬁts (in the case of, for example, membership associations, cooperatives, or mutuals) around some value, or, if motivated altruistically, maximizing client group beneﬁts (e.g. the homeless, environmentalists, opera fans). Products have either club or collective good character, and their distribution is either based on collective interests among members or involves solidarity with the client group. Nonproﬁts also produce private goods, but do so only to cross-subsidize their collective good provision (see Chapter 9; James 1983, Weisbrod 1998b). In terms of orientation, nonproﬁts are internally focused on their members and can discriminate in terms of their willingness to welcome and serve members or clients that are different in faith, ideology, social status, etc. Both government agencies and business ﬁrms are essentially outwardly oriented toward citizens and customers, respectively, and are indiscriminate in whom they serve, as long as eligibility criteria are met or as long as there is a willingness to pay. At the organizational–structural level, the bottom-line measure of proﬁt allows business ﬁrms to set clear and speciﬁc goals that are also easily monitored and measured. High goal-speciﬁcity translates into clearly delineated tasks and a formalized structure. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 181 NONPROFIT BEHAVIOR AND PERFORMANCE Decision-making is top-down and hierarchical, and the controlling authority is vested in the owners or shareholders to whom the organization is also primarily accountable. Government agencies, by contrast, lack a clear bottom-line measure. Goals and mandates are both complex and ambiguous due to changing and at times conﬂicting political imperatives as well as interventions from outside interest groups. External accountability and the locus of control are split, with public agencies being ultimately accountable to the voters, while direct control is vested in elected ofﬁcials, which serve as the electorate’s proxies. The decision-making process is thus indirectly democratic (through the election of political ofﬁcials), but internally and directly hierarchical. Ambiguity and conﬂicting accountability lead to rules-based formalized structures (Rainey and Bozeman 2000). Like public agencies, nonproﬁts also lack clear-cut bottom lines. Missions tend to be broad and vague, and members and stakeholders may join and support the organization for a diverse set of reasons leading to a complex and diffuse sets of goals. In contrast to public agencies though, nonproﬁts are primarily accountable to their members who vest operational control into the governing board (see below, p. 231). The proximity between membership as principal and the board as agent, however, is closer, decision-making procedures are directly democratic, and the organizational structure is informal. Regarding participation, individual participation in the state is typically automatic (i.e. citizenship) and, given eligibility requirements, the same is also true for public sector agencies whether individuals choose to avail themselves of entitlements or not. In some types of public agencies, such as schools, prisons, or the military, participation is or can also be coercive. Participation in business ﬁrms is voluntary, although necessitated by economic needs. Participation in nonproﬁts is typically purely voluntary. Choices concerning work participation can also be understood as a managerial sorting process (Weisbrod 1998b; Steinberg 1993) that depends on organizational objective functions and individual preferences, motivations, and perceived incentives. There are basically three types of incentives: material, solidary, and purposive (Clark and Wilson 1961; see also Etzioni 1975 for similar organizational typologies). Material incentives, such as tangible monetary rewards, dominate in business ﬁrms; whereas government agencies attract participants that respond more to purposive incentives, that is goal-related intangible rewards. Purposive incentives are also critically important for members and participants in nonproﬁt organizations (e.g. religious and political groups, human rights campaigns), in addition to the solidary incentives resulting from the act of association itself. Lastly, organizations across the three sectors principally differ in the way they generate ﬁnancial resources (see Chapter 9). Public agencies are predominantly ﬁnanced in a coercive manner through the government’s power to tax. Business ﬁrms employ commercial means of ﬁnancing by way of charging market prices. Nonproﬁts, by contrast, ideally or typically rely on donative or philanthropic resources, including gifts and grants, dues, and public subsidies. Since donative ﬁnancing is also subject to the free-rider problem, nonproﬁts face chronic resource insufﬁciency issues (see Chapter 6; Salamon 1995), which tend to restrict organizational size vis-à-vis public and business organizations. While the ideal or typical comparison illustrates that there are similarities between nonproﬁts and both public agencies and business ﬁrms on a number of dimensions, these similarities cut across both sectors and thus prohibit a simple sorting of nonproﬁts into either 182 NONPROFIT BEHAVIOR AND PERFORMANCE public or business administration. Both apply partially, but neither fully; and nonproﬁts retain organizational characteristics that are speciﬁc to them. The implication for the development of management models, which we will review in Chapter 11, is therefore that nonproﬁt management is, at the minimum, characterized by greater stakeholder, goal, and structural complexity, resulting from push and pull between the state, market, and civil society and underlining the need for a multifaceted, organization-focused approach. Does form matter? Against the background of Table 8.1, the growing literature on the behavior of nonproﬁt organizations picks up predictions that follow from some of the basic theories we reviewed in Chapter 6, and focuses on one central question: does organizational form matter? In other words, does the nonproﬁt form make a difference? We will review three major studies that have examined this question from different perspectives and in different ﬁelds. Child day care in Canada Michael Krashinsky (1998) extends Hansmann’s trust theory (see Chapter 6) to examine the relevance of the non-distribution constraint in Canada’s child day care industry. He makes the assumption that managers in all institutional forms are proﬁt seekers and that in the absence of effective enforcement mechanisms for the non-distribution constraint, the attributes of the nonproﬁt form disappear and resemble that of the forproﬁt ﬁrm. Krashinsky conducted a study of quality of day care by surveying the consultants employed by the Canadian provinces to inspect day care centers in order to ensure compliance with regulatory standards. He concluded: “The results on quality of auspice are striking . . . [T]he nonproﬁt centers provide on average a higher standard of care than the forproﬁt centers . . . In contrast, 1⁄10 of the nonproﬁts fall below regulatory standards, compared with 1⁄4 of the independent forproﬁts” (Krashinsky 1998: 117). In addition: “The spread of quality within each category of auspice is considerable, however, so that variation in quality within each auspice is more important than the differences in average quality of care among the auspices” (Krashinsky 1998: 117). However, in a different survey he found that parents cannot judge day care services for their children accurately and that some were not able to differentiate between forproﬁt and nonproﬁt. “If they could, of course, then, following Hansmann, there would hardly be a stronger argument for the existence of nonproﬁt centers in this sector” (Krashinsky 1998: 120). So does auspice matter? According to Krashinsky, the answer is that it does in the case of the day care centers he examined but that using this ﬁnding for the formation of public policy is somewhat problematic. The results suggest that nonproﬁt day care centers do appear to offer somewhat higher quality than forproﬁt centers, but nonproﬁt centers can nonetheless be low quality, and forproﬁt centers can be high quality. Krashinsky argues that there is reason to believe that the non-distribution constraint is indeed difﬁcult to enforce when ﬁrms are small, as is the case for day care in Canada or homes for the elderly in countries like the UK. What is more, if governmental direct 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 183 NONPROFIT BEHAVIOR AND PERFORMANCE Table 8.1 Ideal–typical comparison of nonproﬁts, government agencies, and businesses Business ﬁrmGovernment agencyMember-serving nonproﬁt Public serving nonproﬁt (association)(service provider) Objective functionProﬁt maximizationSocial welfare Member beneﬁt Client group beneﬁt maximizationmaximizationmaximization OutputsPrivate goodsPublic/collective goodsClub goodsCollective and private goods Distribution criteriaExchangeEquitySolidaritySolidarity External orientationExternal, indiscriminateExternal, indiscriminateInternal, discriminateExternal, discriminate (customers)(public, citizens)(members)(targeted client groups) GoalsSpeciﬁc, clearComplex, ambiguousComplex, diffuseComplex, clear StructureFormalFormalInformalFormal Accountability and controlOwners/shareholdersVoters through elected MembersBoard ofﬁcials Decision-makingHierarchicalIndirect: democraticDemocraticHierarchical Direct: hierarchical ParticipantsQuasi-voluntaryAutomatic/coerciveVoluntaryVoluntary/quasi(economic needs)voluntary MotivationMaterialPurposiveSolidarySolidary/purposive ResourcingCommercialCoercive (taxation)DonativeDonative/commercial SizeLargeLargeSmallMedium Source: Based on Toepler and Anheier 2004. subsidies (e.g. grants) and indirect subsidies (e.g. tax exemption) were provided only to nonproﬁt day care centers but not to forproﬁts, or if governments decided to bar forproﬁt centers from entering the day care market, there could be a signiﬁcant risk that forproﬁt entrepreneurs would incorporate as nonproﬁts. Because enforcement mechanisms are lax, such policy-created nonproﬁt supply monopolies could lead to a situation where forproﬁt entrepreneurs inﬁltrated the nonproﬁt form. They would then operate what are called “forproﬁts in disguise,” i.e. commercial entities under the cover of charitable organizations. More generally, disguised proﬁt-seeking behavior emerges in situations where disguised proﬁt distribution is possible (James and Rose-Ackerman 1986: 50). Managers may, for example: decide to divert revenue to increase staff salaries and emoluments; do little to avoid x-inefﬁciencies such as empire-building among staff or pursuing displaced incentives; engage in shirking, i.e. avoiding work, duties, or responsibilities, especially if they are difﬁcult or unpleasant; or downgrade the quality of one service to support another, preferred, one. In other words, the non-distribution constraint alone may not be a perfect predictor of a nonproﬁt’s organizational behavior. Nursing homes and facilities for the mentally handicapped In a series of studies, Weisbrod (1998a, b, c), too, explores the effects of institutional form on economic behavior. Does the non-distribution constraint reduce efﬁciency because managers have no incentive to enforce efﬁciency, because they cannot share in any proﬁts? On the other hand, does it also motivate managers not to engage in socially inefﬁcient activities such as polluting the air or cheating consumers? Do proﬁt maximizers supply to the highest bidder, while nonproﬁts supply to those most in need? Weisbrod looks at behavioral differences between proprietary ﬁrms and two types of nonproﬁt organizations, church-related and non-church-related, in two industries, nursing homes and mentally handicapped facilities. Speciﬁcally, he examines: (1) opportunistic behavior by providers who are more knowledgeable than their consumers about the quality of service being provided; (2) consumer satisfaction with services, especially with those that are difﬁcult to monitor; and (3) the use of waiting lists rather than prices to distribute outputs. In one test, he takes the use of sedatives in nursing homes to examine if nonproﬁts or forproﬁts are more likely to take advantage of informational disparities. He ﬁnds that proprietary homes used sedatives almost four times more than church-owned nonproﬁt homes. Taking other factors into consideration such as medical needs, this ﬁnding could suggest that proprietary homes use sedatives to control their patients because it is less costly than labor. In testing for differences in input utilization and consumer satisfaction, he found little difference across form; however, when looking at outputs, results revealed that nonproﬁt facilities are signiﬁcantly and substantially more likely than proprietary facilities to have a waiting list. For nonproﬁt organizations, having a waiting list becomes a signal of reputation, whereas for commercial ﬁrms it represents an opportunity to raise prices or expand capacity, or both. Thus, relative to forproﬁts, nonproﬁts appear less responsive to demand changes. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 185 NONPROFIT BEHAVIOR AND PERFORMANCE Health care providers Schlesinger (1998) examined the organizational behavior of nonproﬁt and forproﬁt ﬁrms in a variety of circumstances, largely using US health care providers as the empirical test case. His research on the extent and nature of ownership-related differences brought up a number of important ﬁndings. One of these was that factors of the organizational environment have different effects on the behavior of nonproﬁt and forproﬁt organizations. More speciﬁcally, regulators such as governmental and industry supervisory and monitoring agencies, as well as community-based interest groups, show a larger inﬂuence on nonproﬁt than they do on forproﬁt behavior, and a greater compliance rate among nonproﬁts. Thus, combined with Weisbrod’s ﬁndings, this suggests that nonproﬁts appear more sensitive to government requirements and community interests (i.e. being a good corporate citizen), but less responsive to increased demand (i.e. being an efﬁcient provider of services demanded). Schlesinger also ﬁnds that: In industries in which philanthropy plays virtually no role in the sense that donative income of nonproﬁts is insigniﬁcant and in which government assumes a major role in purchasing services provided by either nonproﬁt or forproﬁt ﬁrms, there will be little difference in performance between them. In markets in which proprietary behavior is the norm (for example, there has been substantial forproﬁt entry), behavior of nonproﬁts will become more like that of their forproﬁt counterparts. In markets in which nonproﬁt behavior remains the norm, the reverse is true. As competitive market pressures increase, professionals may use their power to keep the organization from deviating from its mission. As competition reduces the magnitude of ownership-related differences, the declines will be smallest in those dimensions of performance most favored by professionals and larger in others. What is more, the effects of professionalization can change the nature of competition altogether. Instead of competing for clients, the organization may compete for professionals who bring clients along with them. One example is physicians who bring with them a loyal patient roster; therefore hospitals compete for the physicians themselves instead of the clients. Thus, if professionals are a primary source for attracting clients, competition will increase ownership-related differences in dimensions that are most favored by professionals, but decrease them in dimensions that have less professional support. Because government regulators will be most concerned with issues of accountability, they will favor quantiﬁable measures of performance. In markets with greater regulatory inﬂuence, ownership-related differences will therefore be more closely associated with measurable non-pecuniary aspects of organizational behavior, such as the number of indigent clients the organization serves. Because philanthropists are motivated in part by self-aggrandizement, they will favor more concrete forms of organizational performance. For this reason, in markets where there is a more pronounced inﬂuence from community-based interests, the differences between nonproﬁt and forproﬁt behavior will emphasize readily observed features, such as new services, buildings, and the like. 186 NONPROFIT BEHAVIOR AND PERFORMANCE Because government purchasing agents will be most concerned with assuring access for government-funded clients, the larger the inﬂuence that the purchasing agent has, the more similarities there will be in the behavior of nonproﬁts and forproﬁts in providing services used particularly by the clients of that agency. For example, health care agencies that rely heavily on government funding will become more alike, irrespective of their forproﬁt or nonproﬁt status. In a case study of hospitals providing inpatient psychiatric services, Schlesinger (1998) looked more closely at some of the similarities and differences in nonproﬁt and forproﬁt behavior. When comparing the relative performance of nonproﬁt and forproﬁt hospitals in industries where the inﬂuence of both community groups and state regulators is high, nonproﬁt hospitals were more likely to treat state-ﬁnanced patients, those with chronic conditions, and patients with no insurance at all. There were no discernible differences in the degree of innovation between nonproﬁt and forproﬁt hospitals. However, in environments with neither strong governmental monitoring nor watchdog groups, but with strong competition, nonproﬁt organizations seemed to shift their attention to the private sector and were no more inclined to address chronic illness or indigent care than their forproﬁt counterparts were. By contrast, in environments with low competition and limited inﬂuence by medical professionals, nonproﬁt hospitals differentiated themselves substantially by their treatment of the poor, were more innovative than forproﬁts, and were also more likely to establish contracts with the private sector. Schlesinger (1998) concluded that the differences in legal ownership and its consequences related directly to the environment in which an organization operated and he reframed the question, “Does ownership matter?” as, “Under what conditions does ownership matter?” The answer will depend on the ﬁeld or industry in question, but the work by Krashinsky, Weisbrod, and Schlesinger has provided some initial ideas about the factors involved: the degree of competition, professionalization, the funding mix, and the role of government and philanthropy. Niche control Galaskiewicz and Bielefeld (1998, 2001) use the term “niche control” to describe the extent to which performance and resource allocations are monitored and sanctioned by external agencies, be they government or watchdog groups. As Table 8.2 shows, they differentiate between two types of control, process control and output control, and two organizational forms, forproﬁt and nonproﬁt (although one could extend the analysis to include public agencies). While many nonproﬁts are exempt from strong process and output controls, some, for example, general hospitals, are not. Those that are in highly controlled niches ﬁnd themselves competing on quality and price not only with other nonproﬁts, but also with forproﬁts and public agencies. In these niches or market segments, the behavior of forms will become more similar over time, whereas in niches with low controls, form differences will be more pronounced. Galaskiewicz and Bielefeld explore how organizations react to controls by employing two arguments: the efﬁciency argument makes a case based on cost and revenue considerations; 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 187 NONPROFIT BEHAVIOR AND PERFORMANCE whereas the legitimacy argument rests on values, greater trustworthiness, and reputation. Speciﬁcally (see Table 8.2): Strong process and output control: nonproﬁts and forproﬁts compete against each other and become more similar (e.g. hospitals, savings and loan associations, and banks). Both emphasize efﬁciency, as legitimacy will have little resonance among users and consumers. Strong process control and weak output control: nonproﬁts will emphasize that they do “things the right way and for the common good,” i.e. will be process-conforming and emphasize legitimacy, whereas forproﬁts will stress their efﬁciency of operations. Thus the two forms will employ different tactics. Nursing homes are a case in point. Weak process control and strong output control: both nonproﬁts and forproﬁts stress the efﬁciency of their operations, but nonproﬁts will also try to show that they are the more trustworthy and reliable provider by employing the legitimacy argument. Social services and day care centers illustrate this scenario. Weak process and output control: being left to themselves, and except in crisis situations, neither forproﬁts nor nonproﬁts need to employ strong arguments to maintain their respective niches. Advocacy and community groups, and religious institutions, are examples. Coping with uncertainty In Chapter 7 we stressed the importance of uncertainty for organizational behavior. What can we say about the reaction of nonproﬁt organizations to uncertainty? The following strategies have been observed (Galaskiewicz and Bielefeld 2001; Powell and Friedkin 1987; DiMaggio and Anheier 1990): 188 NONPROFIT BEHAVIOR AND PERFORMANCE Table 8.2 Niche control and form arguments Process Output Organizational form Form convergence, control control stability or Forproﬁt Nonproﬁt divergence argument argument Strong Strong Efﬁciency Efﬁciency Convergence Weak Efﬁciency Legitimacy Convergence and divergence simultaneously, but more divergence Weak Strong Efﬁciency Efﬁciency and Convergence legitimacy and divergence simultaneously, but more convergence Weak Neither, Neither, Stability but in crisis: but in crisis: efﬁciency legitimacy Source: Based on Galaskiewicz and Bielefeld 2001: 24. Goal displacement is a process by which the original objective, while still being formally upheld, is replaced by new or secondary goals. For example, rather than working toward poverty alleviation, the organization may focus primarily on fundraising for its own survival and maintenance. Uncertainty often leads to a search for stability, either in terms of new niches to which the organization seeks to migrate, or in the form of copycat behavior, whereby the organization models itself after those organizations it perceives as successful. For example, nonproﬁts may copy the behavior of forproﬁts they regard as ﬁnancially more successful. Stronger stakeholders crowd-out weaker or protected constituencies in organizations under distress, leading to new hegemonies and changes in the organization’s balance of power among stakeholders. For example, ﬁnancial managers rather than curators typically gain organizational power in efforts to save troubled art museums. In the face of cutbacks in government subsidies or drops in giving, some service providers redirect programs originally aimed at the poor to middle-income groups in order to lower costs and increase fee income. Some nonproﬁts drop controversial programs, and add more conventional ones in the hope of attracting donors and ﬁtting better into governmental funding priorities; it is a “taming” effect that has been observed not only in controversial social service programs and health care (e.g. abortion), but also in the arts and culture, where theaters and orchestras choose standard repertoires with broader appeal rather than avant-garde tastes. Uncertainty also increases pressure toward professionalization, and invites more technocratic control of the organization—a process frequently related to the phase transitions of the organizational life cycle discussed in Chapter 7, e.g. the replacement of charismatic leadership by managers in an effort to consolidate operations. Research has also identiﬁed the revenue structure as critical for avoiding the development of uncertainties in nonproﬁt organizations: as suggested by Galaskiewicz and Bielefeld (1998), and others, legitimacy is an important resource by which nonproﬁts maintain funding relations. Legitimacy is closely related to reputation, particularly in some nonproﬁt ﬁelds such as education, research, or arts and culture. Nonproﬁts prefer to stay with routinized funding mixes, and both private and public funders seek providers with a proven track record. This political economy, based on stability and reputation, can put newcomers and innovators at a disadvantage. Resource-dependency theory implies that nonproﬁts relying on single-funder scenarios mirror the structure and behavior of their primary revenue source over time. In other words, nonproﬁt organizations that rely heavily on government funding will come to resemble the public agency over time, and nonproﬁts that rely on earned income will mimic the market ﬁrm. Good examples are the government-funded health care organizations discussed by Schlesinger (1998) above. According to this theory, both nonproﬁt and forproﬁt services are becoming more alike and will develop the characteristics of a public agency. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 189 NONPROFIT BEHAVIOR AND PERFORMANCE EVALUATION AND ORGANIZATIONAL PERFORMANCE MEASURES Economic theory suggests, as we have seen in Chapter 6, that the nonproﬁt form is suitable for supply and demand situations where observing cost and revenue behavior, i.e. through the non-distribution constraint, is easier than monitoring actual performance in terms of service quality. Unlike forproﬁt ﬁrms in market situations, there are typically no information systems (such as, for example, prices) in place to signal both quality and quantity of delivery relative to demand; and unlike government agencies, nonproﬁts are not subject to an electoral process that periodically decides on performance. Thus, nonproﬁts easily face persistent uncertainties—not only about their revenue as suggested in the previous section—but also about their performance. It is therefore not surprising, in particular in competitive funding environments, that nonproﬁt organizations seek evidence about their performance (Fine et al. 1998). They are also increasingly asked by funders and oversight agencies to supply such information at regular intervals or as part of grant stipulations. This is where evaluation comes in, and the various methods used represent different approaches to measuring performance aspects, such as efﬁciency, effectiveness, outcomes, and impact—terms we will deﬁne further below. As Fine et al. (1998) suggest, most nonproﬁts engage in some form of evaluation, most commonly program evaluation. In essence, program evaluation examines the extent to which a program meets speciﬁed needs. It is a collection of methods for determining “whether a human service is needed and likely to be used, whether the service is sufﬁciently intensive to meet the unmet needs identiﬁed, whether the service is offered as planned, and whether the service actually does help people in need at a reasonable cost without unacceptable side effects” (Posavac and Carey, 1997: 2). Evaluation models follow the logic of experimental design, but in reality it is often difﬁcult, if not impossible, to establish separate experimental and control groups. In most cases, organizations use a model whereby the organization’s performance and impact is measured for a speciﬁc time period, and then measured again at a later point in time, usually after a program intervention has taken place. Based on this simple model, there are numerous types of program evaluation, with goal-based evaluation among the most common. Goal-based and, similarly, outcomes-based evaluations assess the extent to which programs are meeting predetermined goals or objectives. They typically include a comparison of preprogram needs and performance measures with current or post-program information. For example, a nonproﬁt after-school program would compare student test scores before and after certain changes in the curriculum, or nonproﬁts in the ﬁeld of domestic violence would evaluate their goal achievement in prevention relative to a speciﬁed reduction in reported cases. The United Way of America (www.unitedway.org/outcomes/) offers an overview of goal-based and outcomes-based evaluation, including a program outcome model with examples of outcomes and outcome indicators for various programs. Process-based evaluations, by contrast, are less about goal achievement and more about understanding how a program operates, how it produces the results it does. These evaluations are useful for long-term, ongoing programs that operate in volatile task environments, 190 NONPROFIT BEHAVIOR AND PERFORMANCE or that appear to have developed inefﬁciencies over time. There are many different models of process evaluation, and, in the case of a service-providing nonproﬁt, they typically address questions such as: On what basis do employees decide that products or services are needed, and how would this differ from what customers or clients want? What skills, knowledge, and expertise are required of employees for delivering services at levels adequate to the needs proﬁle? Are appropriate training facilities and programs in place for staff and volunteers? How do customers or clients typically hear about the organization, and how do they come into the programs offered? How do employees select which services to offer to the customer or client? What is the general process that customers or clients go through with the product or program? What do employees and customers or clients consider to be the strengths and weaknesses of the program? What do informed outsiders consider to be the strengths and weaknesses of the product or program? What typical complaints are heard about the program? Have they increased, and has their nature changed? What recommendations are there for improving the program and its performance? When and on what basis would the program and the services offered be no longer needed? Clearly, evaluation requires the collection of systematic information about various aspects of organizational and program performance. While the actual kind of information may differ from case to case, there are a number of methods of data collection nonproﬁts can use. Each has advantages and disadvantages, and many organizations employ a combination of methods before, during, and after evaluations. Table 8.3 offers an overview of ways of collecting evaluation data. A performance measures survey by Light (2002) found that 92 percent of executive directors of nonproﬁt organizations reported increased emphasis on outcome measures. The measurement and assessment of organizational performance and impact constitute a vast ﬁeld of social science research, and a clutch of different tools and approaches has been suggested in the literature. Unfortunately, it is also a ﬁeld that offers somewhat inconclusive advice to applied ﬁelds such as nonproﬁt organizations, in large measure due to the diversity of organizations and tasks involved. For nonproﬁt organizations, evaluation is complicated by the absence of a fully tested and accepted repertoire of performance and assessment measures. Many available measures derive from public sector management and business applications. Nonetheless, recent years have seen signiﬁcant developments in the ﬁeld, in particular work carried out by Paton (1998a), Herman and Renz (1997), Osborne (1998), Murray (2000) and, particularly, Kendall and Knapp (2000). 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 191 NONPROFIT BEHAVIOR AND PERFORMANCE 192 NONPROFIT BEHAVIOR AND PERFORMANCE Table 8.3 Collecting information for evaluation purposes Method/When best used Advantages Disadvantages Survey forms and checklists When expertise is in place; – conﬁdentiality – developing valid questions assumes good knowledge – inexpensive – expensive and timeand understanding of – non-threatening consuming evaluation purpose, – analytic ease – answers can be superﬁcial program goals and – involves many people – wording can bias operations – impersonal, “bureaucratic” – sampling can be problematic Expert interviews When understanding of – depth of information – time commitment issues, processes, and – develops relationship – hard to analyze and compare outcomes is limited, and with experts – can be costly a need exists to learn – can be ﬂexible – interviewer can bias more in-depth knowledge responses Document review When program generated – inexpensive once – takes time to set up adequate and sufﬁcient system in place – data may be incomplete data on its performance – information over time – less ﬂexible and goal attainment while – does not interrupt – data restricted to what operating (client proﬁles, program and routines already exists ﬁnancial accounts, internal – few additional biases reports and reviews, memos, introduced minutes, etc.) Direct observation When it is possible to gather – views operations of a – can be difﬁcult to interpret accurate information about program as they are seen behaviors how a program actually actually occurring – observer bias operates, particularly about – ﬂexibility – inﬂuences those being processes observed Focus groups When the discussion itself – quickly and reliably – can be hard to analyze is important, and when gets common – needs good facilitator for topics and issues are not impressions safety and closure well understood but – can be efﬁcient way to – composition important and participants share common get much range and can lead to biases concerns; explores a topic depth of information in-depth in short time – can convey key information about programs Case studies When it is possible to – learning experience – expensive conduct comprehensive in program input, – issues of about how examination of speciﬁc process, and results representative case is of case or program area – useful means to program activity with cross comparisons portray program to – depth rather than breadth outsiders of information The key insights for the selection and use of performance measures from this and similar work are: Numbers are important “yardsticks” for planning and for measuring performance and goal attainment, but they are not an end in themselves, and they should not be taken out of context. Numbers need interpretation, and making them meaningful is a management task. Performance metrics have to be smart measures—and tied to bottom lines, and as most organizations are multifaceted and have multiple bottom lines, we need multiple performance measures. Measures should link the organization’s mission with its activities to the greatest extent possible. Measures should be tested over at least one business year before implementing them fully. Comparing performance measures of even similar programs across different organizations can be misleading; many performance measures are organization and program speciﬁc. Most measures gain greater usefulness over time and with the availability of time series that track improvements. There is a risk that performance measures attract efforts to areas that are more easily measured, but less needy of resources. Performance measures can encourage “short-termism,” and lead to a neglect of longer-term achievements. Kendall and Knapp (2000: 114) follow the production of welfare framework (POW) that has been developed by the Personal Social Service Research Unit at the London School of Economics to assess the performance and impact of social service providers. With modiﬁcations, POW can be extended to apply to advocacy organizations and informal organizations as well. The main elements of the framework are: resource inputs (e.g. staff, volunteers, ﬁnance); costs associated with resource inputs, as indicated in budgets and similar accounts, including opportunity costs; non-resource inputs that are not priced (e.g. motivations, attitudes, and values of staff or volunteers); intermediate outputs (e.g. volumes of output, capacity provided, etc.); and ﬁnal outcomes in terms of organizational goals and missions (welfare increase, quality of life, etc., including externalities associated with the organization’s activities). Figures 8.1 to 8.3 offer an overview of the basic approach taken by Kendall and Knapp (2000: 115–17) in measuring the impact of nonproﬁt organizations in the ﬁeld of service provision. Figure 8.1 offers a conceptual framework on how the input–output–outcomes chain relates to crucial notions such as: 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 193 NONPROFIT BEHAVIOR AND PERFORMANCE economy, i.e. the relationship between “costed” and “uncosted” resource inputs (resource savings); efﬁciency, i.e. the economic cost relationship between inputs and intermediate outputs; effectiveness, i.e. the relationship between inputs and organizational objectives; and equity, i.e. the fairness and net welfare contribution achieved by the organization. The POW framework suggests that nonproﬁts should aim for a broader approach to measuring organizational performance and impact, in such a way that indicators are available for inputs, outputs, and outcomes. Moreover, of critical importance are the relationships between the various measures, such as economy, efﬁciency, effectiveness, and equity. Some of the major criteria and indicator sets used in the POW framework are presented in Figure 8.2. Figure 8.3 shows the relationship among the concepts in the case of a housing association providing low-cost housing to rural poor in developing countries. The POW framework makes use of economic measures such as expenditures and average costs but also non-economic ones such as participation and innovation. 194 NONPROFIT BEHAVIOR AND PERFORMANCE Costs or budget Resource inputs Intermediate outputs Non-resource inputs Final outcomes Costs or budget Resource inputs Intermediate outputs Non-resource inputs Final outcomes EFFICIENCY EFFECTIVENESS (intermediate) EQUITY (intermediate) EFFECTIVENESS (final) EQUITY (final) ECONOMY Figure 8.1 Kendall’s and Knapp’s production of welfare model Source: Kendall and Knapp 2000: Figure 1, 115. (a) (b) 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 195 NONPROFIT BEHAVIOR AND PERFORMANCE Economy Resource inputs Expenditures Average costs Effectiveness (service provision) Final outcomes Recipient satisfaction Output volume Output quality Choice/pluralism Concentration Diversity Efficiency Intermediate output efficiency Final outcome efficiency Equity Redistributive policy consistency Service targeting Benefit–burden ratios Accessibility Procedural equity Participation Membership/volunteers Attitudes and motivation Advocacy Advocacy resource inputs Advocacy intermediate outputs Innovation Reported innovations Barriers and opportunities Figure 8.2 Performance criteria and indicator sets Economy Resource savings by enlisting non-cost or low cost resources (volunteers, self-help) Use of less costly material locally available Efficiency Cost reductions per housing unit constructed, or Capacity increase achieved at constant cost level Effectiveness Direct: improvements in housing situation for rural poor in target areas Indirect: improvement in economic and social situation (e.g., schooling) Equity Fairness in access to housing provided Fairness in the distribution of benefits and other improvements associated with housing program Figure 8.3 Relations among evaluation criteria: low-cost housing provision While the POW approach may be more suited to larger organizations because of the extensive use of data and high information requirements, Hudson (2003) shows that a relatively small number of well-chosen indicators can provide critical information on organizational performance. Table 8.4 offers an example from the San Francisco-based organization Toolswork, which specializes in ﬁnding employment for the long-term unemployed (Hudson 2003: 72). The measures chosen by Toolswork are a good example for Magretta’s (2002) suggestion that performance indicators should be “smart measures” tied to bottom lines and matched to the organization’s mission. In recent years, organizations such as the United Way of America, Independent Sector, and the National Council of Voluntary Organizations have compiled inventories of performance measures that can be used by other organizations and adapted to their speciﬁc needs and circumstances. Box 8.3 offers a sample list of indicators based on Independent Sector’s research on a wide range of performance measures used by a representative sample of US nonproﬁt organizations (Morley et al. 2001). 196 NONPROFIT BEHAVIOR AND PERFORMANCE Table 8.4 Example of performance indicators: Toolswork Measure Data source Goal Outcome Effectiveness No. of clients placed in new jobs Placement reports 72 73 Percent earning $8 or more per hour Placement reports 75 67 Percent maintaining job for 90 days Placement reports 85 84 or more Percent securing subsidized housing Case records 25 30 No. of new contracts secured Contract ﬁles 0.1 0.12 Efﬁciency No of clients with reduced reliance Case records 175 219 on public beneﬁts Percent of clients placed within Placement reports 80 74 90 days of intake Percent of clients receiving support Case records 50 64 from generic resources Percent of employees maintaining an Claim reports 95 91 accident-free workplace Satisfaction Percent of clients who are satisﬁed Satisfaction surveys 75 76 with the service Percent of satisﬁed staff Staff surveys 75 86 Percent of satisﬁed referring agencies Survey 75 89 Source: Hudson 2003: 72. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 NONPROFIT BEHAVIOR AND PERFORMANCE BOX 8.3 SAMPLE PERFORMANCE AND OUTCOME MEASURES A Indicators reﬂecting condition of clients 1Vocational rehabilitation and employment/job training programs Number and percent of participants placed in employment who retained their job for 90/150 days. Average hourly wage. Average work hours per week. Number of clients stabilized in the workplace (able to function with minimal support from the job coach). Number of clients placed in competitive jobs in the community. 2 Youth services Number and percent of participants who went on to attend 2-year or 4-year colleges, or to attend college on a part-time basis. Number and percent of participants who attained a Graduate Equivalency Degree. Number and percent of participants who increased by one level their use of key character traits: caring, honesty, respect, and responsibility. Number and percent of participants with improvements in, or satisfactory ratings in, conﬁdence, social skills, self-esteem, character. Number and percent of participants who smoked cigarettes, drank alcohol, used drugs, got into physical ﬁghts, or had sexual intercourse. Number and percent of participants with improved communication skills , leadership skills, job skills, and assertiveness. Number and percent of participants exhibiting a decrease in behavioral problems. 2 A Y o u t h s e r v i c e s / p r e v e n t i o n e d u c a t i o n p r o g r a m s • Number and percent of participants with increased knowledge of or desired attitudes about topics addressed (such as pregnancy prevention or substance abuse). • Number and percent of participants who became pregnant (during the program). • Number and percent of participants who used illegal substances (during or after program). 3 Health services Number and percent of children receiving well care at clinic who are fully immunized. Low birth weight rate for maternity clients equal to or lower than state rate. Number and percent of geriatric patients receiving inﬂuenza vaccination. Number and percent of Alzheimer’s clients with improvement or no change in such aspects as walking steadily, feeding self, interacting with others, and exhibiting anxiety, agitation, aggression, or confusion. 197 3 A M e n t a l h e a l t h s e r v i c e s • Number and percent of clients who score in a speciﬁed range on a Mental Health Outcomes Survey. • Number and percent of clients whose caretakers rate them as healthy on a Mental Health Outcomes Survey. • Number and percent of clients placed in less restrictive settings; number and percent of children returning to regular schools; number of hospitalizations during treatment. 3 B M e n t a l h e a l t h / s u b s t a n c e a b u s e e d u c a t i o n a n d t r e a t m e n t • Number and percent of participants with increased knowledge of, or desired attitudes about, substance abuse. • Number and percent of clients who are sober at 3/6/12 months after treatment. • Number and percent of drug screening tests that are negative or show decreased amounts of substances at 3/6/12 months after program. 4 Homeless services Number and percent of clients who retained housing in which they were p1aced 3/6/12 months after leaving program. Number and percent of clients who were employed 3/6/12 months after leaving program. Number and percent of clients reducing the number of nights spent on the street by 50 percent. Number and percent of clients placed in a shelter or in housing. 5 Home repair programs Average annual energy savings of weatherization program clients. 6 Environmental programs Number of pounds of material recovered and recycled. Number of pounds of recyclable material diverted from landﬁlls. Water clarity and quality measures. Number and percent of trees distributed for planting that were still alive one year later. 6 A E n v i r o n m e n t a l e d u c a t i o n p r o g r a m s • Percent change in correct responses regarding knowledge of lake and pollutants from pre-test to post-test. • Percent of citizens who throw various recyclables in the trash versus recycling them. • Number and percent of participants who made one or more changes recommended for lawn care, began planting native plants, made changes related to speciﬁc practises (such as composting, fertilizing, weed-killing). 198 NONPROFIT BEHAVIOR AND PERFORMANCE 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 199 B Reﬂecting service quality 1Vocational rehabilitation and employment/job training programs Number and percent of employers satisﬁed with program. Number and percent of participants satisﬁed with speciﬁc aspects of program, including curriculum and instruction, results of training, readiness for employment, building conditions, lunchroom. 2 Youth services Number and percent of participants rating overall program as helpful; helpfulness of information on colleges, ﬁnancial aid, and college application processes; academic skills and SAT preparation; counseling; and helping parents. Number and percent of parents of participants who were satisﬁed with the overall program. 3 Meals programs Number and percent of participants satisﬁed with overall program. Number and percent of participants satisﬁed with timely delivery of meals, adequacy of meals, promptness of responses to phone calls, delivery of services in a careful and caring manner, and availability of staff in emergencies. Number and percent of clients who rated the meals as good, liked most of the foods, and reported that the meals arrived hot. 4 Health services Number and percent of clients satisﬁed with services. Number and percent of clients satisﬁed with overall quality of service, nurses, home health aides, convenience of visits, timely arrival of staff, information/explanations provided by staff and speciﬁc types of therapy/service. Number and percent of families of Alzheimer’s clients satisﬁed with overall program care and quality, staff responsiveness, activities, and speciﬁc types of care, such as skin care, personal hygiene, and compliance with medication/treatment. 4 A M e n t a l h e a l t h s e r v i c e s • Number and percent of clients satisﬁed with progress in treatment; staff attributes such as respectfulness, competence, and warmth; attitude of employees in facility; frequency of meetings; timely response to requests or questions; condition and convenience of facility; ease of getting referral to facility; cost of services. • Number and percent of clients who started treatment within 10 days of intake. 4 B M e n t a l h e a l t h / s u b s t a n c e a b u s e e d u c a t i o n a n d t r e a t m e n t • Number and percent of participants rating program as aiding their recovery, supporting their building a balanced lifestyle, and providing a therapeutic structure. 5 Environmental programs Number and percent of citizens satisﬁed with recycling program. Source: Morley et al . 2001. © Independent Sector. Used with permission. NONPROFIT BEHAVIOR AND PERFORMANCE In addition to performance indicator banks, several approaches have been developed in recent years that help in the selection and adaptation of such measures, in particular the balanced scorecard, the corporate dashboard, and benchmarking. We will brieﬂy present each in turn. The balanced scorecard is a tool used to quantify, measure, and evaluate an organization’s inputs, activities, outputs, and outcomes. Originally developed by Robert Kaplan and David Norton (2001) for the forproﬁt sector, it is based on the idea that traditional measures of performance, which track past behavior, may not measure activities that drive future performance. A balanced scorecard is a results-oriented approach to measuring organizational performance, with the assumption that “inputs of resources support activities that lead to service or policy outputs, which in turn produce the desired outcome” (Hudson 2003: 83). Balanced scorecard indicators, then, consider performance over a range of dimensions and force managers to evaluate both the outcomes and the status of the organization producing them. There are four types of measures on a balanced scorecard: (1) service users/ policy changes measuring achievements of the organization’s mission; (2) internal processes measuring planning and service delivery processes; (3) learning and growth measuring organizational capacity, evaluation, and learning; and (4) ﬁnancial measuring of fund-raising, cost control, and productivity improvements. The balanced scorecard shifts the focus from programs and initiatives to the outcomes they are supposed to accomplish, and brings mission-related measures in contact with operational, learning, and ﬁnancial aspects. Corporate dashboards are a “snapshot” of key performance indicators and give an overview of the organization’s progress. The idea behind corporate dashboards is that managers are normally overwhelmed with performance data and therefore need something that is quick and can be read, like a car dashboard, at a glance. Dashboards can be produced quarterly and given to board members and staff. Often viewed as an overview or “snapshot” of an organization’s balanced scorecard, the corporate dashboard also incorporates the idea that a range of indicators is needed to get an accurate overview of performance. As an example, the dashboard of Jewish Vocational Services (JVS) San Francisco contains only twelve of its 100 plus performance indicators, and is derived from its balanced scorecard (Hudson 2003). It is published quarterly and sent to all staff with comments from the CEO. The publication also coincides with board meetings for immediate feedback. Additionally, JVS has a volunteer performance measurement committee that meets three to four times a year to help analyze and reﬁne the indicators. In conjunction with this, data from the performance system are used for staff evaluations and promotions. Benchmarking is a management technique used to measure organizational performance. Benchmarking is a comparison-oriented approach as opposed to an outcome-oriented approach to performance measurement. The units of measurement used for comparison are usually productivity, quality, and value. Comparisons can be made between similar activities or units in different departments of the same organization, or across different ﬁrms in the same industry. Three techniques used in benchmarking are: 200 NONPROFIT BEHAVIOR AND PERFORMANCE 1 best demonstrated practise (BDP) is the comparison of performance between units within one organization. This way, superior techniques or greater efﬁciency can be isolated and identiﬁed; 2 relative cost position (RCP) is a detailed analysis of every element of the cost structure (i.e. supplies, labor, etc.) per dollar of sales, compared between two ﬁrms; 3 best related practise is similar to BDP but extends the comparison beyond a single ﬁrm to related ﬁrms. Other techniques that complement the above three include: site visits to witness different management styles and procedures; systematic and formal collection of data to compare a range of performances; and the formation of “clubs” to exchange ideas. In the nonproﬁt ﬁeld, benchmarking techniques are attractive because, according to Hudson (2003), organizations share a common philosophy of social justice and social service and therefore value collaboration in working toward a common good. This is in contrast to the business world where ﬁrms view each other as proﬁt-maximizing competitors and therefore may not be willing to share best practises or techniques. Benchmarking is also particularly important to nonproﬁt organizations because, due to their limited amount of resources, nonproﬁts must ﬁnd innovative and efﬁcient ways to provide services with the least costs. Benchmarking, then, “is an organizational learning process that bridges the gap between great ideas and great performance.” However, Letts argues that benchmarking requires strong organizational leadership and, despite a culture of collaboration and shared goals, organizations must “be willing to risk exposing their organizations’ strengths and weaknesses . . . to deﬁne their organizational learning needs . . . and present their case to funders and staff” (Letts et al. 1999, as quoted in Hudson 2003: 90). CONCLUSION In this chapter, we reviewed the organizational behavior of nonproﬁt organizations, and highlighted, among other aspects, the importance of values (religious, political, humanitarian, moral) as a distinct feature of many nonproﬁts, though not all. How far they inﬂuence organizational behavior varies, but the signiﬁcant presence of values implies, at the very least, a more complex means–goal relationship between operational and ultimate objectives. Indeed, values can be enabling or restraining; protecting or stiﬂing; leading or misleading; invigorating or distracting. The presence of multiple stakeholders (trustees, staff, volunteers, members, users, clients, state agencies, etc.) combines with the value base of nonproﬁts to make them inherently political organizations. What is more, performance is often difﬁcult to measure, although much progress has been made in recent years. What does this entire scenario mean for the resources nonproﬁts need to accomplish their mission, and for the different funding sources they have? This is the topic of the next chapter. 1111 2 3 4 5 6 7 8 9 10 1 2 3 411 5 6 7 8 9 20111 1 2 3 4 5 6 7 8 9 30 1 2 3 4 5 6 7 8 9 40 1 2 3 4111 201 NONPROFIT BEHAVIOR AND PERFORMANCE REVIEW QUESTIONS Why are mission statements needed? What is the importance of values in nonproﬁt organizations? Why is it difﬁcult to measure the impact of nonproﬁt organizations? REFERENCES AND RECOMMENDED READING Flynn, P. and Hodgkinson, V. A. (eds.) (2001) Measuring the Impact of the Nonproﬁt Sector , New York: Kluwer Academic/Plenum. Hudson, M. (2003) Managing at the Leading Edge: New Challenges in Managing Nonproﬁt Organisations , London: Directory of Social Change. Letts, C. W., Ryan, W. P., and Grossman, A. (1999) High Performance Nonproﬁt Organizations: Managing Upstream for Greater Impact , New York: John Wiley & Sons. Morley, E., Vinson, E., and Hatry, H. P. (2001) Outcome Measurement in Nonproﬁt Organizations: Current Practises and Recommendations , Washington, DC: Independent Sector. Posavac, E. J. and Carey, R. G. (1997) Program Evaluation: Methods and Case Studies , Upper Saddle River, NJ: Prentice Hall. 202 NONPROFIT BEHAVIOR AND PERFORMANCE