Organizational Change: Valar Morghulis

1.

Organizational change happens. Time marches forward. People come and go, either by plan or unimagined circumstance. Technology progresses, or perhaps regresses, depending on one's perspective. The seasons change. Entropy encompasses all things, yet life finds a way. The unfathomable creativity of the human mind fathoms more and more and more and more and is determined to see it's ideas manifest. Conversely, the mind unwilling to adapt to new information finds that drastically different results will be attained by doing the same thing over and over as one's environs change around them. One cannot stop change. One can only hope to harness it. Without accepting the reigns of organizational change, inevitably one's organization will slip, be it slowly or quickly, into the the depths of irrelevancy or perhaps even out of existence.

“But what,” one may ask, “is this change we're talking about? How do we define it? Why do we dedicate two credit graduate classes to it? If change is such an integrated and inescapable part of life, must we formalize the method and structures by which it may naturally occur anyway?”

…

If you want a really boring definition of what organizational change is, Inc.com has the answer. They define organizational change as, “when a company makes a transition from its current state to some desired state.” Pretty banal, but that just brings up the next question, “Well, what state do we desire then?”

For public and nonprofit organizations the decision to engage in planned and directed change must always be in service of the essential question, “Are we accomplishing our mission in the most meaningful way possible?” Why this question? Because the public/nonprofit sector is set up to provide service. The goal is not to make the most amount of money. If we find ourselves sitting on big reserves, it's a sure sign we aren't living up to our mission! We were set up to achieve a societal goal, and dammit, that means having a mission and spending money to make it happen.

If the answer to the mission question is no, which it inevitably will be at some point, the organization must ask the following questions: “Why not? What is impeding us from being the best organization we can be? What would make us better? Is it the way we're set up? Is it the people who work here? Are we letting the changing world pass us by? Are we too far ahead of the field? Is it us?”  The list goes on. Practically speaking, the only way you get answers to those questions is through extensive program evaluation. But that is not what this paper is about and there are surely many classes on program evaluation that require exhaustive tomes on effective program evaluation to be written and read. Besides, we, the managerial class, do not always get to dictate our work based on best practice. Elections, be it Congress or the nonprofit board, bring about mandates for change whether we like it or not. Change is gonna happen. See above.

So we shall move on.

Zeroing in on the impediments to the organization's desired state is the beginning of change. Identify what needs to be changed and change it. However, it would be naïve to the point of incompetence to assume that impediments of the desired state will simply fall away like a chrysalis as the organizational butterfly emerges. Indeed, structures, cultures, and people are often like a tree standing by the water in the comfort of their own closed system. Change is scary. Change means facing the unknown. Change for the benefit of the organization as a whole, may not benefit each of individual parts. And besides, change is risky. Things might end up far worse than having done nothing. For these reasons and more, change will be resisted. To barge blindly ahead, implementing changes to the organization, relying simply on luck to see you through to the end, the agents of change will soon find their force not to be nearly as unstoppable as the immovability of the objects they encounter. One must plan, strategize, finesse and politic one's way into the changing an organization to its desired state. So, for the intrepid manager the question of need for structures and methods to bring about change, the only correct answer is...YES!!!

2.

We, the managerial class, have thus commenced on the journey to bring about change in our organization. Who do we bring along, the Fellowship to our Frodo on the Quest to destroy the ring of organizational stagnation? Why everyone, of course! Everyone who is affected by the desired change in the organization has to have a role. Highly paid consultants and aspiring MPNA degree holders call this “engaging stakeholders.”  Again, why? Because every one of those people has a shot at mucking it up. More eloquently: Because to affect change in people they need to buy into the change. Either by force - “You'll lose your job if you don't change.” - or by active engagement and solicitation of input and feedback. The latter is certainly preferred, as those who buy into strategic change and want to change will do so more readily and with greater morale. Happy people work together better.

Of course, one does not bring everyone along all at once. Engaging stakeholders is, in itself, a strategic activity. Ultimately, the leadership of the organization – the board, governing body, etc – has to take ownership over change before it can be affected. But by no means does that mean change must begin at the leadership level. Who trusts whom? Who listens to whom? Who are the true brokers of power in the organization at any given level? The savvy manager must have a grasp of the ways in which the organization is structured beyond the two dimensions of the organizational chart. After figuring out what needs to change, assessing the political dynamics of the organization is the first step in bringing change about. Lest this seem like a Machiavellian manipulation, assessing political dynamics can be put more bluntly: Be nice to people, ask them for their opinion, value their input, and they will likely be amenable to what you have to say as well. Duh...

But getting real buy-in takes time, and for larger organizations it takes a long time. And for public and nonprofit organizations it can take a really, really long time. That's because the stakeholders in these organizations don't just have financial interest in the institution. If one were a business manager, one could simply go to the decision makers and say, “You'll make more money if you do it my way.” Such is the goal of business and the driver of all its functions. No, we in the nonprofit and public sector must make the case that an ideology will be better served by change. Ideology is far more difficult to measure and often contradictory, both within and organization and within one's own head. The savvy manager must synthesize conflicting ideas, opinions and desires into a coherent path forward. But it's worth it. Culture and people are the biggest impediments to organizational change.

And of course, it the public and nonprofit sectors, it is not simply the internal culture and people that impede change, it is the communities we serve, and the populace at large. For blaring example, if the change one wishes to implement is raising executive salaries to attract qualified applicants, one better be prepared to organize for support of that idea to taxpayers and donors with the force of a thousand suns.

Communication then is the key. Communicate well, (Like, listen well too. That's that big part about communication that gets overlooked a lot.) and it's off to the races. But here’s the thing: good communication at the outset is no substitute for bad communication once the process of change has begun. It’s part of the whole process and the savvy manager is always feeding the communication loop at every step of the way.  And, like, that’s pretty much a rule for every interaction in life, right?

3.

As the why and the who have been sorted out, let us turn our attention to the how. The problem has been identified, the stakeholders engaged. Now what? Now we identify the steps we need to take to get where we want to go. Planning is the key here. Turning to academia we find Fernandez and Rainey advocating for providing a plan for change:

Convincing the members of an organization of the need for change is obviously not enough to bring about actual change. The new idea or vision must be transformed into a course of action or strategy with goals and a plan for achieving it…This strategy serves as a road map for the organization, offer direction on how to arrive at the preferred end state, identifying obstacles, and proposing measures for overcoming those obstacles. (p. 169)

Once the plan is in place, the savvy manager re-engages their team and sells them on each part of the plan. Ensuring buy-in for the plan from the policy body and management is really the key here. They are the one’s entrusted with putting the structures in place that institutionalize the change. If change doesn’t become a part of the daily routine within the organization, the organization can snap back to the old way of doing things like a rubber band in a strong wind. So the board has to create the policies that make change possible, the managers have to create a culture where change is valued, and then everybody from the top on down has to execute the change together.

The other really obvious thing that is necessary for organizational is to put resources behind that plan. That means time and money. Training, new equipment, big shiny signs with the new buzzwords, all that stuff requires resources. Fernandez and Rainey again:

A fairly consistent finding in the literature is that change is not cheap or without trade-offs. Planned organizational change involves a redeployment or redirection of scarce organizational resources towards a host of new activities, including developing a plan or strategy for implementing the change, communicating the need for change, training employees, developing new processes and practices, restructuring and reorganizing the organization, and testing and experimenting with innovations… Failure to provide adequate resources in support of a planned change leads to feeble implementation efforts, higher levels of interpersonal stress, and even neglect of core organizational activities and functions. (p. 172)

Simply stated, without a plan and without the resources to back it up, it a safe bet that change is just as likely as not to end up with the organization worse off than before. Plan for change. Invest in change.

           

4.

To conclude, the final step on this journey is, unsurprisingly, making sure that what was done is actually working. How do we do this? Why, go back to an earlier part of the process and make adjustments, of course. Re-engage stakeholders for input and feedback, analyze quantifiable results, tweak elements of the plan that aren’t working as well as one would like, communicate the changes and repeat. And repeat. And repeat. Organizations are wheels within wheels, each wheel needing constant attention if the machinery of the organization is to keep moving forward on the path of change. All in service of essential question, “Are we accomplishing our mission in the most meaningful way possible?”

The organization, guided by savvy managers and leaders, who asks this question with utmost sincerity; examines, evaluates and exhausts the possible answers; engages, empowers, and envigorates stakeholders; prepares, promotes and promulgates a plan for change and; internalizes, institutionalizes, and implements that plan, will ultimately take the no that was given as an answer to that ultimate question and turn it into a yes!

           

Sources

“Managing Organizational Change.” From Inc.com, accessed 8/25/2015 from

http://www.inc.com/encyclopedia/managing-organizational-change.html

Fernandez, S. & Rainey, H.G. (2006) Managing Successful Organizational Change in the Publc Sector,

in Public Administration Review, April 2006.

Earned Revenue

Here's a position paper assignment I had to do on earned-revenue for my finance class. The paper comes down against it, which I'm not totally sold on, but the arguments I came up with aren't bad I think. Thoughts are welcome!

 In their article, “Should Nonprofits Seek Profits,” Foster and Bradach argue that the trend in nonprofits engaging in business ventures to provide funding for their mission related programming is a counterproductive measure that often fails to deliver results and, in many cases, undermines the mission related work of the nonprofit. My position is in agreement and the purpose of this paper is to bolster support for this position by making the following three arguments: Resources spent on generating earned income are better spent elsewhere; A focus on earned income takes away from the mission of the nonprofit, and; Earned-income activity is often derived out of a misplaced sense of morality, not smart management.

First, it is important to remember that non profits are already funded by the profits of other entities. Whether through individual donations, or public and private grants, wealth was amassed, and a portion of that wealth is now being redistributed back into the nonprofit sector. Nonprofit organizations that have traditionally had earned revenue streams, such as healthcare, education, and the arts operate the way they do because they sell a product. However, the actual cost of producing what they are selling is too expensive for much of population they wish to serve, meaning they need to prop up their operations with contributed revenue in order to continue offering their product. Therefore, the cost of attaining their earned revenue is a program expense. However, when an organization does not have a ready made product, they have to find an unrelated or tangentially related way to earn the revenue.

When you compare the amount of effort and savvy needed to create a profit generating enterprise versus simply asking an existing enterprise to share a portion of their profit, it is clear that the rate of return on just asking is better. The best practice for nonprofits is that no more than 30% of their funds be spent on fundraising and administration. So for a nonprofit that relies totally on contributed revenue, their profit margin is essentially 70% or higher. Compare this to many earned revenue schemes. According to Business Insider, the industries with the highest profit margins in 2012 were Consumer Food, Beverage and Tobacco, and Software at 29% and 26% respectively. This is at best an inverse of acceptable practices for nonprofits. It is clear that seeking contributed income is a better use of resources than focusing on earned reveneue.

Second, creating a business venture takes away from the mission of the nonprofit. Unless one is simply increasing fees for their existing programming, increasing earned revenue means new activity. If a nonprofit is already offering the programming that fulfills their mission, it follows that any new activity will be only tangentially related to that activity. If it is primarily for the purpose of generating funds, then it is very clearly not only not part of the mission work of the nonprofit, but not even a nonprofit undertaking. As such, nonprofits should only engaged in earned revenue work that is directly related to carrying out their mission, such as job-training, or fee-for-services, or they should establish a separate business entity whose purpose is to generate income for the nonprofit but to whom the nonprofit is not accountable.

Finally, the movement for nonprofits to focus on earned revenue is based on the notion that everyone should be self-sufficient and that it is not our job as society to care for one another. This is categorically counter to the purpose of a nonprofit sector. The primary underpinning of the nonprofit sector is there are functions that benefit society which are not supported by market forces. Therefore, it is incumbent upon the population to use the excess that the market has generated to support these functions. That's called caring for each other. By each contributing a bit of our excess back into society, society as a whole benefits. Ensuring societal benefit, rather than shareholder benefit, is what separates the nonprofit sector from the for-profit sector. Regardless of one's opinions on the need to be self-sufficient as an individual, we must remember that such morality does not apply to nonprofits.

In conclusion, it is clear that Foster and Bradach have the right of it. For nonprofits to expend their finite resources on generating earned revenue, is inefficient, irrelevant to their mission, and based in a morality that is invalid to the work of improving society, the whole point of having a nonprofit sector in the first place.

Nonprofits in America

Alexis De Toqueville

 The nonprofit sector in the United States has long enjoyed a special place in American civic life, providing the services that business cannot do profitably, and that government is not trusted with. While a robust nonprofit sector has proliferated around the world in recent decades, the concept and principles of voluntary association in the name of societal benefit is uniquely American. When Alexis De Tocqueville came to study the U.S., he was in awe of the readiness with which Americans formed voluntary associations to tackle societal problems.

"The Americans make associations to make entertainments, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; In this manner they found hospitals, prisons, and schools. If it is proposed to inculate some truth or to foster some feeling by the encouragement of a great example, they form a society. Wherever at the head of some new undertaking you see the government in France, or a man of rank in England, in the United States you will be sure to find an association. (p.106)"

The charitable work that De Tocqueville describes was primarily the work of the aristocracy before the advent of representative democracy in Europe. Even after such democracy had been set up in countries like France, there was a reliance on the social hierarchy to do such work. Immigrants to the new world, on the other hand, left Europe precisely because they wanted to escape such hierarchy and rigid class system. Despite a system of government where the people rule, mistrust of rulers still runs deep in the American ethos. The voluntary associations that were formed in the U.S. were a truly bottom up system where took matters into their own hands to cooperate in the name of creating a better society. However, since the turn of the last century, the nonprofit sector has seen its professionalism and bureaucracy grow as rich donors and even the government have shown a far greater interest in using nonprofits as a means of carrying out their own ideological ends. What remains unclear is how independent nonprofits will remain and to what extent they will retain their origins of voluntary association.

Modern Nonprofits

The modern nonprofit sector is inextricably tied to the rise of modern philanthropy. In his 1889 essay, The Gospel of Wealth, steel tycoon, Andrew Carnegie argued that giving money away to charity was preferable to allowing ones heirs to inherit it, or for he money to be surrendered to the state, and in doing so would, “bind together the rich and poor in harmonious relationship.” (Carnegie, 1889, p. 58) However, he also argued against the direct transfer of money from the rich to the poor.

In bestowing charity, the main consideration should be to help those who will help themselves … Neither the individual, nor the race is improved by alms giving... The rich man is thus almost restricted to following the examples of Peter Cooper… and others, who know that the best means of benefiting a community is to place within its reach the ladders upon which the aspiring may rise... (Carnegie, 1889, p. 60-61)

Carnegie's assertion was that it is better to give the masses the tools by which they could gain skills to acquire wealth, rather than a simple transfer of resources from the rich to the poor. His establishment of libraries across the country is testament to this notion. By giving the poor the means to become educated, they will use their new knowledge to engage in activities which improve their lot in life. This attitude was emulated by many of the so-called Robber Barons, such as John D. Rockefeller and their successors into the early 20^th Century. (Hall, P., 2010)

Interestingly, despite Carnegie's reticence to handing his vast fortune over to the state, the types of organizations he was most known for funding, libraries, have since become the province of government. Indeed, many of the New Deal programs created in the 1930's during the Great Depression, not only provided a safety net, but funded many of the types of programs – arts, parks, education, etc. (Carnegie, 2012, p. 61) – that Carnegie advocated for. From the 1930's through the 1980's the public attitude towards the government's involvement in everyday life softened and many social services that had largely been privately funded such as elder care, healthcare, and university education, saw their work greatly expanded through the public sector, as well. (Hall, P., 2010)

In contrast, the Reagan Revolution beginning in 1980, and continuing even into the present, often with great political controversy, aimed to cut federal programs (Salamon, L., 2010). Despite the rhetoric of cutting government to spur private sector growth and create private wealth, the demand for social services did not go away. Indeed, the lack of safety net made many workers too unstable to hold permanent employment, and acted as an economic drag. As a way to cut government spending, while still making an effort to provide services, much of the funding for services was shifted away from directly funding government agencies, and towards block grants to states, and consumer subsidies to increase competition amongst service providers. The nonprofit sector sucked up many of these newly available funds and expanded dramatically over this period. Professionalism also increased due to the strings attached to government funding, combined with comparatively low tax rates. From 1985 to 2004 giving to nonprofits increased by 107% in inflation adjusted dollars (Arnsberger, Ludlum, Riley & Stanton, 2012). However, as government budgets continue to shrink and private donations have failed to keep pace with demand for services, many nonprofits have turned to fee for service models, selling new products, and even turning to for-profit models in order to continue to provide services (Salamon, L., 2010).

Going Forward

The primary challenge for the nonprofit sector going forward is going to be deciding whether the earned income model is viable for carrying out services consistent with their mission. While private donations from both foundations and individuals have rebounded from 2008 financial collapse, it has failed to keep pace with the demand for services. As nonprofits turn to fees as an income stream, people who may need those services are priced out of the market. Fortunately, new revenue models, such as social enterprise, crowdfunding, and mission related marketing, offer a way to use the private marketplace to generate funds. On the other hand, relying on a direct corporate tie for funding may hamstring the missions of nonprofits as their corporate backers put strings on their contributions in order to continue to maximize their profits (Belk, 2013). The other option, where nonprofits spin-off their own for profit enterprises, seems more promising. In this way the nonprofit has oversight over the business operations, instead of the other way around. Figuring out a balance for the tax implications of these new vehicles will be important work to prevent undue private inurement.

The second major challenge in the sector gets more at the heart of what kind of work nonprofits should actually do. Carnegie's “hand up” philosophy has dominated the nonprofit sector for the last century. However, recent research and experiments within the nonprofit sector show that this is actually an inefficient way to promote success in work and society and perhaps Karl Marx had it right when he said, “Since the working-class lives from hand to mouth, it buys as long as it has the means to buy.” (p.449) Meaning that if you give the poor resources, they will put them to use. For example, by simply giving people housing, as opposed to putting strings on vouchers for housing, the recipients of what is essentially a wealth transfer are more likely not to relapse into homelessness, to find work, and to become stable. This is also a much cheaper model, as the administrative cost of compliance is vastly reduced.(Utah, 2013). The same applies to other transfer programs, such as food stamps and most especially in healthcare, where countries who have single-payer or other universal systems deliver, by any objective measure, drastically better results at a lower cost than our system in the United States. These services are, perhaps obviously, most efficiently provided by government. When doing a direct transfer, there's little need for the middleman in the nonprofit sector, and extracting wealth from the rich is most efficiently done through taxation.

What we as a country and even a planet must decide is how much we are willing to trust our governments to deliver these services. A democratic government is, after all, the most basic form of voluntary association. On the other hand, governing a large population is difficult, and more difficult is keeping the people connected to democratic institutions. Additionally, it's not to say that the “hand up” endeavors will go away. The demand for the arts, education, job training, etc. continues to be high. Indeed, wherever there is a subset of the population who believes they have a better or unique way to deliver a product or service that is for the benefit of society, the nonprofit sector will continue to thrive.

REFERENCES

De Tocqueville, A (1835) Democracy In America (Unknown, Trans.) Retrieved from http://ereserve.me trostate.edu

Carnegie, A. (1889). The Gospel of Wealth. In J. Ott & L. Dicke (Ed.) Nonprofit Leadership and

Management (2^nd ed.) (pp. 58-62). Philadelphia: Westview Press

Hall, P. (2010). Historical Perspectives On Nonprofit Organizations In the United States. In D. Renz

(Ed.) Nonprofit Leadership and Management (3^rd ed.) (pp. 3-41). San Francisco: Jossey-Bass.

Salamon, L. (2010). The Changing Context of Nonprofit Leadership and Management. In D. Renz (Ed.) Nonprofit Leadership and Management (3^rd ed.) (pp. 77-100). San Francisco: Jossey-Bass.

Arnsberger, P., Ludlum, M., Riley, M. & Stanton, M. (2008) A History of the Tax-Exempt Sector: An SOI Perspective. In J. Ott & L. Dicke (Ed.) Nonprofit Leadership and Management (2^nd ed.) (pp. 125-140). Philadelphia: Westview Press

Belk, J. (2013) As corporate giving bounces back, six things nonprofits need to know. Retrieved from http://www.philanthropyjournal.org

Utah Housing and Community Development Division, State Community Services Office (2013). Comprehensive Report on Homelessness. Retrieved from http://jobs.utah.gov/housing/scso/ documents/homelessness2013.pdf

Marx, K., (1885) Capital, Volume II (Untermann, E. Trans.) Chicago: Charles H. Kerr. Retrieved from http://oll.libertyfund.org/titles/966