BUSINESS POLICY

CHAPTER 8:

NOT FOR PROFIT AND GOVERNMENTAL ORGANIZATIONS

An organization that provides some service or goods with no intention of earning a profit. NFP includes Private nonprofit corporations (such as hospitals, institutes, private colleges, and organized charities) as well as Public governmental units/agencies (such as welfare departments, prisons and state universities)

Types of Not-for-Profit Organization

Importance of Revenue Source

NFPs are dependant on dues, assessments or donations for their revenue sources.
In NFP organizations there is likely to be a very different sort of relationship between the organizations providing and the person receiving the service. Because the recipient of the service typically does not pay the entire cost of the service, outside sponsors are required.

Pattern of Influence on Strategic Decision Making Pattern of influence is derived from its source of revenues. Those who fund the NFP are likely to have significant influence on its operations

Usefulness of Strategic Management and Techniques

Some strategic management concepts can be equally applied to business and not for profit organizations whereas others cannot. The concept of competitive advantage is less useful to the typical not-for-profit organizations than the related concept of Institutional advantage. A NFP organization is said to have institutional advantage when it performs its tasks more effectively than other comparable organizations.

Portfolio analysis may be more difficult to apply to NFPs. Situation (SWOT) analysis; mission statements, stakeholder analysis, and corporate governance are all relevant to the strategic assessment of NFPs as they are to a profit making organizations

Strategic management is difficult to apply where the output of an NFP is difficult to measure. Thus it is very likely that most of the NFPs have not used strategic management because its concepts, techniques and prescription does not lend themselves to situations where sponsors, rather than the market place determine the value. However the situation is changing nowadays

Impact of Constraints on strategic management

Several characteristics peculiar to the not for profit organisation constrain its behavior and affects it strategic management. The constraints are as follows:

 Service is often intangible/hard to measure Client influence may be weak

Strong employee commitments to professions

Resource contributors intrude on internal

management Restraints on use of rewards and punishment

Impact on Strategy Formulation

1.Impact on Strategy Formulation

2. An integrated planning process tends to shift from results to resources 3. Ambiguous objectives create opportunities for internal politics and goal displacement 4. Professionalization simplifies detailed planning but adds rigidity 5. Decentralization is complicated 6. Increased requirement for an environmental buffer role 7. Job enlargement and executive development can be restrained by professionalism 8. Rewards & penalties have little or no relation to performance 9. Inputs rather than outputs are heavily controlled

Popular Not for Profit Strategies

1.Strategic piggybacking:
Strategic piggybacking refers to he development of a new activity for the not-for-profit organization that would generate funds needed to make up the difference between revenues and expenses. Its purpose is to help subsidize the primary service programs. It appears to be a form of concentric diversification but it is engaged in only for its money generating value

2.Mergers:

Merging with an organization with a similar mission can help to reduce administration costs

3.Strategic alliances

Developing cooperative with other NFPs. This will enhance their capacity to serve clients or to acquire resources while enabling them to keep their identity