How revenue streams shape the cultures of for-profit, nonprofit, and government organizations
When we look beyond an organization’s IRS nonprofit status as reported on its IRS Form 990, many of the distinctions between for profit and Nonprofit corporations become operationally meaningless. As Peter Drucker states: “The differences between running a chain of retail stores and running a Roman Catholic diocese are surprisingly minor than retail executives or bishops realize. The differences lie primarily in application rather than principle.” “. Many of the timeless principles that produce sustained financial and nonfinancial performance in high-performing for-profit companies can also be applied to nonprofit corporations, as described by Collins in his monograph, Good to Excellent and the Social Sectors. In fact, contrary to what is taught in many business schools, recent studies such as that of Collins and Porras Good to excellent they have shown that profit and wealth are neither the driving force nor the primary goal of truly visionary for-profit enterprises. Rather, for-profit businesses have a larger purpose in life, and this purpose becomes the focal point on the business horizon, guiding every decision they make. Revenue generation becomes a means to an end for truly visionary for-profit companies, not an end in itself.
There are two types of nonprofits that powerfully shape and define an organization’s culture based on how they generate the majority of their revenue. This includes:
- Type 1 non-profit
- Type 2 non-profit organizations.
While Type 1 nonprofits may generate some of their financial resources through donations, fundraising, membership dues, and gifts from donors, most of their income comes from providing products and services to clients and work done for funding agencies and grantee organizations; for example, the results of clinical trials, applied R&D, basic research or the development of new technologies. Operationally, they function much like their for-profit counterparts: They have standard business and work processes, proposal writing functions, marketing and sales objectives, suppliers, inventory, customers or customers to satisfy, and competitors in both the non-profit sector as in the For- profit arenas. Examples of Type 1 nonprofit organizations include: hospitals, medical clinics, nursing homes, agricultural organizations, retail operations (Goodwill has more than 1,900 stores), some contract research organizations, research institutes that conduct I +D applied and educational organizations.
While Type 2 nonprofits may generate some of their financial resources by providing products and services to people outside their organization, the majority of their income comes from grants, awards, funding agencies, endowments, fundraising , membership dues, and gifts from donors Operationally and culturally, these organizations are more complex than their for-profit counterparts and function very differently. For example, instead of clients or customers in the traditional sense of the words, Type 2 non-profit organizations serve two main groups: a) the needs of the public and society in general, academia and the promotion of arts and sciences as a legacy for future generations, and b) the demands of funding agencies, grantors, patrons, members, and donors for fiscal and programmatic responsibility. Ultimate responsibility for compliance with federal, state, and local requirements, public relations, fundraising, and overall fiscal and program effectiveness and management rests with the Type 2 institution and/or a Board of Directors. Institution administrative staff use standard business and work processes to support a scientific, technical or craft staff who often have joint appointments with other collaborating institutes or universities, so that the people who produce the core contribution to the purpose and strategic objectives of the Type 2 organization may not be full-time employees of that institution. Examples of Type 2 nonprofit organizations include: a) institutes and universities that conduct research in the physical, biological, ecological, political, social, and computer sciences, b) organizations that distribute food and medical care to those in need, and c) museums, art institutes and music schools that create and sustain artistic expression and culture.
Revenue for most government organizations at the federal, state, county, and municipal levels comes from appropriations made by legislative bodies (such as the US Congress), and this appropriate revenue stream powerfully shapes and defines culture. of government organizations. This is because the basis for increasing or decreasing the revenue from earmarked funds is largely based on political issues, not the actual performance of the government organization. One of the best ways to characterize these differences is to compare the key elements that drive for-profit companies in the industry with government entities. More specifically, there are four drivers in for-profit organizations: a) business results, b) customer satisfaction, c) performance consequences (good and bad), and d) the leadership and management required to enact and energize the former. three. Like the wind in the sails of a ship, business results and customer satisfaction are the driving forces that link for-profit companies to the business environment outside the organization. Performance consequences are the indispensable drivers that allow managers to monitor daily operations within the context of organizational structures, systems, and culture. Consequences are the equivalent of accountability and authority.
Field experience working with government organizations down to the undersecretary level has shown that there are no real equivalents to business results, customer satisfaction, and the consequences of performance (good or bad) in most government agencies. The notable exception is “hybrid” organizations that receive a portion of their revenue from providing products and services to customers. For example, in industry, if a company is not profitable, it closes. In government agencies, organizations and projects sometimes continue to exist long after their purpose is questionable, often for political reasons. In industry, customer satisfaction is a bulwark of business results and process improvement. If customers are dissatisfied, they shop elsewhere, the company’s profits decline, and eventually the company goes out of business. In many government agencies, managers and staff members have endless debates about whether they have customers other than the ephemeral “taxpayer” or the “unborn future generations.” In industry, if a worker’s performance is exemplary, he is rewarded, and if the performance is inadequate, the company can fire him. There are consequences to performance, good and bad. In most government agencies, the difference between the raises and rewards given to high performers and those given to low performers is typically a few dollars a month. An unwritten cultural norm in many government agencies is that it is inappropriate for managers to give marginal ratings for fear that even the most incompetent workers will be retaliated by filing complaints against a manager who dares to tell the truth about his performance level. . More importantly, even the remaining industry-type leadership and management driver is undermined when top managers cannot openly demonstrate that there are performance consequences because the system in which they are embedded fails to provide them with responsibility and authority.
Testers should note that in the absence of revenue streams that are tied to an organization’s actual performance, the currency that “trades” in government organizations is power through visibility. In other words, if a government organization or manager is involved in an “initiative” or “program” that is well received by agency leaders, the media, or the public; this creates the currency of positive visibility. Whether the organization or manager is associated with actions and interactions frowned upon by agency leaders, the media, or the public; this creates the currency of negative visibility. As a general rule, all sectors of government are under increasing pressure to demonstrate the applicability and value-added results of their services to meet public needs, and this scrutiny generates positive or negative visibility. But when an organizational unit within a government entity is responsible for the active enforcement of laws and regulations, its purpose, strategic objectives, goals, and daily interaction with the public are often subject to more intense scrutiny from the public and the media. . therefore, the problems associated with power through visibility are more intense because these groups function more like actual customers. Government entities are also under constant pressure to prove that their operations are efficient and that they are using publicly generated funds responsibly, despite the absence of the four aforementioned drivers, adding to the importance of creating the visibility coin. positive. The unspoken, unexamined, and taken-for-granted currency of power through visibility is one of the most powerful forces in the world of government entities, and it is important to recognize this reality and actively manage it through key performance indicators. .
Tea bottom line when it comes to creating an Intended Culture™ in for-profit, non-profit and/or government organizations is to focus on their revenue streams and governance structures. Obtain a clear understanding of: a) the nature, feasibility and sustainability of an organization’s revenue and financing streams; b) the expectations and pressures exerted on the organization by customers, competitors, suppliers, regulators, taxpayers and other forces in the external environment; and c) the nature of your governance structure are key elements in creating an Intentional Culture™.