Do Nonprofits Dream of Electric Sheep?

The grass is always greener. We all wish we were something we’re not. I wish I were younger, perhaps better looking and less of a romantic, too. Mail room clerks dream of being CEO’s and CEO’s dream of working in the mail room. “We are such stuff as dreams are made on.”*

I often hear that nonprofits should act more like for-profits. It’s a perennial lament — that wish for the “discipline of the market.” And, every time I hear it, I have to stop myself from blurting out “be careful what you wish for.” That discipline is not all it’s cracked up to be.

From my perspective, usually the lament is from a techie that feels that “technology is underutilized” or “the role of technology is not properly understood” or “properly appreciated” or some such within their organization. It’s followed by the thought that if only nonprofits were more like businesses, well then, naturally, there would be more appreciation of the integral role of technology, the power of the internet, etc. It’s revolutionized business in the space of a few short years, after all. “If only”… then all would be right with the world.

The argument: If only non-profits were more like for-profits, then the invisible hand would guide investments, shape management decisions, and generally improve things all around. The hidden message is, of course, increasing investments in ICT would enable increased “return,” resulting in more appreciation of, and more investment in, ICT; a perfect feedback loop. It would make Adam Smith proud.

Whenever I hear it, I flashback to a (very) short consultancy I had many years ago. Then the litany then was that if only government were more like private business, everything would be right with the world.

To paint the backdrop, put The Clash’s “London Calling” on the turntable and tune your way-back machine to the early 80′s:

It’s the Reagan years, I’m new to DC, and hungry and pretty much unemployed (err… a consultant, I should say). So, I take a tertiary sort of gig — to do some work for some folks who were working for some other folks who were working on a project called “The Presidents Private Sector Initiative.” It was a big name, big project, and bigger bucks (not for me, however, I was way too far down the food chain).

The initiative was all about how “Business” (with a capital B) was better than “Government” (with a capital G) in doing just about Everything (with a capital E). It was all about Privatization (with a capital P).

The job was to do grunt-work research on how great it would be to privatize the military. I didn’t last long. I had the bad habit of saying that I thought it was about the stupidest idea I had ever heard. I kept pointing out that history was rife with examples of how mercenaries tended to be relatively, umm, “mercenary” in their approaches to things like loyalty, policy, goals, human rights, etc. Tongue in cheek, I went so far as to suggest that, instead, we consider creating the 21st century-version of Janissaries. As I said, I didn’t last too long.

I still think that privatizing the military was a pretty damn stupid idea. (And, it seems to me we’re learning that lesson again, right now. What’s the expression: Those who fail to learn the lessons of history are doomed to repeat it. History is a relentless unforgiving tutor.)

Then too, my vision at the time was tainted by reality. I had just left a rather large trade association, and had been doing work for businesses, large and small, for some time. From my experience, there was no way that government had the market cornered on idiocy. There were plenty of competitors in that space, businesses large and small.

I will say that, looking at the various consultants and management firms that were involved in that Reagan-era initiative, there was one clear example of the efficiency of private business: these folks were very efficiently taking gobs of money from the government; busy writing silly thought papers on how the military could be less hierarchical, and busy designing (I kid you not) new age-type uniforms. Less hierarchical?… Ok, I can get with a net-centric sort of management arrangement, flexible, autonomous field units and the like, but not if everyone is wearing soft pastels and carrying crystals. Crystals, ok, but these folks were going to look like South Beach on a Saturday night, in the 80′s. I shudder: soft pink and rounded shoulders, Miami Vice with an M16. The mind boggles.

Back to the present-future, I still find today’s lament about nonprofits peculiar. Moreover, I think it’s wrongheaded. It assumes things that are just incorrect. It seems to fundamentally misunderstand the nature and the economics of organizations, both for-profit and not-for-profit.

First off, not all for-profit businesses are driven solely by the bottom-line — faceless corporations, maybe — but not small to medium businesses; far from it. If they were, then most every restaurateur in the world would quit tomorrow. So too would half of the small-business owners, sole proprietorships, and the like. Successful restaurateurs, small business owners, sole proprietorships, they’re all driven by love of what they do, along with money.

Secondly, as I mentioned, business is not a towering example of modern technological efficiencies and sound decision making. Far from it, if that were true, well, then General Motors would be humming right along, we’d all be driving cars that got 100 miles to the gallon. You need only to look at the ranks of failures, from Enron to Worldcom. Business makes boneheaded decisions, decisions based on whimsy, greed, politics, and just plain stupidity.

Take Worldcom, for example. They’re gone now, so I can pick on them. I used to work with Worldcom. They were the largest collection of B-School bozos I had ever done business with. I couldn’t figure out why the market liked them so much. They couldn’t manage to send out an invoice, accurately and on time, to save their eternal souls. While they managed to make sales, they couldn’t come close to fulfilling their promises. Eventually the market agreed with me. The telephone business is still out to lunch, IMHO. They can manage to market and sell services, they just can’t manage to deliver them, or support them, or properly bill for them. If you need another example, just look at U.S. Airlines. They all appear to be in the bankruptcy business.

The truth is, only one in four new businesses survive more than four years. Most go bust because of simple things, like failure to track expenses, or send invoices, or the like.

Acting more like a for-profit business is not a panacea. It’s not the cure for bad management, or bad decision making; nor will the discipline of the market make a nonprofit CEO suddenly a better manager or strategic planner.

In a nut shell: the lament simply gives too much credence to the invisible hand, gives way too much credit to for-profit businesses, assuming they act at all rationally, and fails to truly understand how and why businesses operate or why they fail or succeed.

Worse, the lament fails to appreciate the underlying essence of what it means to be a nonprofit. The underlying essence of a nonprofit is dedication to mission. The goal is the mission. Money — wherever it comes from — is a means to that goal.

Just between you and me, I also find it ironic that we seem to be simultaneously wishing, hoping, and proxy-voting that business — big corporations — start to act more like nonprofits, all the while thinking we should act more like them! As I said, the grass is always greener.

Don’t get me wrong, the nonprofit sector needs to prize efficiency, good management, good planning, and good leadership. Sadly, there are few nonprofits that meet all those benchmarks. I’ve worked with too many that were pretty poorly managed, lacked any long-term thinking, and constantly made the mistakes that would (and should) put a business out of business. Nevertheless, market discipline alone is not the answer. Nonprofits should operate like nonprofits — be driven by mission.

All that said, it is equally true that the economic incentives and feedback mechanisms of a nonprofit are, for lack of a better word, perverse. This perversity is the crux of the issue. The problem is: mission success is not directly related to organization success. You can have substantial success at mission, and yet fail as an organization; conversely, you can fail at mission and yet continue to thrive as an organization. The simple economics are perverse, the feedback mechanisms, incomplete or irrelevant:

  • Better outcomes — regardless how you measure them — do not necessarily translate into increased funding.

Moreover the reverse is also true:

  • Increased funding does not necessarily translate into better outcomes.

What makes the difference, in my opinion — that thing that links mission to outcomes to funding to management — is long-term thinking, thinking beyond the next quarter to the next quarter century. It’s long term thinking that should drive strategic investments, in both people and technology. With long-term thinking, you get wise investments in tools and people.

Once you starting thinking long term, the rules change, management gets smarter, and decisions get clearer. Long term, the invisible hand gets just a little smarter. Outcomes, put in the perspective of years, instead of months, become clearer, easier to identify, and easier to measure. Part of what sets the nonprofit sector apart from the for-profit is its perspective, its focus on the long-term good over short-term profit.

In the end, in fact, rather than non-profits acting more like for-profits, I think the reverse. The for-profit world would be better off if it thought more like the non-profit; eschewing short-term gain in favor of long-term sustainability.  Once you think beyond the next quarter, to the next quarter century, clearly the common good is also good for the bottom line.

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7 comments to Do Nonprofits Dream of Electric Sheep?

  • ThomasT

    Thank you for this wonderful post. MSOs, funders, and individual nonprofits have been berating nonprofits for years for not acting like for-profits, when of course, the problem is that they’re not acting like efficient, well-managed businesses, regardless of their financial status. And there ARE well-managed businesses, both for-profit and nonprofit, whose best practices should be emulated.

    The new piece for me here is the paragraph that begins, “All that said, it is equally true that the economic incentives and feedback mechanisms of a nonprofit are, for lack of a better word, perverse.” The perversity of the feedback mechanisms is the key point here.

    It seems to me that what those who would like ill-managed nonprofits to behave more like for-profits actually want is for the nonprofit marketplace to behave more reliably like the idealized for-profit marketplace: those organizations that fail to meet mission would consequently lose funding and fail, while those who efficiently meet mission would receive more funding.

  • Gavin,

    As always, terrific post! I love this point you make:

    “Outcomes, put in the perspective of years, instead of months, become clearer, easier to identify, and easier to measure. Part of what sets the nonprofit sector apart from the for-profit is its perspective, its focus on the long-term good over short-term profit.”

    Then I remembered the reference
    http://beth.typepad.com/beths_blog/2006/12/the_answer_to_t.html

  • Gavin

    Hiya Beth,

    Well actually… if it’s the title you’re referring to, the reference is to a Philip K. Dick novel entitled “Do Androids Dream of Electric Sheep.” — You might know it better by the title used for the movie version: Bladerunner. Bladerunner, coincidently was released 25 years ago, this week.

    It was, I believe, the first vision of a future where there was actually trash on the streets.

    Regardless, thanks!

  • Robert Goldbach

    I don’t agree with the premise that long-term thinking is associated with nonprofits. The lament that I often hear (in my work as a consultant to nonprofits) is that the strictures of day-to-day survival often take priority over long-term perspectives. In effect, short-term thinking has become a universal problem, in the for-profit, nonprofit and public sectors.

  • Gavin

    Hiya Robert,

    Humm… I don’t mean to imply that nonprofits actually DO think long term, rather that they SHOULD…

    In fact, I agree totally with you that short-term-ism is endemic. And, I think it’s a real problem.

  • Gary Nickerson

    I like the post a lot and I think the main point is right-on target. However, I also think you miss the point of “market-oriented” economists (as do most conservertives). It’s not that each individual enterprises are efficient or don’t screw up, a la Worldcom. It is that the market has a mechanism for weeding the bad ones out when it works right. Of course, deep pockets can cause lots of market inefficiencies to keep the market from working right. So one argument is that markets don’t always work well and allow bad organizations (GM, Chrysler) to survive beyond their time. (Of course, perhaps we want GM & Chrysler to survive so that the workers aren’t totally thown into poverty.)

    The stronger arguement for non-profits, I think, lies in the area of public economics. Markets (1) don’t necessarily produce fair outcomes and (2) they ignore externalities, which are pervasive, including in areas of human capital.

  • [...] isn’t either. Although I’m not sure he has his parallel structures within his title, in Do Nonprofits Dream of Electric Sheep?, he dissects that convention with his characteristic wit. He explores the sectors from a systems [...]

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