Management


Upon joining the non-profit sector, a number of people opined to me that they are happy I’ve decided to dedicate my time and effort towards strengthening the sector’s work. In fact, one of the sound bites I kept hearing is that non-profits – despite their inability to sell equity (and thus raise money through either private investors or the larger public capital market) or the lack of an agreed upon “profit” metric for measuring organizational success – need to behave more like for-profit businesses. So, listen up my fellow non-profit professionals, I’m going to impart some words of wisdom I learned from my days working in the for-profit world (at institutions such as Freddie Mac, UBS Investment Bank, and others).

We need larger pay packages to attract and retain qualified professionals. In order to create the type of fast thinking, innovative companies such as AIG, Bear Stearns, Enron, Tyco and others, we need to increase our compensation packages. Currently, this kind of fast-thinking/innovative executive talent retails for approximately $10.5 million, or roughly 344 times the average worker’s salary ($30,700). Since the average executive director of Southwestern Pennsylvania only makes a mere $96,110, or 3.6 times the average worker’s salary – that’s a lot of innovation we’re leaving on the table! Lesson #1: if we are to attract for-profit executive talent then we must start paying our non-profit executive directors better.

Ignore sustainability and adopt a “do whatever it takes” attitude to exceed your short-term goals. We in the nonprofit sector spend far too much time talking about creating sustainable programs and achieving long-term outcomes. Instead, we need to adopt a more market-centric view of the world, just as for-profit businesses have to when their performance is measured by the market. Take General Motors, for instance. In the late 1990s and well into the first decade of the 21st Century, GM ignored suggestions that the company should rethink its focus on the sale of light trucks and SUVs and instead become a pioneer in the production of fuel-efficient (sustainable) automobiles. However, GM’s short-term focus on becoming the premier seller of light trucks and SUV (its most profitable product line) seemed to be paying off:

In 2002, GM sold more than 8.5 million cars and trucks and was the first auto manufacturer to sell 1.2 million SUVs and 2.7 million trucks in a calendar year. The company set industry sales records in the United States and owned nearly 15 percent of the global vehicle market. And investors took notice – the company’s stock rose approximately 45% over the next year.

Of course, you know the rest of the story by now – fuel prices rose and consumers grew tired of paying for non-fuel efficient vehicles. GM was stuck with a bunch of cars and trucks (mostly trucks) that they tried to “give away” with 0% financing and large rebates – again, focusing on exceeding the company’s short-term sales numbers even at the expense of hurting long-term profit margins – but nobody wanted them. Lesson #2: for-profits rarely practice sustainable planning so why should your organization.

The market rewarded GM's banner 2002 year with stellar market returns in '03. Nevertheless, GM's lack of a sustainable business model finally forced the company into bankruptcy in '09.

Transform your board. Nonprofit executive directors, not only are you egregiously underpaid relative to your for-profit brethren, but also you need to hold more board power. This year’s Nobel Memorial Prize in Economics winner, Oliver Williamson, in a recent article, “Corporate Boards of Directors: In Principle and in Practice,” submits that today’s corporate boards are largely ruled by the CEO and are passive financial stewards. He writes:

The CEO is in de facto control of the operation and composition of the board…most boards most of the time are responding with nodding approval, and boards are beset by inertia, hence are slow to become active when the corporation experiences adversity” (260).

In hindsight, we’ve spent far too much time espousing the idea that nonprofit boards need to be active and chart the agency’s strategy, raise money, etc. After all, when is the last time you heard of a corporate board functioning this way? No, on a corporate board the CEO/Chairperson sets the agenda and the remaining board members are asked to “nod in approval.” Lesson #3: we need to retrain our board members to be passive financial stewards and centralize all power with the executive director (and newly appointed chairperson).

As you read these “lessons,” I hope it is apparent by now that there is an awful lot each sector – the for-profit and non-profit – can stand to learn from one another. I think the three lessons above illustrate areas the for-profit sector should take a cue from the nonprofit sector and consider adopting these practices. Conversely, there are a number of for-profit practices – strategic planning, capital budgeting, using data to inform evaluative programmatic judgments and more – that I believe are beneficial for nonprofits to adopt. However, to think that either sector has a monopoly on best practices is just over simplistic and flawed logic. As Jim Collins’ writes in his monograph Good to Great and the Social Sectors, “We need to reject the naïve imposition of the ‘language of business’ on the social sectors, and instead jointly embrace a language of greatness” (2). Touché, Jim.

Every year thousands of executives and senior level managers spend millions of dollars trying to answer the question: how do I better run my organization? To accommodate this demand, a plethora of management books, tools, workshops, and lecture circuits are annually launched. Fortunately, every so often, a management book is written that presents a novel approach or unique solution – and Matthew May’s In Pursuit of Elegance is one such book.

While May’s book focuses on the creative process of crafting “elegant” solutions, yet another salient idea that surfaces from the novel is what he calls the “Law of Subtraction.” The Law of Subtraction says that an organization should seek to continuously improve the quality, cost, and delivery speed of its product/service (value-adding).

Summoning the lessons from his nearly ten years of work experience with the Toyota Motor Corporation, May suggest that well run organizations (value-adding) do this by focusing on eliminating to the best of their abilities the things that hurt quality, raise costs, and slow things down. To repeat: great organizations achieve their goal of continuous improvement by eliminating the things that negatively impact quality, costs, and time.

A simple case study will illustrate this point: Fortune magazine in March 2008 named Apple “America’s Most Admired Company,” as well as “Most Admired for Innovation,” honors stemming from the launch of its hugely successful iPhone. However, this market-changing innovation occurred as a result of Apple’s stop-doing strategy – or its implementation of the Law of Subtraction. As CEO Steve Jobs put it:

“We tend to focus much more. People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of many of the things we haven’t done as the things we have done.”

In practice, the Law of Subtraction suggests that your organization’s leadership team carefully define what mission-related product/service it excels at delivering and then begin the process of allocating resources in a “subtractive” manner. In the case of May’s old employer, Toyota, this approach (called the practice of Kaizen) decreased employee stress levels; led to higher and more consistent job performance; and reduced the wasteful use of organizational resources.

As you begin to think about your own nonprofit organization, and how the Law of Subtraction might apply, start by asking a classic Peter Drucker question: If you weren’t already in a particular program, would you start it today? If the answer is no, May’s Law of Subtraction suggest you may have found a jumping-off point.

I was supposed to do a blog post yesterday and I missed my target.  But…I have a very good excuse.

All this week, the Bayer Center is hosting The Grantsmanship Center’s Training Program.  I am attending and it is awesome!  I am learning so much about grants and the search/proposal process.  Development is certainly an art form!

The trainer from TGC is excellent as well.  She very obviously has years of experience in development and proposal writing and shares her knowledge as well as lots of real world examples and stories.  Today we start working in groups and will produce a full-fledged proposal by 1:30 tomorrow afternoon!

If anyone wants to learn more about this workshop, here’s the link to the information for it on TGC’s website: http://www.tgci.com/gtptraining.shtml.

I have the blessing of going through a kitchen renovation right now.  I have to wash dishes in the slop sink in the basement, and microwave food on the window seat in my entry way.  I have to search for 10 minutes just to find my salt.   I have to wade through boxes of kitchen stuff in the guest room just to get a book off the bookshelf. 

 And… I had to empty my junk closet to let the contractors re-route a heating duct.  I’ve lived in my house 9 years and have added 3 children over those years.  So there was a lot of opportunity to stuff it full.  As I emptied it, I was embarassed to see what I had been “saving” for that perfect moment.  I had saved a ripped inexpensive raincoat that I thought I might need if I went caving again; the bridesmaid dress from my sister’s wedding that I would never wear again.  Throwing things out or putting them in a giveaway bin was painful, but once I got started, it was freeing.

This afternoon, I also met with a leader of an organization going through a strategic planning process.  We talked about the SWOT analysis and a MacMillan Matrix–a process to determine which programs fit the mission, have opportunity to grow (what needs to be done, and has funding to get done), what his organization already does well, and if there is passion or energy to get it done.  It gives him an opportunity to ask his board and community leaders–what is most important to them, and what is worth investing in.

I realize that although there isn’t much of a silver lining to these economic trials that families and nonprofits are going through, there is an opportunity.  It gives us the “pain” needed to make difficult decisions–to get rid of the less needed/past their prime/not working very well programs that a nonprofit may have. A chance to realize that your resources could be spent better in other ways. 

In the end, I will have a renovated kitchen. But an unintended benefit will be the newly organized,  half-empty closet– full of opportunity.

That was then, this is now.

I just finished reading a fascinating, revelatory book by Clay Shirky called Here Comes Everybody.   shirkyIt’s about the radical changes in this brave new world we’re inhabiting when it comes to things like communications, organizing, publication…

We all know it’s going on.  From texting to blogging to Facebook to tweeting, everything’s different from the way it was last century, last year, heck, almost last week.

For old folks like me, we know Web 2.0 is out there, we may even use some of the tools, but we don’t really “get it.”  In fact, to some extent, we never will.  For example, at my house we have grad students living next door to us.  My wife and I have been stunned by how unfriendly they are when we pass in our back yards.  But our son explained to us that they’re not being rude, they just don’t interact with people that way – the way that we do.  They do it through technology.  Our son understands this because he’s 21.  And, at 21, he already feels a gap between himself and high school students!

The world is a very different place.  Mass amateurization and collective wisdom (notice that the link I inserted above for explaining Web 2.0 goes to Wikipedia, a poster child for these changes) are replacing dedicated, authoritative (also, sometimes, authoritarian) sources for news.  We are relying on the self-correcting collaboration of the masses for the dissemination of knowledge.  And the centuries-old model of filter (e.g., evaluate for accuracy, relevancy, etc.) first and then publish has been turned on its head as the Web has become a medium in which we publish first then let external forces filter the information after the fact.

But back to Twitter.  Who cares that you just left the coffee shop, or you’re going to get a haircut this afternoon, or you’re telling a snarky little in-joke that I don’t understand?  I certainly don’t.  But that’s just the point.  I’m not supposed to.  Those of us who don’t “get it” see all this as public communication.  But it’s not.  It’s just chatter among friends, across cyberspace instead of across a table, but not intended for those outside the small circle.  And once you understand that – once you realize that even though this overwhelming barrage of messages is out there for all the world to see, they’re only meant for an infinitesimal, carefully selected group of people to actually look at – this whole thing starts to make sense as a way for a new generation to communicate.  Those of us from the old school have been confused by thinking the medium is the message, but it’s not.  The message is the message.

And this is just the insignificant beginning.  Twitter is saving people who are unjustly imprisoned.  Twitter is leading to election protests that stress entire governments.  Twitter and the new organizing and communications power of Web 2.0 are changing the very framework of how society functions.

bandwagon Don’t underestimate this, and don’t forget it.  If you want your nonprofit to be meaningful in the future, Web 2.0 is one bandwagon (remember those? – I don’t!) you’d better figure out how to get on.

When I was thinking about some of our nonprofit clients recently, it led me to muse yet again about Heisenberg’s uncertainty principle225px-Bundesarchiv_Bild183-R57262,_Werner_HeisenbergI mean, doesn’t everyone ponder subatomic particles when they think about nonprofits?  Or is it just me?

Anyway, Heisenberg’s uncertainty principle is one of the core tenets of quantum physics.  Most simply, what it tells us is that you can’t know both the precise location and the precise velocity of a particle at the same time.  You can know one; you can know the other.  But you can’t know both.  So I ask you, are you letting the principles of quantum physics get in the way of your organization?

Do you know your precise location and your precise velocity?  Too many nonprofits subscribe to the uncertainty principle and just know one or the other – they know where they are, but they’re not sure where they’re going, or else, they have a definite destination in mind, but they don’t really know where they’re starting from.

In the first case, they might monitor their activities in great detail day to day.  They may thoroughly understand who they serve, how they serve them, and what it costs them to do that.  But if they haven’t taken the time to look externally and really figure out how the world is changing and where they need/want to be in three years, they’re merely adrift on the wings of uncertainty.  They know where they are, but not where they’re going.

On the other hand, some organizations have a strong vision in mind.  Their goal is clear, they know what they want to accomplish, and they think they see a path to getting there.  But they haven’t bothered to look at where they are right now.  What is each program costing?  How does the Board assess its own performance?  Why is turnover 150%?  They’re hurtling into the future on a spaceship whose engine is fueled by uncertainty.

The good newsparticles is that quantum physics only applies (so far as we know) to the microscopic world of muons, leptons, and tauon neutrinos.  So, since you’re a bit bigger than they are, you actually can know where you are and where you’re going.  And if you want to be a strategic nonprofit, you must. Knowing both your location and velocity (i.e., assessment and vision) is the key to making sure that your nonprofit survives and thrives to fulfill its mission.

Now, as for the famous quantum physics puzzle of Schrodinger’s Cat cat2and the notion that it’s both alive and dead until you look at it, I haven’t figured out yet how to relate that paradox to nonprofits….

Maybe next week.

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