Similarities and Differences in Strategy: NonProfits vs. Businesses

a strategic planning seminar UPAAA and UPAAAz sponsored

 

Strategy is a plan of action for achieving an overall aim. An obvious example is how a good strategy is crucial to winning a war. So is winning in business. And it’s no different from achieving an association’s goals to serve a specific sector.

All organizations, non-profits, or business entities, require strategic planning. Their approaches, however, often differ due to fundamental differences, as illustrated below.

                                            NonProfits                Businesses

Primary Goal                  societal good                  profits

Revenues                         donations                         sales

                                         grants

                                         fees

Stakeholders                   donors                              shareholders

                                         beneficiaries                     employees

                                         volunteers                         customers

                                         community                       suppliers

Metrics                            social outcomes               financial performance

                                         sustainability                    market share

                                                                                  customer satisfaction

The strategic planning process is essentially the same between non-profits and businesses. Both organizations conduct SWOT analyses to identify strengths, weaknesses, opportunities, and threats.

The ability to analyze each of these four factors in depth determines the success of the planning process. I have participated in (and even led) some, and it has been amazing to see the strategy emerge clearly when those analyses are thorough.

However, before going through the SWOT analysis, we should consider the nuances in strategic planning between non-profits and businesses. Precisely because of these fundamental differences, there are factors to consider.

Primary Considerations.                                                                          

A non-profit must prioritize its reputation for ethical conduct. If a nonprofit becomes viewed as unethical, it will never survive as an organization working for some societal good. In other words, the nonprofit must focus on building social equity and, in doing so, further the sustainability of its mission.

A Board of Directors is crucial to this consideration (please see the previous article on "Governance vs. Management"). If the Board of Directors is identified as one of the weaknesses,  strengthening the Board is the primary step.

On the other hand, a business that loses its competitive advantage will soon be wiped out from the market. That is why some for-profit organizations do not emphasize building social equity or working for sustainability. Some may even state its aim of financial success only in the short term.

A business may also aim for long-term survival. In such a case, social equity and sustainability must also be primary considerations.

Mission, Vision, Values, and Goals

 Non-profits emphasize goals that achieve societal or environmental good. In the UP Alumni Association in Arizona, for example, we strive to provide scholarships to deserving but disadvantaged UP students.

The other goal is for the members to enjoy themselves in the process. Thus, events that address both goals are prioritized. We have sponsored in-person Bingo and Other Games Socials before the pandemic, virtual ones during the lockdowns, a hybrid Mini-Conference on the Filipino, and in November this year, we organized a Fil-Am Gala Event.

Businesses prioritize financial success. In MegaLink, for example, our goal was to increase the transactions that go through the ATM switching facility we were operating. Our revenues came solely from the fees we charged for those transactions. Of course, we also had to control expenses.

Implementation and Evaluation

Since there are fundamental differences between both types of organizations, the metrics used to measure success are also different.

For example, the UP Alumni Association in America used to keep track of the number of members and scholarships. After our strategic planning exercise, we identified the creation of chapters as a key goal to find and serve more members, especially in underserved areas.

Both numbers, of members and chapters, will lead directly to more funds available for scholarships. The strategy to organize more chapters will deliver larger numbers faster.

Activities that engage more members are keys to our success. The biennial Grand Reunion and Convention is one major activity members always look forward to joining. But enjoyable charter activities closer to members’ homes would probably reach more members.

Businesses are focused on financials. MegaLink earns from switch transaction fees. The number of member banks, cardholders, and ATM locations was key to increasing that activity. To ensure growth, we focused on all three metrics.

In addition, to avoid attrition, employees and the representatives of the member banks had to feel like they belonged to one big happy family.  To this end, we designed active enjoyable committees, sponsored frequent well-attended socials, and organized joint foreign trips for technology advancement.

In conclusion, while the strategic planning process is similar for non-profits and businesses, the primary considerations, goals, and performance metrics differ. This is due to their fundamental differences as organizations. Understanding these differences will prove crucial for developing effective strategies. 

Governance vs. Management: Which Is More Important?

 

Governance and management are terms we use interchangeably, but they are different. Both are essential but they serve distinct purposes. Understanding the differences is necessary for leaders of organizations big or small, simple or complex, for-profit or nonprofit.

What Is Governance

Governance sets the framework for an organization. It means establishing its strategic direction and accountability structures. It involves:

1.  Planning strategically and defining the organization's mission, vision, values, and goals.

2. Ensuring that the organization operates ethically and legally by providing oversight.

3. Holding individuals and groups responsible for their actions.

4. Managing risks by identifying and mitigating potential risks to the organization.

Governance typically rests on a governing body like a board of directors. Even in small businesses, a group (formal or informal) of owner(s), investor(s), or adviser(s) must exercise governance. Each organization needs to operate responsibly and sustainably.

My first experience with a Board of Directors was with MegaLink. Composed of the CEOs of the banks in the consortium, they gave me one simple direction at the start: launch ahead of its rival consortium. After the successful launch, they guided me in making the consortium the largest in the country with 32 member banks.

For about an hour every month, I had to report on the progress and answer questions from these highly experienced bank CEOs. One of the most memorable meetings was when they scrutinized my recommendation to launch despite some bugs in the system. I argued that no system ever reaches perfection. They grilled me about my plans to mitigate risks. In the end, they agreed with me.

Running MegaLInk with that Board became one of the best experiences of my career. They inspired me to aim for growth but grounded me in my actions. I looked forward to every Board meeting and I learned so much. They were a whole bunch of welcoming father figures.

What Is Management

On the other hand, management involves the day-to-day execution of the organization's strategy. It involves:

1. Developing and implementing plans to achieve organizational goals.

2. Structuring the organization and assigning tasks.

3. Motivating and inspiring team members to achieve their best.

4. Monitoring performance and taking corrective action as needed.

Management usually rests on the shoulders of executive leaders and teams. They must have planning, organizing, leadership, and controlling skills. The required management level depends on the organization's size and complexity.

My first management job was in I/ACT. As a young inexperienced marketing manager, I was thrilled to hire three people to help me. And what good people I found! Working alongside the operations team, we moved I/ACT to be the leader in computer education.

Contrast this with my stint as Deputy Commissioner of the BIR where I led a thousand people in the IT group. Three people directly reported to me: two Assistant Commissioners and a Chief of Staff. But I had relationships with the next level of management called Directors and the two groups of consultants for hardware and software.

At the same time, I had to engage with the Commissioner and the three other Deputy Commissioners, and the next levels below them.  Because of the massive change we were implementing, I also had to reach over a hundred Revenue District Offices under several Regional Centers around the country. In addition, we had to set up seven new Regional Data Centers to manage the new system.

It was a complex organizational structure to steer over ten thousand employees. I was glad I had enough management experience to handle the huge challenges a large organization presents.  

Which is More Important?

The nonprofit sector differs from the private sector (for-profit businesses) and the public sector (government agencies).  While I worked, I had my first experience in this sector in professional associations. Now that I am retired, I am even more involved in alumni associations.

Although they differ in purpose, stakeholders, and legal structure, the nonprofit sector benefits as much from governance and management to ensure long-term success as the public and private sectors. They are equally important in the latter two and become more involved as the organization becomes more complex. However, governance is of a higher priority in non-profit organizations. 

They can survive without a dedicated management team but a good governing board is essential. Their stakeholders usually involve many volunteers in large geographical areas and demographic sectors. A good governing body must speak for all these diverse loosely held members.  

Governance takes precedence because of the need for: 

1.    The continuing alignment of mission and vision to focus on social impacts and prevent mission drift.

2.    The consistent oversight of ethical guidelines for maintaining accountability and transparency and eliminating conflicts of interest.

3.    The constant shaping of future and long-term trajectories.

4.    The regular oversight of fiduciary responsibilities for monies involved.

5.    The growing requirement to build public trust and ensure proper representation.

In the associations where I have been a part, I can cite three key instances when governance was more important than management:

1. In the UPAA in America (please see headline photo) fundraising campaigns, the Board became more important in securing major donations to build its endowment fund due to their connections and credibility.

2. When responding to a crisis at the UPAA in America, the Board used its experience to make difficult decisions and deliver delicate messages to the respondent and the membership.

3. At the Philippine Computer Society, the Board used its influence to advocate for elevating the role of IT in the nation’s progress. As President, I was invited to speak alongside President Fidel Ramos at the National IT Summit in Malacanang. That was the start of the road towards a cabinet position for IT.

Management can rest on a small staff led by an executive director, active key volunteer working committees, or a combination of both. However, an engaged Board of Directors is of utmost strategic  importance in nonprofit organizations.

The experience, influence, and credibility of the Board of Directors will enable the organization to focus on its mission, provide ethical oversight, and safeguard the public interest. Doing so consistently will allow it to use its strategic direction to grow.

How Should You Lead: From the Front, Behind, or Alongside?

the BIR Management Committee under CIR Liway Chato

 
The UP Alumni Association recently gave me a Distinguished Alumnus Award for “Leadership in IT Development (Public and Private).”  That has inspired me to write about governance and management. I have written about travel and leisure, retirement and renewal, and health and longevity.

Let me start to write about leadership in this new category. The three directional phrases represent differing leadership styles. Leading from the front is directive, behind, delegative, and alongside, participative. To illustrate each, I use examples from my stints in different organizations.    

Leading from the Front

Directive leadership rests on a leader who provides clear directions, makes strong decisions, and communicates openly. Think of a military commander, leading his troops into battle. Not being clear may prove disastrous.

It may be less obvious, but the same thing is true in startups like  Megalink, the consortium of banks that first enabled members to share ATMs. AS GM, the Board gave me one goal: to launch ahead of BancNet, a rival consortium.

Since there were no such existing switches in the Philippines, I had to go to countries that had already succeeded in doing so. Their examples gave me enough information to lead from the front.

When we were ready, I presented a risk analysis to the Board. The system was not perfect, but no system ever does. I felt the risks were minimal and I included ways to mitigate them. They agreed with me. We launched ahead of BancNet.

Later we also became the largest consortium at 32 member banks.   

Leading from Behind

Delegative leadership requires that a leader empower people to take ownership and responsibility for their work. He/she acts as a mentor, coach, or facilitator. 

This type of leadership is best suited in industries that depend on its people’s talent, creativity, and innovation. Organizations in advertising, design, or product development are examples. 

I came closest to using this style as MD in SAP Philippines when we were introducing the end-to-end German ERP software in the country. The groundbreaking product had successfully powered leading companies elsewhere in the world.

The salespersons in the Sales Team have individual styles in covering territory and convincing organizations within it to make his/her quota. I was ready to help open doors, establish CEO-CEO relationships, and provide support and guidance when they asked.

It was even more so for the Technical Support Team. I did not come from the technical ranks, but I assured them of the technical resources. I discovered they needed moral support more, especially in managing conflicts with regional support teams.

Leading Alongside the Team

This participative leadership style emphasizes the team most. The leader works closely with members and there is much collaboration, shared responsibility, and consensus building.

Prime examples are non-profit organizations that usually include many volunteers, educational institutions that involve numerous constituents, or government agencies that handle large numbers of people.

In BIR, the IT group had a thousand people and worked with hundreds of consultants. When I joined them, they had already organized into implementation teams.

I was not brought in to stall their progress. I worked alongside the team leaders. I focused on working with top management to inspire the huge organization to embrace the impending major change. The system was successfully installed less than two years later.

The Most Effective Style

In American culture, organizations value individualism, efficiency, and results. As such, they may lean towards the directive leadership style. In the Philippines, we emphasize collectivism, group harmony, and relationship-building which may favor a participative style.

These are generalizations, however. Individual organizations within both countries may vary. In the end, the most effective leadership style is situational. It depends on a particular team's maturity and the nature of the work, not just organizational culture.

In SAP, for example, even if I practiced delegative leadership with the sales and technical teams, I led from the front with the marketing team. After all, I was the chief storyteller for a small company of less than 30.

As the chief marketing officer, I handed down clear marketing goals. I also clearly stated the messaging intended for each specific audience. The marketing team applied them to the recommended, using appropriate media.

There is not one style that bests the others. Different situations, teams, and organizations may require all three styles. The most effective leaders must have all three at their disposal. In other words, they must lead from all sides.