By: David Steven Rappoport, Millennia Consulting
For the last few years, I’ve noticed an unexpected trend: although the projects I work on have objectives related to the social good, they frequently don’t sit cleanly in either the nonprofit or for-profit sectors. A few recent examples:
My research suggests this is not unique to my practice, but part of larger trends:
1) Although the economy has improved, many non-profits and public sector agencies continue to face tough times.
A few years ago, when the Great Recession was at its apogee, the Urban Institute wrote:
The nonprofit sector has been growing steadily, both in size and financial impact, for more than a decade. Between 2001 and 2011, the number of non-profits has increased 25 percent; from 1,259,764 million to 1,574,674 million today. The growth rate of the non-profit sector has surpassed the rate of both the business and government sectors.[…]
But, as nonprofits face devastating recession-driven revenue shortages and projected budget shortfalls from many state and local governments, this could reverse the trend as donors cut back, contracts are cancelled, and foundation endowments shrink.
During this period, a Philanthropy Journal article stated: “From 2008 to 2010, annual private giving dropped by $13 billion, and foundation giving fell 13 percent during the recession.” An article on arts funding reported, “public agencies of all kinds are facing severely constrained budgets as a result of the ongoing effects of the recession, escalating public debt, and slow economic growth.”
Although the economy has improved, nonprofits and public sector agencies are still facing tough times. For example, about six months ago the Denver Post reported, “the Great Recession is over, but nonprofits in Colorado and across the nation still are struggling to reverse fundraising declines that began in 2008.”
The Economist states that as of 2011, consulting in the for-profit sector was slowly returning to pre-recession levels. However, the focus was on “mundane” work rather than “strategy consulting.”
A 2013 study by American Express of small business bidding for federal government contracts concluded that bidding activity has “decreased significantly over the past five years” although “entry into the procurement marketplace is getting easier.”
2) A blurring is occurring between nonprofit and for-profit entities.The concept of blurring between nonprofit and for-profit entities is much discussed over the last ten or so years. James E. Austin of the Harvard Business School began publishing on this topic early in the last decade:
Where once “corporate giving” meant writing an annual check to a favorite charity, more recently businesses and nonprofit organizations (NPOs) have joined forces to achieve their separate, but related missions.
Austin went on to add that, “We’ll see the stark differences between NPOs and businesses diminish, revealing a new world of integrated, rather than independent, sectors.”
A newspaper account of a presentation by David La Piana of La Piana Consulting stated that: “The Great Recession has brought a permanent structural change to many industry sectors, and that includes non-profit organizations.” La Piana references a study his firm did for the James Irvine Foundation, “Convergence: How Five Trends Will Reshape the Social Sector.” One of the five trends is “Sector Boundaries are Blurring.”
Sector Boundaries are Blurring
A sector-blind competitive environment is emerging where Wall Street investment houses compete with local United Ways and community foundations for donor directed funds and a growing emphasis on corporate social responsibility means that social virtue is no longer perceived as exclusive to the non-profit brand.
Meanwhile, as donor demands for accountability and evidence of impact intensify, regulations that once preserved the unique role of non-profits are coming under fire. These trends will seriously challenge non-profits to maintain their tenuous hold on identity as a sector and not just become under-capitalized competitors in an increasingly blended economy. This blurring of sector boundaries creates opportunities for a growing number of public-private and corporate-non-profit collaborations to share learning and innovation. Some organizations are taking things a step further and becoming hybrid organizations, operating simultaneously in multiple sectors.
…501(c)(3) organizations are straying further outside the bounds of traditional service delivery in order to advance their missions. For-profit business ventures are becoming more common as vehicles for generating ongoing revenue, providing new avenues for social impact, generating positive publicity and even helping to attract and retain staff. When planned well and managed skillfully, they can have a significant effect on long-term sustainability. While some organizations pursue these ventures within their 501(c)(3) structures, others choose to set them up as for-profit subsidiaries.
More traditional businesses are also looking to recognize social and environmental outcomes as legitimate pursuits for private enterprise, and an increasing number are seeking B Corporation status as a means to do so…
This blurring, or blending, of the sectors presents rich opportunities for non-profits willing to adopt the role of futurist on their own behalf and critically examine structural options for getting their work done.
As consultants to non-profits, what should we deduce from this?
While our work will continue to focus on advancing the social good, the spheres in which we operate – and the mechanisms our clients use to fulfill their missions – may be expanding. The non-profit sector is growing, but is only 5.4% of total GDP (2010). It may be increasingly appropriate to look to the for-profit sector as a source of potential clients. Typically, these emergent opportunities will come from the new blurred “win-win” partnerships between non-profit and for-profit clients in which financial incentives join with social objectives to advance the social good.
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