The nonprofit sector’s ability to provide its services has come under ever-increasing pressure with changes in public policy, significant client demographic shifts, new commercial initiatives, and growing competition from for-profit providers. Although the sector has responded creatively in many instances, the increasingly complex environment is straining the skills and abilities of nonprofit leaders to meet such demands.
Whether in the profit or the nonprofit sector, all organizations fundamentally need strong leadership talent to execute their strategy successfully. Therefore, ensuring a steady supply of leaders is critical. This is not an easy task!
To meet the challenges, today’s nonprofit executives need to demonstrate a wide range of behaviors. They also need to have a wide repertoire of knowledge, skills, and experiences, and know when to apply their array of skills, as the situation dictates. They must make sure that business operations run smoothly without displacing the relationship-based approach to nonprofit leadership, or losing sight of the vision and mission.
A Manager-Leader Model of leadership for the nonprofit sector, which is the focus of this article, is timely and realistic. At a time when strong leadership is needed in the nonprofit sector, there is a critical shortage of ready and willing leaders.
1. A leadership profile
Nonprofit organizations are being challenged to direct their search and development activities towards finding and creating leaders who are equipped to confront a host of current and emerging challenges. The future dictates a strong sense of urgency with respect to getting and grooming the leaders the sector needs and deserves.
2.Strategic challenges shaping sector priorities
The term “managerial leadership” may be a hybrid but it is the most appropriate for capturing the complementary, and even contradictory, role that nonprofit leaders have to play, namely that of a Manager-Leader. Resource constraints and the size of the majority of nonprofit organizations increasingly underline the appropriateness of this dual role.
The major strategic challenges faced by the nonprofit sector can be grouped within four clusters: The Financial challenge, the Competitive challenge, the Operational Effectiveness challenge, and the Talent challenge.
To demonstrate: A nonprofit executive, in one day, may need to address news of a funding cut from the government (financial challenge), meet with a competing agency to look into the possibility of building a partnership to address a funding shortage (competitive challenge), review program effectiveness data with the board in the light of a funding cut (operational effectiveness challenge), and deal with the departure of a talented member of their staff (talent challenge).
Critical to the Manager-Leader Model is the accurate determination of leadership priorities and the attributes required to address those priorities.
Based on expansive research and in-depth interviews with leading nonprofit executives, we have developed a set of priorities leaders must address to meet each of the four strategic challenges.
3. The financial challenge
A financial squeeze is certainly not a new challenge for this sector. The recent economic crisis is expected to result in government deficits that will cause new cutbacks in health, education, and social service funding. The consensus among the leaders we spoke with was that economic recovery is further away than predicted and that when recovery does arrive, a return to former levels of funding cannot be expected. As a result, nonprofit leaders may have to address these priorities:
Leading the organization to financial stability
The adoption of for-profit sector practices and a particular mindset is a contentious and debatable issue. However, as discussed by our interviewees, “what is undeniable is that the nonprofit sector is not immune from occurrences in the broader economy and that we must become knowledgeable about market and business trends”.
Commercial ventures, sale of services or assets, and partnerships with businesses are indicative of the mindset leaders in some organizations need to adopt.
For example, gift shops, online stores, rental of property, licensing agreements, and social ventures (e.g., business ventures that serve a social mission such as employing people with a disability) are some examples of nonprofit commercial operations. Such ventures require a spirit of entrepreneurship, business acumen, and market savvy.
Certain nonprofit organizations may have to strive to become the testing ground for new growth ideas. Adopting such an entrepreneurial style of business management may be crucial for the survival and operations of many agencies.
Cultivating a culture of financial awareness
Ensuring an organization’s successful financial future requires leaders to understand financial information. A senior executive without an understanding of finance cannot make use of such information or make financial decisions to lead the organization well. They do need to know how numbers are generated, their impact on decisions, and how they impact the vision of the organization. Also, they need to appreciate how a budget and financial planning can demonstrate the path forward for an organization.
Cultivating a culture of financial understanding also requires the open sharing of information and initiating frank discussions.
Leading the diversification or expansion of service offerings
Aside from the operational and talent challenges of leading change (discussed later), leaders need to be sound financial managers and mobilize people around new financial realities. They have to have deep knowledge of their sector to be able to draw on a wider pool of resources and create new offerings with limited funds. They need to shift or diversify their source of funding by appealing to different potential funders, and to demonstrate even greater financial prudence, while coaching their organization to manage more with less.
The financial challenge demands strategic insight requiring leaders to consider the implications for the core mission and strategic mandate of the organization.
4. The competitive challenge
Increasingly, a host of for-profit firms have begun competing with the nonprofit sector for grants, donations and government contracts. For example, community foundations have seen private financial services institutions start their own philanthropic fundraising trusts.
This competitive pressure for already limited funding and charitable giving opportunities is compounded by the fact that an increasing number of nonprofits are competing for the same limited pool of funds.
Changing patterns in philanthropy are contributing to competition within the sector. As one of the executives in our interviews conveyed, “Today, a lot of giving is being driven by personal initiatives by younger donors. Young people are socially aware of issues in the world and are looking for situations where they can make a difference. Young donors may hear about issues around the world through social media and decide to give to the issue directly.” At the same time, people are starting their own organizations to deal with the problems directly.
There is no need for the intermediary organization in this “personal philanthropy” model. Therefore, unintentionally, many nonprofit organizations are losing value. This shift in the pattern of giving has inadvertently added pressure to an already competitive nonprofit space.
A third factor impacting their ability to meet the competitive threat is the need to invest in technology. Such technological upgrading presents an enormous funding challenge for nonprofits.
5. The operational/effectiveness challenge
Multi-partner programs are becoming effective strategies for ensuring the sustainability of nonprofit agencies. However, many partnerships, which are central to addressing some of the most intractable problems of society, fail. To ensure success, consider this observation by one of our interviewees: “To address an issue like poverty requires efforts from and collaboration with many different kinds of organizations. Collaboration in this situation necessitates ensuring that each of our respective organizations’ boards agree on desired outcomes and then, each leader has to report to his/her own board vertically, while also aligning and managing activities horizontally between organizations.”
Increasing social reach
Several of the leaders we interviewed expressed grave concern that the sector needs to find a way to make the public more aware of what the sector offers. Leaders express serious concern that when consultations are needed, the government consults the nonprofit sector as an afterthought and that the sector’s role in key societal decisions is secondary.
Increasing the social reach of their organization may require creating a process that involves and engages donors, inspiring them to be part of the mission’s “story.” Communication that is motivating and inspiring is particularly important for nonprofit executives as a means for positioning a cause.
Building and maintaining technological capacity
Enhancing the technological capacity of a nonprofit organization can expand its ability to compete exponentially. Acquiring new databases to share information across agencies, or manage contacts and improve prospector research; building websites to spread the message about agency goals, needs, or accomplishments; establishing on-line giving capability; and social networking tools are just a few examples of how technology can provide a competitive edge.
As one executive summarized, “Technology is going to take charities into a new realm. It has the capacity to personalize giving, to have conversations with people in the community, and to involve people more intimately with our mission via social marketing. Of course, it requires that I, as the CEO, learn something I would not normally know. It requires me to demonstrate openness to learning new trends and to understand the potential of these technological trends, and then, to create the infrastructure and talent capacity to support that direction.”
6. The operational effectiveness challenge
As was the case in the 1990s, pressure to improve accountability and governance continues to build in the private and nonprofit sectors. As a result of the recent economic crisis, business leaders are feeling the pressure for stronger governance in their own organizations. Consequently, when serving as directors on boards of charities and nonprofit organizations, these business leaders have begun pressing for transparency and accountability. Beyond efforts to keep donors informed, considerable effort is being made by some organizations to develop standards and codes that demonstrate a commitment to ethical practices (e.g., the adoption of Ethics Codes by Imagine Canada and use of the Code’s “trustmark” as a symbol of organizational commitment to accountability and transparency).
Unfortunately, the actual performance of boards is known to frequently fall short. For example, business people on nonprofit boards frequently do not take the role seriously, may only push for obvious, simple and inadequate metrics of performance or have a narrow focus on what it takes to make programs successful.
Another operational effectiveness issue for leaders to contend with is that the environment in which nonprofits operate today is quite different from the one of 30 or so years ago, when Boomer leaders entered the sector. Yet, many organizations continue to operate in the same way as they did 30 years ago.
Operational effectiveness challenges can lead to the setting of at least three possible leadership priorities:
Enhancing transparency and accountability to improve governance:
“For leaders in the sector, integrating a knowledge management strategy is imperative for maintaining a scorecard on the health of the organization,” according to an interviewee.
As a consequence, there are increasing pressures on leaders to create operational systems and processes that yield strategic information and measurements. Considering that intangible issues of social change need to be specified in measurable terms, leaders may have to contend with a “measurement resistant” organization.
Therefore, leaders must build a culture that reinforces compliance and reduces resistance (e.g., by building an empowerment-based culture that takes ownership for evaluating and reviewing results).
Enhancing alignment and partnership with the board
The complexity of the board-CEO relationship results in many leaders having difficulty in learning how to work with a board. Some leaders may have had the experience of being on a board, but few feel adequately prepared for the politics of building, engaging, and reporting to a board.
Yet, mastering this skill is crucial to a CEO’s success. Experience and research show that relatively proficient CEOs become ineffective if they have bad relationships with their boards.
Effective leadership requires the CEO to see the board as central to his or her work (i.e., board-centered leadership). Thus, to facilitate interaction with boards, they must be aware of the individual needs of board members, keep the board apprised of trends and unexpected occurrences, provide routine financial and program service data, help the board sort through information to identify the critical pieces, point the way for an important decision, and generally help maintain high standards for their own and the board’s productivity. As one of the interviewees noted, “A CEO has to look forward constantly, as things are happening very rapidly, and they must have a mindset to bring issues to the board to help them anticipate and alert them to fundamental changes”.
Effective executives also seek to shape the direction of decisions without making decisions unilaterally and arbitrarily. They may have to deal with conflicts, negotiate over the allocation of resources, and build a strong network with their boards, demonstrating an interpersonal and political astuteness. Seeing these boundary-spanning activities as a core part of the role is critical for the organization to operate effectively and to reduce conflict.
Ultimately, a strong Board-CEO alliance is reflected by:
- Fluid and frequent communication
- Effective formal and informal relationships
- Confidence in the CEO as an experienced/credible leader
- Congruence in philosophy and style for dealing with operational issues
- Role clarity with definitive mutual expectations.
Restructuring the organization
Different ways to operate and structure organizations may be a critical priority for some leaders. “Nonprofits may need to ask fundamentally different questions instead of the ones based on old nonprofit models or private-sector models. Traditional models may be too static, given that the environment is working too fast,” stated a CEO interviewee.
Adopting new volunteering models, changing the mode of service offerings (e.g., offering virtual support if the client group is geographically dispersed), and improving operational efficiencies to support more people with fewer resources may all be key considerations.
Flexible structures such as co-directorships and networked organizations also should be considered. In such structures, decision-making is inclusive (not command-and-control), informed decisions are made more quickly, and best ideas are given precedence.
7. The talent challenge
Research supports that there will be an overwhelming number of vacant nonprofit, executive positions in the next decade.
An obvious question arises: Will the next generation produce enough leaders to fill the impending leadership gap? Subsequent generations of the population (Generations X and Y) are considerably smaller than the generation of Baby Boomers.
The nonprofit sector does not typically invest time or resources in growing its own leaders (one third of new leaders come from within the organization in the nonprofit sector vs. 60 percent of new leaders that are promoted from within in the for-profit sector).
Many young leaders point to the long hours, low pay, and demands on work-life balance as reasons they don’t find current leadership positions attractive. In fact, many young leaders are simply uninterested in leadership responsibilities in the sector.
Talent-related challenges can lead to at least three possible leadership priorities:
Building a pipeline of leaders
Nonprofits will have to train and mentor their staff internally, in order to build necessary capability. A relay succession model has been particularly effective for strong,-values based organizations where the outgoing leader mentors and prepares successor(s) to ensure a smooth handoff. Such an approach enables individuals and their organizations to capitalize on learning opportunities in the moment, while limiting the potentially negative impact of an individual who may still be learning the ropes.
Present leaders must convey, frequently and vocally, their favourable qualities in order to attract talent and to reinforce the interest of high-potential individuals. “Passion is contagious and it is passion and dedication to the cause that still sets good leaders apart.” This viewpoint was wholeheartedly and unanimously endorsed by all the leaders we interviewed.
Engaging the organization
Nonprofits generally are not recognized for their innovation and creativity, which are attractive to new leaders. The scope or nature of the role needs to change for it to engage newer leaders.
Accordingly, employee empowerment will have to become a priority for organizations with an unmotivated workforce of young leadership incumbents. “Leaders have to be good listeners and inclusive in their decisions. They have to lead from the front and from the rear of the organization. Depending on the issue at hand, they may need to lead from the front to move new ideas forward. At the same time, they may need to lead from the rear, letting staff, volunteers or the board take the lead,” one interviewee stated. The traditional “heroic” model of leadership is being replaced by this, more participatory leadership style.
Leaders will have to make a concerted effort to promote awareness and understanding of the organization’s values, communicate about ethical decision-making, practise role model behavior, and reward values-/ethics-driven behavior.
Finally, leaders will have to support their people in realizing their potential. Providing regular feedback and coaching to advance employees will have to become a crucial part of the organization’s empowerment strategy. Identifying career paths will also help people understand how they can move ahead.
Valuing and managing diversity
Accounting for the diversity of values due to age differences or cultural background will become crucial for ensuring a pool of staff and volunteers, and for avoiding friction within the organization. For instance, some leaders may have to learn to manage staff and volunteers that may be quite a bit younger, or older.
In some cases, greater diversity of clientele may require seeking greater diversity in the staff and leaders within the organization. There are likely to be multiple reasons for an increase in sources of diversity, requiring leaders to become comfortable valuing, promoting, and dealing with diversity. Managing these varied sources of diversity will require nuanced social skills.
Developing leaders to address the four strategic challenges
As mentioned earlier, each of the four strategic challenges is important. It is unrealistic to expect an “either/or” perspective for today’s nonprofit executive. Flexibility and agility are paramount. Leaders need to be proficient in addressing issues related to all four strategic challenges on a continually shifting basis.
The leadership development implications of our Manager-Leader Model are that nonprofit leaders need to have an array of skills in order to become proficient in handling different priorities simultaneously.
A pragmatic leadership-development approach is required. All the leadership priorities outlined earlier are likely to resonate in some way. Yet there are serious time, people, and financial constraints, particularly in this sector. It is a challenge to support the Manager-Leader Model. A prudent approach to building the “behaviorally complex” Manager-Leader is to start by focusing leadership development efforts on those areas that align with the organization’s priorities. Prioritizing too many leadership imperatives could strain an organization’s resources.
For example, a leader in a moderately-sized social service organization we spoke with stated that their agency needs to diversify its funding, build alliances and attract talent due to high turnover. In contrast, a large healthcare organization cited a need for greater rigor in financial planning, expansion of technological capacity and maintaining equilibrium in the board-CEO relationship.
Selecting your organization’s leadership priorities in relation to each strategic challenge is a pivotal step in assessing and enhancing an organization’s leadership readiness.
The goals of this leadership development approach should be: a) to align leadership development with the priorities of the organization, b) to ensure that current and future leaders are proficient, over time, in managing strategic priorities that are critical to the success of their organization, and c) to enable the development of a behaviorally complex nonprofit leader, based on the Manager-Leader Model.
In order to implement a leadership development strategy successfully, it will be important to outline and confirm the core characteristics needed to respond to the challenges and execute the strategic priorities. Start by identifying the major priorities for your organization within the four strategic challenge areas. Then, create a customized profile of the leaders your organization needs to confront these challenges and priorities, using the attributes in the composite Manager-Leader Model we have delineated for the Nonprofit Leader of Tomorrow (see box at beginning of article).You will have taken major steps in moving your organization – and your leader – ahead.
“The original article can be found at http://iveybusinessjournal.com/