The following essay is from a manuscript in progress tentatively titled “Debunking Non-Profit Sector Mythology” which I hope to expand on to become a book. The manuscript includes the integration of many of the blog postings I have written over the past few years, plus new content. I thought I would share my progress along the way.
One of our Edmonton-based sector thought leaders, Liz O’Neill, is known for saying something like: “Non-profits are expected to collaborate in the morning and compete for resources in the afternoon.” She’s right of course, but are we truly trying to understand what she is saying and how to address this contradiction in our work as a sector?
Competition in the Non-Profit Sector is a Good Thing
Non-profits are competitors. We tend to prefer downplaying our competiveness, but when push comes to shove, we compete for limited dollars, whether from funders or donors. Surely collaboration, if done well, can produce results that organizations cannot produce alone; however, why do we quickly acquiesce to the notion that competition in our sector is contraindicated or somehow inappropriate?
Sometimes there are voices promoting collaboration in the form of back end consolidations or mergers of organizations. A predominant rationale for this type of collaboration is that there are too many non-profits duplicating services or functions; the implication is that this is wasteful and an example of inefficient management in our sector.
The problem with this thinking is that is based on biases that lack sufficient, if any, support from data about our sector. One might argue that collaboration as a means to address duplication is one way to stem the tide of competition for resources, but I suggest it is a fallacious argument. First it assumes that completion is to be avoided in our sector, and second, such arguments assume duplication is a problem. Both are, I propose, misguided conclusions.
Duplication is a Good Thing
There’s no real evidence that duplication is a significant problem in our sector or any more of an issue than in the private sector. Point in fact is that our economy is driven by duplication. It is what allows consumers choice, allows for various price points, fuels employment, and creates innovations that benefit people and produce profits.
In the private sector, duplication abounds. We have many gas stations, grocery stores, financial institutions, restaurants, theatres, and the list goes on. We tend to not even think about such duplication because it allows us to seek out products and services that fit our budgets, personalities, preferences, allow for many points of access, and so on. We trust that the competitive nature of the private sector will create sustainable order and choice in the marketplace, which means businesses will come and go based on relevance, customer satisfaction, and profitability. The last thing we want is just one place to shop for groceries or clothes or cars.
No one questions for example how many companies are needed to sell us cell phones or computers or tablets. We are likely fooling ourselves to believe that Rogers, Bell, Telus, and others are engaging in head to head completion, but nevertheless we welcome the choice even when such companies don’t offer us any substantive apples to apples comparisons of the services offered.
I think duplication in the market place is necessary, but why is it that when business leaders, government officials, and funders turn their minds toward the non-profit sector, they conclude, without any real evidence, that social needs and aspirations are better served by fewer non-profits? Why is it we believe having dozens of different colas to choose from is a good thing, but have numerous places to feed the poor is unwarranted?
Toward a Deeper Understanding of the Non-Profit Sector
In reality the term, “non-profit sector”, is nothing more than a descriptive term. It is a misnomer to think of the sector as one thing. Just as the private sector is made up of dozens of industries, so too is the non-profit sector and each “sub-sector” unique from one another. For example the makeup of the non-profit sector includes (but is not limited to) social services, arts and culture, housing, recreational, health, religious, and environmental organizations.
The distinctions continue when one considers that the majority of non-profits are small in terms of revenues and staffing. In fact, in Alberta where I work, there are more than 23,000 non-profits but only 40% have charitable status. Nearly 60% have no paid staff and 43% have revenues under $10,000. Might these small organizations benefit from back end consolidations or mergers? Perhaps, but the savings would not come close to what critics of our sector might envision. More likely for these organization is that volunteers are performing back end functions and don’t need to outsource that work or frankly can’t afford the cost.
While you may wish to read my full analysis on duplication in Alberta, the reality in my province is that 78% of the sector’s staff are employed by 6% of non-profits from across all of the sub-sectors. These organizations are of course larger non-profits. Considering there are approximately 13 subsectors sharing in the 6% of organizations, one has to wonder the extent to which duplication is indeed an issue.
There is one more major perspective to consider by those who rail against duplication and while it is not about economics, it is a defining characteristic about the sector that should not be ignored. I suggest the number of non-profit organizations reflects the community’s interest in civic duty. People organize themselves to address a community issue or concern, whether limited to their block or neighbourhood, or a particular subset of the population.
The degree of civic responsibility exercised by Canadians is why there are so many small, volunteer-run non-profits. Their existence ought not be seen as a negative form of duplication, but rather as a welcome manifestation of people rising up to do good works for their communities and neighbours. This does not mean they all should be funded, but it might mean we should welcome their presence in our lives, even if it means they also are competing for time and resources from others, including business and major funders.
Instead of hoping to find ways to reduce the number of non-profits seeking support from funders, businesses, and the general public, we should welcome such community spirit and efforts and work more closely together to celebrate such citizenship in action and, dare I say it, working together to find better and new ways to accept and address the competition for public and private dollars.
The Consumer Dollar versus the Charitable Dollar
The reasons why society feels the way it does about non-profits are complex, but I do wonder if the foundation of our displeasure with duplication in the non-profit sector has to do with the value we place on spending a consumer dollar versus a charitable dollar.
For the private sector, increased consumer spending is the goal because it fuels profits. Spending money on social good offers a different return and is often less tangible and the gains made are not typically as immediate.
As well in the private sector, especially in the big business arena, cost cutting as well as mergers are seen to be a pathway to greater profits and shareholder value. As well, mergers do not automatically mean that services to people improve or that there are increased cost savings for the consumer.
Many years ago Canada Trust and Toronto Dominion merged to form TD Canada Trust. I was a Canada Trust customer and the merger resulted without exception in decreased services across the board for me and higher fees. Hours of service also decreased where I banked. Nothing beneficial impacted me and I assume any other Canada Trust customer. This result is not what we would hope for in the non-profit sector.
The nature of capitalism drives us toward the largest margins possible, and one way to do that is to drive costs down, including the cost of labour. This may be one reason why the private sector generally advocates against a living wage and devotes energy to maintaining a minimum wage which does not correlate in any defensible way to living in a world of dramatically increased costs and wages that don’t keep pace.
Consumers seem to be rather complacent with how profits benefit a minority of Canadians. Perhaps we see wealth as an admirable goal and hope to attain it for ourselves. At the same time it is harder for the general population – and the private sector – to accept that our economy is not working for the majority of people, which is one significant reason why the demands on the third sector keep growing as are the resources required to fuel it.
The Third Sector Should Emulate the Private Sector. Really?
Being more business-like can make sense for non-profits, but not in a carte blanche manner. Sure, many non-profits can learn from corporate management techniques, lean technologies, and value chain analysis, but it is also true that the non-profit sector is often called upon to serve as an offset to the inequities that exist in our communities which are frequently sourced in an economy that creates and perpetuates low income among too many citizens.
These days, we shouldn’t just look at the numbers of people living below the poverty line, we should also look at the rising number of Canadians who are economically vulnerable. These are those Canadians who are a pay check away from losing everything and the Canadian Payroll Association tells us that reality applies to 44% of our neighbours. Maybe you are one of them. Chances are you socialize with people in this situation, but it is a quiet condition. No one really wants to share with others that they are that vulnerable financially.
No. This is not a Socialistic Treatise
On occasion, my views have been waved off for smacking of socialism, but pitting socialism against capitalism is not my intent or my interest. I am really just trying to point at what is. Truth be told, I am a proponent of capitalism and somewhat of a fiscal conservative, but I do wonder what the obligations of a capitalistic society are when it comes to the economic inequities that such a system produces. After all, capitalism requires success and failure for it to work, doesn’t it? A key question for society is how much failure are we willing to accept for how many people? More to the point: is there an acceptable rate of failure?
Rather than simplifying the matter to one of the quantity of charities, perhaps the number of charities and non-profits has something to do with the volume and complexity of community need. Panacea solutions like mergers or that old and stale blanket admonishment that charities should be more like businesses don’t really help anyone truly understand societal complexities, much less undertake synergistic actions to improve community life.
Diversity and Choice in Social Programs are Paramount
Those who are dependent on social programs also require choice in terms of the help provided as well as access to services. Having one big box venue for social programs is not the answer. For example, how we treat people for mental illness varies because mental illness is always a personal illness, not some generic disease that is easily treated in one place by one set of standardized services. The same goes for addictions, counseling, supporting the disabled or the elderly, housing, and addressing family violence.
Let’s Get Real about Mergers and Back-end Consolidations
The argument that there would be more money available for social programs if non-profits consolidated their back ends may have some situational validity, but a move to have this occur as a general rule is a simplistic solution that has no more merit in the non-profit sector than it would in the private sector.
There are many reasons why consolidated back ends and mergers are mythological answers for the non-profit sector. One is because merged organizations often lose revenue streams. Where two organizations could apply for grants from various funders (large and small), a merged organization cannot assume they will retain these revenues, much less the same number of opportunities in the future for seeking grants.
One reason why I would not want my back end functions to sit with another agency is that doing so could risk our competitive advantage. It is our back end that ensures the quality of our efforts. Our systems are designed to further our work. Why would I hand that over to someone else? I have been criticized for espousing competition in the Third Sector; however, in my defense I am really just acknowledging our funding environment. Funders and donors create competition because they want to ensure their resources are going to organizations that can produce quality results while demonstrating stellar cost management.
While I would find it distasteful to see non-profits promoting themselves with direct comparisons to other non-profits, isn’t it true that all non-profit leaders attempt to sell our organizations to funders as the organization to select instead of the others bidding? I do wonder sometimes if the incessant call for collaboration and partnerships among non-profits stems in part from the funders themselves wanting to soften the competitive nature of bidding on their RFPs.
If you are inclined to think back end consolidation should be a requirement in the non-profit sector, why isn’t it as important in the private sector? Why don’t the banks consolidate all of their back end functions? How about the oil companies? I understand why they don’t, but why is it that understanding isn’t returned?
Should non-profits seek out partnerships that can exponentially increase benefits to their clients? Sure, of course, but is the driver here cost-effectiveness or doing more with the resources each partner brings to the table? But also, if a partnership can dramatically improve results, should it follow that the community’s investment in such exponential improvements be increased?
I am talking here about real, not pretend, partnerships. Pretend partnerships exist because funders often see partnership as a way to save money more so than do more and then resourcing the “more.” If there is criticism to voice about the non-profit sector, one criticism is that we have been reductive in our understanding of, and commitment to, partnerships and collaborations. All too often, we have come to see them as important in and of themselves, without assessing fully the extent to which they actually produce more or even produce more for less.
The Key Struggle for Many Non-profits
Not all non-profits are struggling to survive, but there is sufficient research to suggest that many are merely subsisting. By that I mean they are balancing their books on the backs of staff who are not paid what they are worth and often labor on without compensation increases, much less adequate benefits. Infrastructure necessities are set aside for the sake of a balanced budget or at least minimal deficits.
The irony is that while many non-profits struggle to subsist or survive due to thin, flat, incomplete, and sporadic funding, funders keep a worrisome eye on the bottom lines of the organizations they under-fund. The expectation is that while given insufficient funds to operate effectively, agencies that go into the red are viewed as risky business. On the other hand, there are funders that are equally averse to stronger organizations having “too much” money in the bank for a rainy day. It’s as if the right financial state for non-profits to be on the edge of instability.
So Now What?
I have a few suggestions, though I acknowledge acting on them will be a challenge.
First, let’s get real about partnerships and collaborations. Let’s admit that they entail more than organizations agreeing to participate in shared activities and require more formality to be called collaborations and partnerships. We have generalized these terms to mean just about anything when in fact they denote explicit agreements and understandings of protocols, risks, and mutual accountabilities. If we can do that, perhaps funders can be more specific about their views and expectations about such terms as well as other terms like cooperation, coordination, participation, and so on.
Second, as non-profit leaders, let’s stop worrying about duplication of services and focus more on promoting civic responsibility and actions that help our clients. Let’s develop a more informed, collective understanding of our sector and the diversity of organizations within it and work together to better inform others who propose duplication is a substantive problem and that addressing it will somehow save the day.
Let’s accept that our sector is competitive rather than pretend it isn’t. Doing so does not mean we must become cut throat competitors or measure our success by the number of other charities we drive out of business. Acknkowledging the competitive nature of our work should instead drive organizations to ensure they are producing results while also being stellar stewards of the resources we receive to produce them. And let’s stop measuring stewardship as actions we take to be cheap service providers.
 Are There Too Many Non Profit Organizations In Alberta Duplicating Services? Updated and Expanded, 2012, Mark Holmgren, published by author at www.markholmgren.com