Not for Profit

Organization

Concept and Nature of Not for Profit

Organization
The not for profit sector of an economy is
important for several reasons
1. Society desires certain goods and services
that profit making firms cannot or will not
provide.
.These goods are known as public or
collective goods
.Paved roads, police protection,museums,and
schools are examples of public goods.
.Once a public good is provided anyone can
use or enjoy it

 Certain aspects of life do not appear to be served

appropriately by profit making business firms.
These aspects include areas in which society as a
whole benefits from a particular service.
2. A private nonprofit organization tends to receive
benefits from society that a private profit making
firm cannot obtain.
.The not for profit organization can get tax
advantage from the government tax authorities.
We use term patient,student,client,case or simply
the public instead of customer as in profit
organizations.

Importance of revenue sources

A profit making firm depends on
revenues obtained from the sale of
its goods and services to customers,
who typically pay for the costs and
expenses of providing the product or
service plus a profit.
A not for profit organization depends
heavily
on
dues,assessments,or
donations from its membership, or
on funding from a sponsoring
agency, to pay for much of its costs

Sources of not for profit revenue

Revenue is generated from a variety of
sources not just from clients receiving the
products or service from the not for profit.
It can come from people who do not even
receive the services they are subsidizing.
The following are the revenue sources
1. Donations
2. Government grants
3. Service fees/ Client charges
4. Membership fees/dues
5. Sponsors

Patterns of influence on strategic

decision making
The pattern of influence on an
organizations
strategic
decision
making derives from its sources of
revenue.
A private university (B) is heavily
dependent on student tuition and
other client generated funds.
The students desires are likely to
have a stronger influence on the
universitys decision making.

 A public university (C) is more heavily

dependent on outside sponsors.
Student tuition and other client generated
funds from a small percentage of total
revenue.
The universitys decision making is heavily
influenced by the sponsors and only
marginally
influenced
directly
by
the
students.
The client has the no direct influence on the
organization because the client pays nothing
for the services received (D).
The organization (D) tends to measure its
effectiveness in terms of sponsor satisfaction.

 It has no real measure of its efficiency other than

its ability to carry out its mission and achieves its
objectives within the dollar contributions it has
received from its sponsors.
Organization D actually might be able to increase
its revenue by heavily lobbying its sponsors while
reducing the level of its service to its clients.
If the recipients of the service pay only a small
proportion of the total cost of the service,
strategic managers are likely to be more
concerned with satisfying the needs and desires of
the funding sponsors or agency than those of the
people receiving the service.
The acquisition of resources can become an end in
itself.

The Effects of Sources of Revenue on Patterns of ClientOrganization Influence

Prentice Hall, 2004

Chapter 13
Wheelen/Hunger

Usefulness of strategic management

concepts and techniques
Some strategic management concepts
can be applied to not for profit
organizations as business organizations
The concept of portfolio approach
under which client satisfaction and
revenues are linked.
Industry analysis and competitive
strategy are primarily relevant to not
for profits that obtain most of their
revenue from user fees rather than
from donors or taxpayers.

 A not for profit can be said to have

institutional advantage when it
performs its tasks more effectively
than
other
comparable
organizations.
SWOT,
mission
statements,
stakeholders analysis and corporate
governance are relevant as profit
organizations.
Portfolio analysis is also used
The BOD will prepare the good
mission statement so as to attract

Limitations
of
Strategic
Management
Not profit organizations concepts,
techniques and recommendations do
not lend themselves to situations
where sponsors, rather than the
marketplace determine the revenue.
The
concept
of
strategic
management will be more useful
when these organizations would
become more market oriented.

Strategic piggybacking
It refers to the development of a new activity
that would generate the funds needed to
make up the difference between revenues and
costs
The new activity should have any link with
the mission
Its primary purpose is to help subsidize the
primary service programs.
It likes concentric diversification and is
involved in money generating value
It is also social entrepreneurship and not for
profit organization starts a new venture to
achieve social goals

The End