Financial Resources: Strength Through Diversity

Virgil R. Carter

Non-profit organizations need financial resources in order to achieve their mission. Non-profit finances are really simple-no money, no mission--it's that simple! For success, of course, non-profit organizations also need other essential resources--human resources and value-added knowledge resources, for example, which pertain to the field, discipline or industry of the non-profit. Non-profit organizations don't exist to make money, but successful financial operations are essential for non-profits to remain viable and successfully pursue their mission over time.

For many individual member and trade associations, annual revenue streams may result from one or two major sources--dues and non-dues revenues. Dues revenues come from new members who join and existing members who re-new their membership annually. Non-dues revenues may come from members and from non-member customers and supporters. Non-dues revenues are important for at least two reasons: 1) they enable financial diversity for associations, and 2) they provide additional resources for associations to address their mission in ways beyond that which is possible when revenues are solely from membership dues. Financial strength for non-profit organizations is obtained when there are diverse, dependable revenue sources.

There's an old association rule of thumb that says that associations whose dues revenues comprise more than 50% of their total revenue stream may be "cash poor" and may not have sufficient resources to address many of the needs of their members, customers and other constituencies. Organizations whose majority revenues are derived from member dues may live a "hand-to-mouth" annual existence, since new member recruitment and existing member renewal are frequently processes beyond the direct control of the organization. Who hasn't struggled to increase membership through increased recruitment and/or improved retention?

This "hand-to-mouth" financial condition is often typical of non-profit organizations whose annual revenues are under $1 million USD. On the other hand, non-profit organizations whose annual revenues are over $10 million USD may have annual revenues where membership dues may be in the 25%-30% range of total revenues. Many non-profit organizations find themselves somewhere in between these two examples, challenged to increase both dues revenues and non-dues revenues, striving for some reasonable financial balance between dependable dues and non-dues revenues.

Where do non-dues revenues come from? Sources of non-dues revenues may be from members, non-members and sponsors/advertisers who purchase goods and services from the non-profit, such as event registrations, product sales and fees for services and business opportunities, event sponsorships and the like. For many associations, non-dues revenues are developed from "traditional" meetings and conventions, trade shows, educational programming and advertising/publication sales. Other associations have found non-dues revenue opportunities in "innovative" global partnerships and programming, standards development, certification and credentialing programs and professional development/continuing professional education activities, etc. Grants, intellectual property and licensing also offer non-dues revenue opportunities for associations in the "knowledge-development" arena. The range of opportunity for non-dues revenues may be limited only by one's imagination.

Control over finances is the number one skill needed in association work, according to Critical Competencies of Association Executives, commissioned by ASAE and conducted by Lawrence Leiter & Company. Uncertain and challenging economic times are strong incentives for prudent non-profit organizations to seek to accomplish their mission through diversified revenue-producing activities, supplementing membership dues revenues with new and/or expanded non-dues revenues. Financial diversity is strength, especially when it comes to non-profit organizations. Does your organization have the strength of financial diversity?

Connections between Strategy and Operations

Virgil R. Carter

Most non-profit organizations have a strategic plan.  Virtually all of these organizations also have an annual operating budget.  Some organizations also develop and use an annual business or operational plan.  But what’s the connection among these?  How can you, your staff and volunteer leaders assess the connection between your strategy and annual operations?

The business press frequently hosts readable articles on the important connection between strategy and operations.  Although written for business, many topics are equally useful for non-profit organizations.  Colorful titles suggest the importance of the issue, including “Putting Leadership Back Into Strategy”, “Mastering the Management System”,  “Five Competitive Forces That Shape Strategy” and the compelling “Innovation Killers:  How Financial Tools Destroy Your Capacity to Do New Things”.  These topics are as common to the non-profit world as the for-profit world.

I have worked with the Balanced Scorecard (BSC) as a tool to identify strategy and successfully link it with operations, enabling an organization to successfully cascade strategy throughout the organization’s operations, using metrics and key initiatives.  One of the compelling concepts of the BSC is “balance”—a balanced approach for each organization.  Using the BSC, it is even possible to embed strategy in annual performance planning and evaluation for staff and volunteers. “Mastering the Management System” by Kaplan and Norton, the Harvard Business School professors who are the founders and developers of the Balanced Scorecard, is one important read for those looking for ways to better connect strategy with operations.

Here’s an important connection between strategy and operations:  “Successful strategy execution has two basic rules:  understand the management cycle that links strategy and operations, and know what tools to apply at each stage of the cycle”, write authors, Norton and Kaplan  

Want to improve the connections between your strategy and operations?  Think about your annual management cycle and how the various elements of your annual cycle can be best integrated with your overall strategy.  How can your annual budgeting cycle be linked to your strategy?  How can your business planning cycle be linked to your strategy?  How can you develop usable metrics and evaluations to assess your operations and the extent to which they support your organization’s strategy?  

Strategy for Unpredictable Times

Virgil Carter

A traditional approach for organizational strategy is based on the view that with sufficient analysis, organizations can make reasonable assumptions about their markets, financial and human resources, technology and customer services, and be successful.  Any unforeseen elements can be addressed through strategy adjustments every few years.  Said differently, strategy for many organizations may be based on internal decisions about what the external world looks like.

But what if the future is unpredictable?  What if an organization’s internal views and preferences just don’t align with the external environment in which the organization finds itself?

Author Lowell L. Bryan, in an article in a recent McKinsey Quarterly, “Just-in-time Strategy for a Turbulent World”, points out that “…globalization and technology are sweeping away the market and industry structures that have historically defined the nature of competition… (making it) impossible to predict, with any confidence, which markets a company will be serving or how its industry will be structured—even in a few years hence”.

Bryan suggests an alternative to traditional organizational strategy:  a “portfolio of initiatives” intended to achieve favorable outcomes for the entire enterprise”.  He writes “usually, these initiatives will be organized around themes focused on achieving particular aspirations, such as increasing the reach of the enterprise, entering a new but related industry, or achieving the greater efficiencies.  Portfolio effects increase the likelihood that some of these aspirations will be achieved even if many others fail”.

According to the author, a successful portfolio-of-initiatives strategy involves “creating enough initiatives offering high returns relative to the risks taken to enable a company to meet its aspirations and outperform the expectations of the markets.  The process requires the CEO and management team to “keep an open mind about where the company may be headed”.  Inherent in this approach is the understanding that “future decisions and future outcomes are likely to vary enormously from initial hypotheses”.  Bryan concludes his article by noting that “Most of the critical decisions involve subjective judgments that, unlike those generated by more deterministic strategies, will be informed by not just the highest-quality staff work but also the knowledge gained as time passes”.

Are you operating in unpredictable times?  Perhaps a portfolio-of-initiative strategy is for you!

The Sweat, Character and Hard Thinking Behind Success

 By Steven M. Worth President, Plexus Consulting Group, LLC

“There is a tide in the affairs of men.  Which, taken at the flood, leads on to fortune…” as Shakespeare noted nearly four hundred years ago; and this has been a popular theme throughout the ages in both popular fiction as well as, in recent years, business management books.  In his book Outliers, Malcolm Gladwell points out the interesting statistics behind most outstanding success stories.  His thesis is so compelling that one might be tempted to conclude that “success” is an odds game—the result of being in the right place at the right time and putting in the right amount of prep time—much like the Peter Seller’s movie “Being There” or the Tom Hanks movie ‘Forrest Gump” in which the leading characters of both movies achieve astounding success in life due to well-placed values and being in the right place at the right time.  Cinderella-tales are comforting.  We see justice rendered in otherwise hopeless situations—the way we rejoice in the news of jackpot lottery winners, imagining that with luck this might one day be us….

We see less of this magic in our work as management consultants.  What we see more often is the truism that successful people and organizations are those who do what the less successful don’t do.  By this I mean they do market research, they develop strategic partnerships with outside groups and organizations, they take calculated risks and encourage innovative thinking, they retire programs and organizational structures that have outlived their usefulness, and they focus their resources with laser-like intensity on those programs and projects that are designed to meet current and future market needs.  We also see the hard work, the agony of failure along with the courage to get up and go at it again, and the humility in knowing that no one can do it all or know it all and that success comes in working in harness with others who share your vision.

What we sometimes fail to see behind the news coverage and trappings of success are what Winston Churchill in another time called the “blood, toil, sweat and tears” of success.  This is unfortunate, because so many are ready to throw in the towel at the first sign of an obstacle.  The late psychiatrist and best-selling author Scott Peck noted in his book The Road Less Travelled that the majority of his patients were people who felt they were failures, or who built their lives around avoiding failure without realizing how much easier it would be if they just recognized that difficulty and uncertainty are not signs of failure but rather normal and expected challenges on the path of success.  

Strategic planning consists in part of recognizing which aspects of your environment you control and which represent external trends over which you have no control but which can present opportunities or threats that you should take into account in your planning processes.  As can be seen in our firm’s recent management survey, increasing numbers of managers are using strategic planning as a tool for planning their organization’s success—a tool that is only useful if it is fact-based and backed by a business plan that focuses resources and sets long term and short term measurable goals.  It works, but it does require work and risk and letting go of preconceived notions.  This is the furious peddling that goes on under the graceful swan’s seemingly effortless glide through the water.  

    

Greening the Economy

By Steven Worth

Though the current economic downturn has negatively affected many, a new industrial sector is on the rise. A study conducted by the Worldwatch Institute and Cornell University Global Labor Institute demonstrates the emergence of a “Green Economy,” one that promises to positively impact the 21st century workforce. Due in part to the United Nation’s Climate convention’s emission reduction targets, this quickly expanding fervor to foster sustainability has already begun to general jobs in developed and developing countries alike.

Recently, the popularity of “Green” jobs has skyrocketed, especially among the younger generation. In hopes that “greening the economy” may be a much-needed stimulus, employers are not only investing in new technologies but also seeking workers with an environmental background in education, training, and technical skills. Jobs in conservation and pollution mitigation are increasing in many states. In 38 states plus the District of Columbia jobs in clean energy outpaced job growth over the last 8 years, according to a recent report by the Pew Charitable Trusts Environmental Group. For the past two years, Texas has been the top wind producer in the United States with over 3,953 wind-generated megawatt hours. The American Council for an Energy-Efficient Economy (ACEEE) suggests that as many as 8,000 green-collard jobs are on the horizon for Maryland by 2015 as consumers invest in energy efficiency.

The U.S. Department of Education will provide $48.6 billion to encourage states to provide reforms to increase individual pursuit of secondary education, including the State Fiscal Stabilization Fund to support state-level, education budget shortfalls. In California, $10 million in federal stimulus funds—shared by 11 colleges—has created the California Green Jobs Corps to place at-risk young adults into jobs in the states green economy. Also, Michigan’s No Worker Left Behind program, supported by funding from the Workforce Investment Act (WIA), has provided adult education programs for more than 61,434 people since its inception.

As the definition of “green” encompasses countless industries, and the transition of each into a conservational system requires changes in decisions, practices, and behaviors, the need for new workers and ideas has risen to great magnitude. Researchers hope that, by exchanging high capital, low labor investments for low capital, labor-intensive investments, industries may provide more jobs while encouraging the success of the greening campaign.

Linking Strategy and Execution

By Steven Worth

Every year some of the association community’s most innovative strategies and plans in which untold hours of volunteer and staff time have been invested lie unused and likely even unread on some shelf collecting dust. Then, as time goes by and memories grow vague and leadership changes, someone else calls for a planning session--and wise old veterans shake their heads at the futility of going through this process yet again. Sound familiar? It should, as this is a process that happens to virtually every organization at one time or another. This phenomenon even has a name: “SPOTS”—Strategic Plan On Top Shelf!

There are seven common causes for SPOTS.

The plan is devoted to fixing current problems rather than addressing the future of the organization

There is nothing more frustrating than when a strategic planning session “gets into the weeds”—focusing on specific fixes to operational issues. Such situations are uncomfortable for everyone. The volunteer leaders wonder (sometimes out-loud) why their time is being taken to fix problems that the staff should be able to fix themselves, while the staff chaffs at this unwanted meddling and wish (though rarely out-loud) they could exchange these nitpickers for the visionary leaders they need! The best way to avoid this scenario is to be sure at the outset that both volunteer and professional leadership understand the distinct but inter-dependent roles they fill in governance and operations. When everyone knows their role and has a feel for the critical differences between strategy and tactics, then the stage is set for proper and productive strategic planning.

The initiative lacks the support and commitment of the leadership and/or the constituents

The French “Sun-King” Louis XIV was famously quoted as saying “the state…is me!” Not to say that boards of directors consider themselves absolute monarchs, but perhaps there is a touch of sentiment in many association boards that they do embody the association. Legally of course boards of directors do shoulder absolute responsibility for the association, but boards of directors also are or should be representative of broader constituencies. In this context, association leaders should take time to survey where these constituencies are headed and to make sure the association has a good sense of their needs and how these can best be served. Plans are non-starters that are not perceived to be relevant to the membership at large. The best approach to ensure relevancy is to survey membership before the planning begins, then to report back to them how the plan takes their concerns into account.

No one is responsible for implementation or evaluation

It is easier by far to come up with great ideas than it is to work out the “how, when and who” of how they will actually be accomplished. No planning is complete—no matter how self-evidently brilliant the ideas--until this has been done!

The operational plan is unrealistic or without focus or direction

If you agree “there is no such thing as an idea that cannot be written,” then you can understand that there is no such thing as an operational plan that is not grounded in tactics that are well-reasoned, directed and supported by sound financial and logistical planning.

It does not inspire leadership or constituency to move the organization forward

All plans—particularly ones that seek to launch new initiatives—require effort if they are going to succeed; and this in turn requires some sort of enthusiasm on the part of those who need to make them work. If this underlying enthusiasm is lacking, then either the plan or the implementers need to change!

There has been no “reconciliation” of these new initiatives with currently budgeted programs

Great plans almost always require hard choices because they will inevitably need to draw from resources that are currently being used for other programs. This means that the job is not done once the initial planning has been completed—because all of these new ideas need to be reconciled with current utilization of resources. Choices always need to be made. If this part of the process is not observed then the status quo will invariably continue.

The organizational structure inhibits change or otherwise does not supply the supporting framework these new ideas need to be implemented

Too often planning groups fail to consider their association’s current structure and whether it is suitable for carrying out the plans they have just devised. This is in fact a critical issue. Organizations have certain “rubber-like” characteristics. They can be bent into different shapes, but then after time return to their original shape—and ways of doing things. If new plans containing new approaches have any chance of success serious consideration needs to be given to the structure of the organization that is intended to carry out these plans. It rarely works to put new wine into old wine skins. 

Nonprofit Organizations as Facilitators for Economic Change?

By Steven Worth

In the first quarter of each year over the past three years, surveys of US-based association managers conducted by Plexus Consulting Group, LLC (Plexus) have consistently shown a level of optimism for revenue and membership growth that clearly was out of sync with the overall economy.  Nevertheless, these predictions have been largely fulfilled each year.  According to Plexus survey results this year, once again, US-based association leaders are predicting growth well in excess of the 2.1% growth now projected for the US economy for 2014 by both the Federal Reserve Board and the International Monetary Fund.

Initially these findings perplexed us as we had assumed the financial health of the association community was simply a lag indicator of the health of the US economy; but these survey findings indicate a different kind of relationship.  Rather than being directly dependent on the economy, it would appear these trade associations and professional societies are helping professionals and companies to adapt to changing economic trends—so the more the economy is challenged the more professionals and companies turn to these associations to help them adapt.

But performance is not uniform.  The associations that are doing the best are those that offer products and services that are helping students and professionals find better, higher paying jobs and helping companies realize their missions more efficiently and effectively.  There are differences also in the sectors served, with healthcare, the Internet, and the energy sectors usually outperforming other sectors.  But the key take-away from this survey data is that top performing associations are helping to define their markets rather than trailing them.