Should NGOs Embrace A More Business-Like Approach?

ngos financial management CSO sustainability
Tuesday, 24 January, 2012 - 16:03

NPOs need to consider introducing income-generating projects, sell quality services, be accountable to their stakeholders, and become sustainable

It is clear from several articles of recent weeks that the prospect of having to generate income in-house to fund the provision of critical, socially beneficial services is causing deep concern for many NGOs. Similarly, the expectation that nonprofits be run along business lines is being greeted with protest and accusations of unrealistic expectations. Yet, the reality is that in a changing competitive world, those who adjust to the needs and expectations of the customer (in this case the funder) are those who survive and thrive. The first challenge for the sector is to better understand these changing expectations and their impact on individual NGOs, and secondly to find ways to move towards this new reality while maintaining organisational integrity.

This transition to ‘sustainability’ is largely being viewed by NGOs as the creation of additional self-generated income to supplement funding and grants. In truth, with few exceptions income-generation is not something that nonprofits do very well, which is understandable given their non-commercial origins in social support. NGO systems are seldom set up for profit-making applications, some struggle with the concept of charging for services that they would prefer to offer for free, and when it comes to products the end result is often under-cooked and geared to available skill levels, rather than to market needs or wants. In most cases, income generation projects are primarily established to provide beneficiaries (such as mothers with HIV/AIDS or child-headed households) with the means to earn a bit of income to help them survive, rather than as a means of income for the NGO itself.

However, sustainability runs deeper than income generation alone and we would argue that there is merit in a more business-like approach in the nonprofit sector, for all stakeholders. The truth is that the NGO space is competitive, with ever-increasing numbers of nonprofit organisations competing for a slice of the diminishing pie. More and more of donors and funders are choosing to support projects and organisations that can offer them a return on their investment, not necessarily in financial terms but certainly in terms of measured and visible impact, positive public relations and the opportunity for project growth, replication and sustainability.

Development and corporate social investment (CSI) fund managers are almost without exception over-worked and under-resourced, and face daily with dozens if not hundreds of applications that they need to fit to a finite budget. Their challenge is to decide who to support for the best possible outcomes, and the task is often heart-breaking as they are forced to decline appeal after appeal. Thus a major responsibility for the nonprofit fundraiser is to make their application stand out from the crowd!

Clearly, the organisation that has a powerful, concise proposal that says what they do, how they do it and what benefit the funding will generate, coupled with meticulous financial records, a professional and appropriate corporate identity and excellent communication tools (website, e-mail, landline, mobile etc) will appear most attractive. Compare this with the established but disorganised NPO that has a decades-old website, poor communications, a long-winded and vague proposal and very little to offer apart from the needs of their beneficiaries or community.

Just as commercial businesses sell products or services, in a competitive world so too must NGOs increasingly be equipped to ‘sell’ their offering to prospective donors and stakeholders. Simply having a worthy cause and doing good and necessary work is no longer sufficient to secure donor support. NGOs need to market themselves as the best organisation to deliver long-term value from the social investment that funders are making.

In the above context, increased self-sustainability and a business-like approach does not mean that a nonprofit must generate its own income by selling products or services to fund the good work it is doing. It is primarily about adopting a more professional, measured and holistic operating philosophy, one that recognises that increased competition for funding requires one to stand out from the crowd in order to flourish. For many these changes will involve introspection, and possibly even require the support of specialist consultants who can assist with the transition to a more professional structure, together with better reporting tools and business systems and a more attractive overall proposition for potential funders.

There are some programmes that support NGOs in transition, such as the Old Mutual-funded, Legends Business Development Programme. This programme welcomes NGOs and nonprofits who fulfil programme selection criteria and have a desire to grow, strengthen and improve their overall offering. The most successful NGOs attract ongoing donor support in the millions, and without exception these organisations have good systems, excellent reporting, a brand that they nurture and promote, a concise and clear mandate, vision and mission, and a recognition that the needs of their target beneficiaries are no longer enough to get funders excited and interested in their work – they have to look at the needs of the funder as well.

Programmes such as Legends assist NGOs that want to transition to becoming effective and efficient long-term players in the social and economic transformation of South Africa.

The call to NGOs for transition to social entrepreneurship and self-sustainability is really a call for greater shared responsibility – an approach that tips the balance of power in favour of the NGO that understands they are the master of their destiny rather than a victim of circumstance. This requires leaders to look beyond simply the delivering of services to beneficiaries, but to understanding and embracing the 360 degree needs of clients and funders too. With a little help and focus, all organisations can develop beyond ‘the way things are done around here’ to this new dimension of possibility, and a sustainable future.

- Catherine Wijnber is director and Anton Ressel development practitioner at Fetola & Associates. This is part one of a two-part series of articles to assist NGOs in the transition towards greater autonomy. In Part 2, we will explore some actions that can assist with transition to a more businesslike approach, and also take a closer look at income generation and its viability in the non-profit context.

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