sustainability
sustainability
Should NGOs Embrace A More Business-Like Approach?
This is Part 2 of a two-part series of articles to assist NGOs in the transition towards greater autonomy. We 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.
Think Like a Business
Let’s start by looking at four important ‘re-thinking’ strategies that help an NGO make the transformation to greater success:
1. What is the trade? Understanding the ‘fair value exchange’
A key ‘aha moment’ in the transformation of an NGO is the recognition of the value that NGOs offer to funders.
In a traditional business environment, the value exchange is easy to spot as goods and services are exchanged for money. Key to this successful relationship is a win-win for both parties in the form of a balanced or fair value exchange. In a nonprofit context, it can be more difficult to recognise what is being exchanged and to know when this is equal or fair.
The starting point therefore is to recognise what we are exchanging. What exactly is the trade?
Generally NGOs provide a service making a difference and uplifting communities in areas of need. Funders want the same end results, but can’t achieve this without NGOs and effectively pay them to deliver the results they wish to see. The NGO becomes the service-provider of social change.
As an example, an NGO providing HIV counselling in impoverished areas is delivering on their mandate to develop healthy communities. For a corporate social investment (CSI) manager whose mandate is to make a difference in communities in this way, you are a Godsend! You are the implementing agent of their vision, and your service delivers the outcomes that they seek. In this case the fair value exchange is community empowerment in exchange for money (funding) – and remember that the more visible, tangible and measurable this outcome is, the more readily it can be valued by the funder.
2. Who is the client? Using client-centred thinking
Most NGOs view their beneficiaries as their client and are totally focussed on providing added-value goods and services (usually for free) to the people, community or cause that they serve. The business-like approach sees things differently.
In business terms, a client is someone who pays for goods and services. As radical as it may seem to some, this means that the NGOs’ client is actually the funder, not the beneficiary, and it is this paying client that enables the services of the NGO to be delivered. Of course a sincere commitment to the servicing of this beneficiary community is at the authentic core of any reputable NGO, so we are not suggesting a diluting of this commitment, but rather recognition of the role of the primary funder client, without whom the NGO will simply cease to exist.
Recognise who your real clients are, and look after them like gold!
3. Costing and pricing – who pays the overheads?
A common challenge in the nonprofit sector is that many funders shy away from covering running costs and overheads, and are especially prickly about salaries. This is understandable from the funder perspective, as they are reluctant to fund a lavish, lax or unproductive organisation and because it is nearly impossible to quantify impact from supporting the running costs and salaries of a service-provider organisation, nonprofit or otherwise.
Now we are in no way suggesting that all NGOs are lavish, lax or unproductive, but it is the responsibility of the NGO to prove this and to motivate these costs as part of an effective, productive unit.
The reality is that any organisation must recoup its running costs to survive. In costing terminology this is known as overhead contribution or overhead recovery, and it is generally added to the price as a percentage of direct costs (raw materials and direct labour). Typical overhead contributions can range from 15 – 40 percent, depending on the size of the organisation and the overhead structure. What this means is that to be sustainable, your organisation should be building into the budget a contribution towards overheads; it can be in the form of project managers’ fees, administrative costs etc, all perfectly legitimate and justified as long as they are project-specific and not inflated or unreasonable.
Know that overheads exist and are a legitimate part of the operational costs of all organisations, and find ways to make them palatable to your funding client!
4. Return on investment – understanding the terminology
We spoke in the first instalment about Return on Investment. In business terms, this simply means getting something back for what you put in, usually in the form of profits or other strategic advantage. In the CSI and development context, this includes the beneficial outcomes that result from investment in a project, community or social initiative. Sometimes called ‘Return on Social Investment’ this return can be measured in social terminology such as people supported, CO2 reduced, children educated, rather than in pure monetary measures.
Secondary returns can also be very important, and benefits such as positive media and public relations opportunities, the chance to form strategic partnerships with government and other stakeholders and the generation of goodwill and brand loyalty can be a very valuable return on investment for funding clients.
The nonprofit that understands the concept of return on investment and its importance to corporate clients especially, will have a better chance of developing long-term funder relationships.
If You Do It, Do it Properly
While many nonprofit and related organisations run income-generating initiatives, success stories are few and often use outside expertise (advisory Board, mentors, consultants etc) to guide growth. The reasons for this are varied but a common denominator is a lack of singular purpose – many non-profits start income generation programmes as an add-on to their core activities (whether HIV support, social services, advocacy, feeding schemes etc) and thus find it difficult to commit the full and necessary resources that the initiative needs to be self-sustainable. This is in contrast to a typical business, where sharp focus is needed if one is to succeed.
We recently received an e-mail from an NGO colleague asking for assistance with the product development of handbags made from recycled newspaper. The intention was to capacitate a group of unemployed women to make the handbags to generate income for themselves, and some commission for the NGO itself. Their plan was to build up some stock and then look for potential markets.
This is sadly a very typical scenario in NGOs across South Africa – whereby an income generation project is started with excellent intentions but little planning. Our response to her was as follows:- The starting point for any income generation initiative (like any business) is finding a viable market. Who, where, when, how and at what price would be typical questions to ask. (the market-led strategy);
- Once the market is better defined the next step is finding or developing a suitable product for that market, bearing in mind the competition, variances in taste, quality, design and trends (market-led product development);
- This should be followed by developing the appropriate business infrastructure, and the necessary basic systems and methods to run the business operation, including HR, sales, marketing, admin, financial etc;
- Only after these steps are complete should we venture into training producers to produce, refining the product to ensure that it is manufactured and supplied at a sustainable margin, and making up some samples or stock.
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- Catherine Wijnberg is director and Anton Ressel development practitioner at Fetola & Associates.Author(s):Catherine WijnbergCharities Lose Funding Due to Infighting
Three nonprofit organisations in the skills, social and environmental sectors could have received R58 million had it not been for the infighting between two Lotto bodies.
However, the tensions between the National Lotteries Board (NLB) and the distributing agencies have led to a situation where several NGOs have been unable to access funds.
An internal document also reveals how the NLB reversed a decision by one of the distribution agencies to fund three of the many dependent organisations last year.
To read the article titled, “Charities lose R58m because of Lotto infighting,” click here.Source:Sowetan LiveNGO Faces Closure Over Funds
Thousands of orphans in Durban will have to wait a long time to get foster parents as Big Shoes, a NGO that expedites the process, is short of funding and set to close its adoption programme at the end of the month.
KwaZulu-Natal regional manager, Tracey Brand, says that the organisation is donor-funded and contracts with previous donors had expired.
Brand states that the organisation expedites the adoption process for children by screening the children quickly and conduct HIV testing and development assessments. In addition, it provides counselling until the child is eligible for the adoption process, and we do all of this with one doctor.
To read the article titled, “Orphan NGO faces closure over funds,” click here.Source:Independent OnlineIdasa, Black Sash, Face Funding Crisis
Two long-standing organisations, Idasa and the Black Sash, say they are losing millions in funding, forcing them to close down crucial projects and retrench staff.
The two organisations say part of the problem in terms of securing international funding is that South Africa is no longer seen as being among the poorer countries.
Black Sash national director, Marcella Naidoo, points out that, “It’s a pity and a tragedy that we won’t be able to do the substantive work that we’re used to. We have always been resilient but this time, it’s particularly sad.”
In the same vein, Idasa’s executive director, Paul Graham, states they were forced to retrench 70 staff members over the past year.
To read the article titled, “Idasa, Black Sash lose millions in funding,” click here.Source:Independent OnlineTroubled NGO Faces Legal Battle
The South African National Tuberculosis Association (SANTA) employees country-wide have not been paid for four months.
The SANTA board, under the leadership of national chairperson, Sipho Tanana, has charged the steering committee with maladministration, corruption, fraud and assaulting staff members.
Also caught in the crossfire are SANTA's TB patients, who are not receiving medical care. CEO Sateesh Isseri says most staff no longer report to work and the TB clinics have ceased operating.
To read the article titled, “SANTA is sick - Troubled NGO in legal battle,” click here.Source:Sunday WorldAre South African NGOs Employers of Choice or Necessity?
As a Human Resources professional working in the development sector, I always keep an eagle eye on trends and practices in private sector organisations who have the resources and capacity to invest in their people management practices. Having worked in the private sector for most of my career, I recently transitioned to civil society organisations and recognised a need for these organisations to reflect on their people management practices and develop strategies for attracting, retaining and developing their employees.
With the onslaught of ‘Eurogeddon’ coupled with the United States economic slowdown, the donor environment has become increasingly competitive and donor requirements increasingly stringent. Donors want to see more bang for their buck and are channelling funds to organisations with consistent track records of delivery. Typically, these are organisations who have low levels of underspending and overspending, efficient internal controls, relevant monitoring and evaluation indicators with evidence of impact and competent, motivated staff who are able to deliver on their commitments.
In October 2011, Deloitte published their list of Best Companies to Work for in South Africa. This is a highly sought after accolade and many private sector organisations compete for the top spot. The survey measures a range of people management dimensions and solicits feedback from all levels in the organisation. For some organisations the element of staff participation is common practice. What was missing on the Deloitte list is civil society organisations. McDonalds, Old Mutual and even small companies like Strate were ‘top of the pops’ but it really got me thinking about whether the people management strategies in civil society organisations are comparable to these corporate entities. How are civil society organisations attracting and retaining good people?
Working in civil society organisations is viewed as conscientised work and is based on the premise that those involved in civil society professions are motivated by more than just a salary, performance bonus and cellphone allowance. For many people working in the development sector the opportunity to contribute to social change is far more rewarding than being able to buy the latest Audi Q1, but are our NGOs willing and able to reflect on their people management practices to ensure that they are able to hire and retain the talent both from the corporate and development sectors?
I bumped into an ex-colleague recently, an experienced Chartered Accountant who had worked in private sector but decided to take a leap of faith and find work in the development sector. She struggled to find an organisation willing to employ her and she was willing to take a substantial cut in salary to make the move. After months of not hearing back from agencies and sending out her CV with no response, she was snapped up by a local brewery. It was a moment of truth and I think reflects that there are a growing number of professionals willing to make the move into more conscionable employment. Isn’t it time that our civil society organisations saddle up and mobilise their employer value propositions and strive towards becoming employers of choice?
A visit to any campus during their graduate placement weeks reveals a noticeable absence of civil society organisations. All the top private sector organisations are there; cheek by jowl competing for all the fresh young graduate talent. But who is there from civil society to recruit the graduates who want to contribute to social change?
Why shouldn’t development sector organisations hire more marketers and chartered accountants who want to sign up for conscientised work? Why shouldn’t our NGOs pay competitive salaries and invest in the development of people who work for them. Paying competitive salaries doesn’t mean competing with corporate profit-driven salaries, but assessing salaries in the development sector and offering a fair ‘market-related’ salary. The ‘save and score’ mentality of hiring for less or skimping on working conditions just because people want to work to make a difference is archaic and perhaps more relevant in organisations operating in the 80s. It’s time for NGOs to formalise, develop their employer value proposition and go to market. Hit the campuses, recruit our fresh young graduates and start competing with the private sector organisations. NGOs have something that no private sector organisation can offer; the opportunity to contribute to social change. They have niche which they need to exploit and become employers of choice in their own right. At the end of the day, it’s less about becoming the Best Company to Work for in South Africa and more about taking stock and reflecting on people management practices.
- Simone Brandi is a freelance Human Resources Consultant working with non-profit organisations in Cape Town.Author(s):Simone BrandiNGOs to Face Bleak New Year
Many NGO employees face a new year without work and others have to tighten their belts this festive season as essential European aid funding dries up, leaving the future of a number of civil society programmes in jeopardy.
The South African National NGO Coalition (SANGOCO) Western Cape says the NGO sector is facing a crisis as long-time European donors curtail aid to South African organisations, partly due to the deepening global financial crisis, and partly due to South Africa’s own economic development.
SANGOCO Western Cape programme manager, Jacky Thomas, says that European donors now saw South Africa as a middle income country and are shifting their focus to North Africa and more impoverished nations within the Southern Africa Development Community.
To read the article titled, “Bleak new year for NGOs,” click here.Source:West Cape NewsFunds Setback for War on Diseases
The Global Fund to Fight AIDS, Tuberculosis and Malaria has introduced a stop-gap measure to keep essential services going, but has cut off a lifeline for civil organisations counting on new grants.
Board chairperson, Simon Bland, states that the fund hoped to have nearly US$12 billion available, but fell short by US$2 billion, adding that this forced the board to cancel the 11th round of its funding for programmes aimed at treating the three diseases.
"Because some traditional donors did not pledge, and because of the difficult economic outlook in virtually all donor regions, it is uncertain at this point whether all pledges will be turned into contributions on time," explains Bland.
To read the article titled, “Funds setback for war on AIDS, malaria and tuberculosis,” click here.Source:Times LiveIdasa to Close Cape Town Office
As previously reported by West Cape News, Western Cape-based organisation Rape Crisis has had to pull back its operations, and now the Institute for Democracy in South Africa (Idasa) is being forced to lay-off almost half of its long-time staff in their Cape Town and Johannesburg offices.
The organisation's executive director, Paul Graham, says that they are on the downstream of the ‘massive economic slump’ in Europe and North America where the majority of their funding came from.
Idasa promotes sustainable democratic societies in collaboration with African and global partners.
To read the article titled, “Idasa to close Cape Town office as funding dries up,” click here.Source:Poten & PartnersTAC Faces Closure Over Lack of Funds
AIDS lobby group, the Treatment Action Campaign (TAC), faces possible closure in January 2012 because of a lack of funds.
In a press statement, the TAC points out that as a grant-funded NGO, it cannot afford to run a deficit.
It says that, “...besides the fact that over 230 activist organisers will lose their income, the closure of TAC would be a setback for South African democracy."
The organisation, which depends on a five-year grant from the Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) for a large portion of its work, failed to receive its R6.5 million grant in July 2011.
To read the article titled, “TAC faces closure due to funding,” click here.Source:News24
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