The Not-For-Profit (NFP) sector has long been referred to as the ‘third’ sector. As such, NFPs were not expected to perform to the level of commercial businesses that thrive or perish in a competitive environment driven by market forces.
Who is the so called third sector in Australia?
The Not-For-Profit sector accounts for almost 10% of the Australian workforce and contributes over $50bn to the Australian Gross Domestic Product (GDP). These statistics don’t take into account the significant contribution of volunteers who are involved with the 600,000+ NFPs in Australia.
The governance of the majority of these NFPs is driven by committed and charitable volunteers who give up their precious time, often after-hours, to dedicate themselves to the continued success of the organisation. Success, in their view, has not been dependent on generating huge bottom line profits, but on the ability of their organisation to provide maximum social utility and benefit, with minimal resources employed, whilst also ensuring the continued satisfaction of their employees and the volunteers involved in the organisation.
This equilibrium was the status quo for a long time and, while some NFPs took exception to this, the majority followed suit.
Enter the era of contestability
In more recent times, the era of contestability and greater efficiency has dawned upon the sector. This is partly a result of large budget deficits leading to significant and seemingly uncontrollable government debt, which has ultimately led to funding cuts across all sectors, government run and independent.
The NFP sector will no doubt feel the brunt of this change. Those that are reasonably self-sufficient through commercial and innovative fundraising channels may continue to thrive in this era. However, those that are heavily reliant on government funding and operate as they did previously will need to self-assess and re-evaluate their strategies to ensure they achieve their ultimate goals. The NFP sector should treat these funding cuts and challenges as an opportunity to innovate, create and be the leaders of their industry to the extent that they become the envy of the corporate and commercial world.
A key NFP advantage
One key advantage that NFPs hold over their commercial competitors is their ability to make long term plans and take actions in such a way to achieve the goals and objectives contained in those plans. In the commercial world, the insatiable drive for short term profits demanded by shareholders influences a business’s governance and management to focus their resources and actions around shorter term goals.
Actions and strategies for the new environment
Here are seven actions and strategies that NFPs are employing in order to adapt to this changing environment:
- Mergers with similar sized and likeminded organisations
- Investing in sound management reporting that provides Board and Management with relevant information to make timely and effective decisions
- Investing in innovative capital projects, often in joint ventures with other NFPs, which will ensure their sector stays technologically competitive
- Organising discussion groups among other NFP leaders in their sector to achieve common outcomes and share ideas
- Developing sound budgets and monitoring actual performance against budgets
- Benchmarking performance, financial and operational, against industry leaders including the commercial competitors in their sector
- Upskilling the Board and management by investing in educational courses.
All Accru locations specialise in services for Not-For-Profits and work closely with numerous NFPs to ensure they achieve their goals and thrive in this brave new era of contestability. Please contact your local Accru advisor to find out more.
Ahmad Samadi, Accru Melbourne