Key Traits Of Nonprofit Organizations

Eight Characteristics of Nonprofit Organizations

by Mike Allison and Jude Kaye

CompassPoint Nonprofit Services

Understanding context is critical to being helpful in any environment. The authors provide valuable context for working

within the nonprofit world by identifying eight key characteristics of nonprofit organizations. These characteristics affect

the nonprofit culture sufficiently that any prospective nonprofit board member or nonprofit consultant needs to understand

them to be successful.

The work of nonprofit organizations touches every person who lives in the Bay Area. Our air is cleaner, our culture is

enlivened, our freedoms are protected and enhanced, the poor and sick among us live better lives all because of the work

of nonprofit organizations.

While as a group "nonprofit organizations" cover a wide spectrum of size, scope and sophistication, the vast majority of

the one million nonprofit organizations in the United States are small, with fewer than fifty staff, and have a mission

focused on service.

Many consultants who work with organizations in all three sectors (nonprofit, private and public) see similarities between

small businesses and small nonprofits. We recognize the similarities in organization life for organizations with a similar

number of staff. Still, from our experience working with hundreds of nonprofit organizations and through discussions with

clients and colleagues, we have identified eight "key" characteristics of these organizations:

• Passion for mission

• Atmosphere of "scarcity"

• Bias toward informality, participation and consensus

• Dual bottom lines: financial and mission

• Program outcomes are difficult to assess

• Governing board has both oversight and supporting roles

• Mixed skill levels of staff (management and program)

• Participation of volunteers

It is our belief that enhanced awareness of these distinct characteristics will help boards and consultants to work more

effectively in nonprofit organizations.

1. Passion for mission

The passion for mission is a great source of strength for nonprofit organizations. The institutionalized impulse to "change

the world" has brought about many important advancements in American society. As a strength, the passion for mission

taps incredible creativity, energy and dedication for the work of an organization. However, zeal for the mission can lead

staff board and volunteers to discount "business" realities, to turn strategic differences into interpersonal conflict, and to

work with an urgency that borders on a crisis mentality.

Example:

A consultant was called in to help with clarifying roles and resolving conflicts among the management team of a housing

organization for seniors. The managers had spent the past few months arguing over decision-making processes. The

consultant was able to help the group see that beneath the conflict was a deeper division over mission. The Executive

Director felt that the organization's mission was to care for sick and frail elderly residents. The Associate Director,

however, saw the organization as having a social change oriented mission - providing housing was a means to a larger

advocacy role on behalf of poor senior citizens. Other managers were roughly divided along these lines. This conflict was

really a power struggle over the fundamental focus of the organization's mission. Once the underlying issue was identified,

the managers were able to agree on their decision making process while the broader issue was referred to the Board.

Ultimately the Board backed the more ambitious mission and the Executive Director eventually left the organization.

2. Atmosphere of "scarcity"

There are factual and perceptual components to scarcity in nonprofits. Most nonprofit leaders could do more work if they

had more money, more access to decision making, more talented board members, etc. They are often, in fact, "under-

resourced". Since money takes a lot of energy to acquire, hyper-cost-consciousness is often present. In addition,

organizations may carry an altruistic sense that "most of our resources should go to the clients". As a result, many

nonprofit organizations frequently have underdeveloped infrastructures. Nonprofit staff are often more willing to spend

time (their own volunteers', board members') rather than money to get work done.

Example:

An organization serving the homeless engaged a consultant to lead their strategic planning. Little information had been

collected from the organization's clients about their needs or their satisfaction with services. Both consultant and the

organization agreed that client input would be essential to meaningful strategic planning, but the foundation grant the

organization had would not cover this type of survey.

The consultant helped the group develop a survey that could be administered by staff and volunteers. With a small

amount of guidance, a staff member was able to tabulate the data and develop useful findings The data had a profound

impact on the planning process. The organization was able to do thorough planning within the limits of its resources.

3. Bias toward informality, participation and consensus

A sense of friendliness and welcoming atmosphere with little attention to hierarchy are often described as attractive

dimensions of nonprofit culture. Taken too far, informality can limit the appropriate exercise of authority, over-participation

can inhibit appropriate division of labor, and the tendency toward consensus can bog down decision making.

Example:

One local community health clinic had long-standing roots as a center of service and advocacy for an inner city

neighborhood. The staff had always made nearly all decisions as a group. When the organization encountered a budget

shortfall, the Executive Director called the whole group (of 45 staff) together to decide how to cut salaries. The discussion

devolved into name-calling and tears. In this situation, the habit of participatory decision making led to unhealthy conflict

and paralysis. In this case the consultant persuaded the group to let the board handle the matter with limited input from

staff. Although the situation was not pleasant, the Board's authority to make this decision alone was seen as a fair and

appropriate role by the staff.

4. Dual bottom lines: mission and financial

Tension between mission and financial results is fundamental for nonprofit organizations. (One can debate to what extent

this is unique. For-profit organizations have increasingly focused on the importance of mission, relative to the priority of

return on investment. Governmental organizations have increasingly focused on the importance of mission relative to the

priority of political impact).

Internally, the tension between bottom lines influences many strategic decisions as well as the sense of "how well the

organization is doing" at all operational levels. Externally, some stakeholders of a nonprofit care about both bottom lines

(funders, competitors, and regulators) and some stakeholders care primarily about mission (clients and community). The

complexity of dual bottom lines figures in many consulting engagements.

Example:

The primary government funder of a multi-service organization called a consultant to work with an organization that

"couldn't get its financial reports in on time." Focusing most of his energy on the program, the organization's Executive

Director tripled the program funding over four years. However, he had paid little attention to managing the "business"

functions and felt that he "couldn't afford" to increase the capacity of his financial management function. He simply put

pressure on his bookkeeper about the reporting problems, to no effect.

The consultant found the accounting function woefully understaffed. A major reason was the small allowance the funder

allowed for non-program ("indirect") expenses. Upon the consultant's recommendation, the funder agreed to raise the

indirect cost rate and the organization was able to hire an additional staff member to manage the finances of the

organization.

5. Program outcomes are difficult to assess

Most nonprofit organizations have limited program evaluation capacity. This is partially caused by the absence of

standardized program outcomes in most fields. In child care for example, standards for adult-child ratios exist, but little is

standardized in terms of the quality of care delivered. Similarly, arts groups, advocacy organization, mental health

agencies and community development corporations face substantial challenges in measuring their effectiveness.

Furthermore, most nonprofit organizations do not have the benefit of unambiguous market feedback to let them know how

well they are serving their clients. (Nonprofit organizations exist because neither the market nor government is providing

the service; most are funded in part of completely by sources other than the direct beneficiaries of their work.) Thus,

assessing cost-effectiveness and comparing alternative actions is difficult. Different individuals also may make different

assumptions about the relationship between cost and effectiveness. Some groups essentially ignore the issue assuming

their efforts are as effective as they can be.

Example:

A county-wide agency that provided substance abuse counseling and crisis support to youth had divided its programs into

several smaller units. When faced with a drop in unrestricted funding, the group had to decide how best to cut back its

services. Because the group had little objective data on the outcomes of the carious program initiatives, and because

much of their funding was raised through private contributions, the organization could not decide how to manage the

reduction in funds.

Absent and meaningful outcome-oriented data with which to make these decisions, a consultant worked with the

management team on a short-term plan for across-the-board cuts and a longer term plan to collect outcome data for

strategically selecting programs it would keep.

6. Governing board has both oversight and supporting roles

The governing board of a nonprofit has dual roles: it is responsible for ensuring that the public interest is served by the

organization, and--unlike private sector boards of directors or government boards and commissions--is expected to help

the organization be successful. The first role is analogous to protecting the interest of stockholders or voters. The second

role complicates the distinction between governance and management because, in this role, board members do staff-like

work. As helpers, board members may raise funds, send mailings, paint buildings, or do the bookkeeping. This can lead to

confusion about when, and how, it is appropriate for board members to be involved in initiatives. Furthermore, board

members often are not expert in either nonprofit management or in the organization's field of service. They may either be

unprepared to make decisions, or may give up their authority inappropriately to staff.

Example:

The president of an eighteen-member board of an animal shelter called a consultant to facilitate a planning retreat. The

consultant discovered that a high level of conflict existed between the staff and the board over what the staff considered

"micro-management." The board had fourteen standing committees. Some, like the one for facilities, had been formed

when the organization was quite small. A few old-time board members, literally, still wanted to decide the color of paint for

the walls in the office.

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FAQs of Key Traits of Nonprofit Organizations

What are the key characteristics of nonprofit organizations?

Nonprofit organizations are characterized by a strong passion for their mission, which inspires creativity and dedication among their teams. They often operate in an atmosphere of scarcity, leading to limited resources and underdeveloped infrastructures. Additionally, nonprofits face the challenge of balancing dual bottom lines: achieving financial sustainability while fulfilling their mission. The document also highlights the difficulty in assessing program outcomes due to a lack of standardized metrics, and the mixed skill levels of staff that can impact organizational effectiveness.

How does scarcity affect nonprofit organizations?

Scarcity in nonprofit organizations manifests both factually and perceptually, as leaders often feel they lack sufficient resources to achieve their goals. This scarcity can lead to a hyper-focus on cost-cutting and a reluctance to invest in infrastructure, as many believe that funds should primarily benefit clients. Consequently, nonprofits may struggle with underdeveloped systems and rely heavily on the time and efforts of volunteers to fulfill their missions. This reliance can create challenges in maintaining quality services and achieving long-term sustainability.

What role does the governing board play in nonprofit organizations?

The governing board of a nonprofit organization has a dual role that encompasses both oversight and support. Board members are responsible for ensuring that the organization serves the public interest while also contributing to its success through fundraising and operational support. This duality can create confusion regarding the boundaries between governance and management, particularly in smaller organizations where board members may take on staff-like tasks. Effective governance requires clarity in roles and responsibilities to prevent micromanagement and ensure that the organization's mission is prioritized.

Why is it difficult to assess program outcomes in nonprofits?

Assessing program outcomes in nonprofit organizations is challenging due to the absence of standardized metrics across various fields. Many nonprofits operate without clear market feedback, making it difficult to evaluate their effectiveness in serving clients. Additionally, the lack of objective data on program outcomes can hinder decision-making, particularly when funding cuts necessitate service reductions. Without meaningful evaluation tools, nonprofits may struggle to identify which programs are most effective and how to allocate resources efficiently.

Key Traits of Nonprofit Organizations

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