As the new economy forces nonprofits to act more like the for profit world, you should ask yourself this question: is your organization fooling itself by managing to a number?
Are you devoting this year’s donor initiative to prospects that should be given a longer nurturing period in order for your organization to gain a larger gift? Where else might short term actions detract from the best decisions for long term social missions?
To better apply this to the nonprofit world, let’s start with the more easily visible version of this issue in the for-profit world. By applying the following points to your organization, you may be able to improve its sustainability. Leaders of both public and private companies sometimes publicly single out specific numerical targets for net income. Once stated, those targets often become obligations.
So why is this an issue for them and you? Well, in those leaders’ zeal to consistently reach numerical goals, for-profit organizations begin to fall for the temptation to stretch some quarters to reach targets. Sometimes, they even slow down, lest they bring in too much income above the target number in another quarter. The result: in their ever-increasing attention to reaching short-term numbers, leaders can lose focus on making the best long-term decisions to build values.
Month end, quarter end, and fiscal year end personal activities can be taken hostage in this teeter-totter process of getting just enough income (but not too much) in the current period. This phenomenon can be likened to Goldilocks tasting the three bears’ porridge! (Having been part of year-end deal-closing crunches, I can assure you that inordinate amounts of time, money, and focus are required to to get deals closed in the desired period. Often those crunch times occur during holidays or when special family events had already been scheduled, inconveniencing and annoying the employees involved.)
When they have gone too far in covering shortfalls to reach arbitrary numbers, companies often hold “fire sales” to ensure they get the last few sales needed for target revenues. This practice can backfire and result in customers quickly learning to hold off on purchases until the regular desperate overture is made at period end. All of these complications result from a focus on hitting the sacred numerical targets. This ends up reducing margins as well as creating a spiraling impact as the company continues to try to make upcoming period results.
What does this this obsession with exactly hitting stated numerical results do to the sustainability of employee or volunteer commitment throughout the organization? Consider this corrosive environment with stress and pressure from the non-economic energies required to reach those targets. How much does that pressure detract from corporate responsibility to shareholders to consistently build economic value for the enterprise within risk tolerances and resources available? (Some of you should be starting to see parallels in your nonprofit world.)
At what point does this create a situation where the for-profit or nonprofit organization gets too caught up in the process and loses track of real balance sheet and operating information needed to make the best decisions? The closer to customer facing activities this incorrect data reaches, the more likely it creates operational inefficiencies.
As a result, the company owner, leadership team, or staff will likely devote holiday time to managing wasted energy needed to hit those numbers, when instead they should be looking at building equity and long-term wealth.
But fear not good fellows! For good news is at hand: Santa’s got 3 stocking gift ideas to help you reduce emotional cost and financial fallout. These three actions can help bring back the spirit of good cheer, and happier spouses, families and significant others in the form of restored holiday time:
- Consider targeting a numerical range, not an exact amount. Why not set a number goal of, plus or minus 2 to 5 percent? Think of this concept sort of like a flex budget.
- To encourage employees or volunteers to emphasize consistently reaching longer-term goals and objectives, change or adapt incentive programs. A balanced scorecard approach fits very well with tailored incentive plans. Plans that can be measured produce
- Change the tone from the top to emphasize doing things right, instead of focusing on managing income. A number of experts suggest that an emphasis on doing things right does a better job of building long term equity or fund balance. This tone fits better with the mission and vision for most nonprofits, anyway.
And, in return, Santa only asks that you truthfully reflect on the possibility that this short-term income-oriented behavior runs deeply in your socially-concerned, mission-driven nonprofit. The fact is, you may need a fresh set of eyes to see where you are. Then, as you begin to eliminate non-economic activities, maybe the majority of your employees can enjoy their holiday time.
This concept can apply beyond the traditional holiday season to other holidays throughout the year like Valentine’s Day, Independence Day, Labor Day, Thanksgiving etc.
His Boardsource presentation and Roadmap to Sustainable Mission is available at http://www.boardsourceleadershipforum.org/session/boardroom-black-holes-and-taboos-2/
Gary Patterson, the FiscalDoctor®, has helped over 200 nonprofit and for-profit international organizations. He also authored the highly pragmatic book Million-Dollar Blind Spots. You can learn more about his company www.fiscaldoctor.com