The “third sector” is important to us!
The Not-For-Profit (NFP) sector is often described as the “third sector”, behind the public and private sectors. This sector accounts for about 10% of the Australian workforce and makes an important contribution to Australia’s GDP. While the numbers are significant, they ignore the contributions of hundreds of thousands of volunteer hours which are dedicated towards the sector.
I have worked closely with numerous NFP organisations throughout my career and I thoroughly enjoy the opportunity. The governance and some of the employment of many NFPs is driven by wilful, audacious and charitable volunteers who give up their precious time to dedicate to the continued success of the respected organisation. Success in their view did not depend in generating bottom line profits, but in the ability of their respective organisation to provide maximum social utility and benefit.
This equilibrium was the status quo for a long time and while some NFPs took exception to this, majority followed suit. However, in recent times, I have noticed a cultural shift within most of my clients. The change has been slow, slow enough not to be noticed. As such, the change has been evolutionary rather than revolutionary. This evolution has led to NFP organisations moving into a competitive environment.
The cause for the shift can be partly attributed to the government’s 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 transition has been difficult for some organisations within the sector and this has led many to assess their viability and merge with other like-minded organisations. In the commercial world, economies of scale usually perform better than smaller organisations and understanding of that trend has encouraged NFPs to aim for similar outcomes.
The NFP sector will no doubt face a few challenges as a result of the change. Organisations that are reasonably self-sufficient through commercial and innovative fundraising activities will be competitively placed. However, those that are predominantly reliant on government funding and continue to operate as always without re-assessing their strategies may find their long-term continuance and sustainability under threat.
The NFP sector can treat these challenges as an opportunity to innovate, create and be the thought leaders within their sectors. NFPs can utilise one significant advantage they have over their commercial competitors: the ability to plan long term without the fear of shareholders’ demands for short term bottom line profits.
Here are seven actions and strategies that NFPs are employing in order to adapt to this changing environment:
- Discussions and potential mergers with similar sized and like-minded organisations
- Developing sound management reports that allows the Board and Management to make timely and effective decisions
- Collaborating with other NFPs in innovative capital projects
- Sharing idea by holding discussion groups among other NFP leaders attain common outcomes
- Developing meaningful budgets and regularly comparing actual performance against budgets
- Benchmarking performance against industry leaders including the commercial competitors in their sector
- Educating and training the Board and management by investing in educational courses.
