For-Profit versus Not-For-Profits:
How to Measure Success
by Dr. Ichak Adizes
Usually in the literature, there is a distinction
between the not-for-profit and the for-profit organizations.
The literature states that the not-for-profit organizations
are at a disadvantage because they don't have profit
as a metric for their success. Thus, not-for-profit
organizations cannot use the tools and the tautologies
that are routinely utilized throughout for-profit
organizations.
I want to attack this myth. I consider it a total
misunderstanding of the process of management and
of the dynamics of organizations. I claim that, as
far as the processes of management and the leadership
that needs to be provided, we can find many similarities
once we understand the process of management and what
a healthy managerial process is all about.
A well-managed organization, whether it is not-for-profit
or for-profit (or even a family or society), needs
to be effective and efficient in the short and long
run. We know from the Adizes Methodology that there
are four roles that need to be performed for organizations
to be effective and efficient in the short and long
run: (P) for producing the results for which the organization
exists so it can be effective; (A) for administering
the organization for short term efficiency; (E) for
the entrepreneuring , pro acting to predicted change
so the organization can be effective in the long run;
and (I) for integration, building team work so no
one person in the organization is indispensable, which
makes the organization efficient in the long run.
Let us start by analyzing the (P) role. In for-profit
organizations, the typical response when you ask leaders
of such organizations why they exist is "profit."
This is a mistake. We all know that profit is not
the answer. Some organizations that are profit oriented
are going bankrupt. Profit is like the scoreboard
in a tennis match. You cannot win the game by watching
the scoreboard instead of the ball. What is the ball?
The ball is satisfying your client's needs. If you
satisfy your client's needs repeatedly, you are effective.
If the organization satisfies those client's needs
in an efficient manner, by being well administered,
which is the (A) role, then the organization will
be profitable in the short run too. In other words,
profit is nothing more than added value. Why? When
people are willing to pay a certain price to have
their needs satisfied and those needs are satisfied
efficiently, i.e., at a cost of satisfying that need
which is lower than the price people are willing to
pay, commensurate with the market place, then the
difference between that price and the cost is profit,
ie the organization has added value to society. How
does this apply to the not-for-profit organizations?
Well not-for-profit organizations also have a client
base. In this case it is the community they want to
provide services for. They also need to satisfy those
client needs. Now the question is what is the price
that people are willing to pay to have those needs
satisfied. In a not-for-profit the price is more difficult
to discern, but there is a price for everything we
do . For example, how long are people willing to wait
in line at a hospital to be treated?
I did the health planning for Ghana. We looked at
how many miles people were willing to walk in order
to be treated at a clinic. That was the price they
were willing to pay. All not-for-profit organization
should ask the questions: What is the community we
are trying to serve? What is the price they are willing
to pay to satisfy their needs? It could be the length
of time they have to wait for an application for fund
proposal approval. Price does not have to be money;
it can be cash equivalents: time, effort, hardship,
pain. Instead of saying, we don't have profitably
as a metric, not-for-profits should be asking themselves,
"are we adding value? Is the cost of us satisfying
our community needs lower than the price of the clients'
satisfying their own needs."
The bottom line, every not-for-profit executive should
be asking themselves:
Whom are we here to serve?
What is the "price" they are paying in
order to be served?
Are we assisting them in the most efficient manner?
(i.e., are we effective and efficient.)
The for-profit business organization will measure
itself with short-term profitability, which is a measure
of added value, and the not-for-profit organization
should measure itself against something more intangible
but still real by asking are we adding value in the
most possible manner. It requires more self-discipline,
honesty, and integrity to measure these price equivalents
than it does to measure profit. Do the not-for-profit
organizations really know the real needs of the community
they serve? Do they really know the hardships that
they have to go through in order to be assisted? Are
they really doing the best they can to satisfy those
needs in the most efficient manner?
The above questions deal with the short run.
In order to be effective and efficient in the long
run, a for-profit organization has to identify the
future needs of its clients, and it has to be structured
in an organic manner so no one is indispensable and
the organization is not harmed if a part of the organization
has difficulties. This applies to not-for-profit organizations
as well. Are we identifying future needs of our community?
Are we proactive or are we stuck in historical patterns?
Are we organized organically so if the founding executive
director of the organization leaves are we capable
of surviving in the long run?
As we can see, there are significant similarities
between for-profit and not-for-profit organizations.
The difference is in the interpretation of the different
roles that need to be performed in order for the organization
to be effective and efficient in the short and the
long run.
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