Succurro does quite a bit of work with developing strategic plans for not-for-profit (NFP) organisations. One of the first questions we ask when starting with a new NFP is "why does this organisation exist?" The usual answer we get back from management is that it serves some essential social need. Fair enough, but is that the real reason why an organisation exists? And if the social needs addressed by each organisation are so essential, then why do so many NFPs struggle to survive or fail all together?

The answer usually lies a bit deeper within. Any organisation can be considered as a nexus of contracts, explicit and implicit, between a collection parties. Each party enters into the contract to satisfy different needs and objectives. For commercial organisations, the arrangements are pretty straight forward - one party provides goods or services to another in return for money. Commercial organisations exist to make money for investors and employees by selling stuff that satisfies the needs of clients who are prepared to pay. As to what the 'stuff' is and how it is sold, it really doesn't matter that much. As long as the organisation makes money from selling stuff to pay its creditors and make enough profit to satisfy its investors, it will continue to survive. Directors and managers of all companies are well aware of this.

But what about not-for-profit organisations? Does the same reasoning apply when the clients of most NFPs don't pay for the services they receive and there is, by definition, no profit to return to 'investors'. Most NFPs that fail do so because they can't attract enough funding or members to accomplish whatever it is they set out to achieve. Many other NFPs struggle along with the bare minimum of funds and resources.

One major difference between the profit and the not-for-profit sectors is that the NFP sector is a zero sum game. That is, the amount of funds and people available are essentially fixed because NFPs usually do not have the ability to generate revenue. Funds obtained by one NFP organisation are at the expense of others, making the competition for resources particularly strong.

The other major difference is that many of the contracts between a NFP and other parties can be complex and convoluted. Many do not involve a straight swap of goods or services for money but may involve intangibles, such as volunteers who provide their time and skills in return for the opportunity to satisfy an altruistic or social need. Failing to identify these intangible considerations can result in a NFP struggling to attract funding and resources.

The web of contracts can become particularly complex when the the transfers between parties occur externally to the contract arrangement. For example, to achieve a policy objective, a government may provide funding to a NFP to implement a particular program. This can be difficult for the NFP because the provision of funding is dependent on the policy objective being satisfied, which may be something the NFP has no influence over.

NFP organisations tend to struggle and fail when they do not fully understand this web of contracts between their stakeholders and the flows of consideration. In particular, it is essential to understand the different balances of power between the parties in each contract and the interrelationship between contracts. For example, a NFP may be a monopoly provider of services to a large membership base but be unable to attract sufficient funding because the membership is not a target group of the funding provider's policy. A more complex example is where a NFP delivers a program that aligns with the policy of the funding provider, but the methods of the program conflict with the expectations of the community, who then pressure the funding provider to withdraw the funding.

The answer to the question "why does this NFP organisation exist?" is therefore not much different to the reason why for profit organisations exist - to satisfy the needs of their stakeholders. It just that the needs of NFP stakeholders are much more complex and not always within the control of the NFP.

When developing a strategic plan for a NFP, Succurro always starts by producing a stakeholder map that identifies each stakeholder and the nature of relationship between that stakeholder and the organisation. Stakeholders include not just the various parties that interact directly with the NFP like clients and funding providers, but also internal stakeholders like management and staff, as well as indirect stakeholders like communities and related organisations. Once the stakeholders, their considerations and the interactions between them are mapped out, it becomes a lot easier to understand the real purpose of an organisation and develop a strategy for it to be successful.