Communication in Non-Profit Organizations
Joyce Burnette
Strayer University
Abstract
This paper discusses the issue of managing effective communication within a non-profit organization and the strategies, which are to be implemented to further improve the effectiveness of inter-organizational communication within the non-profit sector.
Table of Contents
Abstract 2
Table of Contents 2
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Chapter 1: Introduction
Today, the nonprofit sector plays an increasingly important role in the provision of vital services in fields such as health, social services, and education. The size of the nonprofit sector has increased rapidly over the past 60 years from a little more than 12,000 organizations in 1940 to over 1.5 million organizations today (Boris 2004). This sector includes 501(c) public-serving nonprofits that are organized for religious, educational, charitable, and scientific purposes, as well as a host of member-serving nonprofits, such as business leagues, social clubs, and labor associations (Bowen et al. 2004). While the sector has grown quickly, serious questions have arisen in recent years about the funding and management of these organizations, particularly the public-serving nonprofits whose supporters are entitled to a tax deduction for their contributions. In response to contributors ' concerns following a series of highly publicized financial scandals at nationally prominent charities, the field of nonprofit management has quietly undergone a period of self-examination aimed at bringing greater financial controls and tighter operations to the sector. Reforms in the way nonprofit organizations operate have been aimed at reassuring the public that contributions are being wisely applied to the core charitable missions of these organizations.
Problem Statement
Against the backdrop of these financial pressures, researchers examine the factors that drive charitable contributions to nonprofit organizations. Because nonprofits have received a great deal of advice on how to manage their operations efficiently, researchers are interested in the question of whether strategic positioning around efficiency, defined as the reporting of a below average administrative to total expense ratio, increases the contributed income that a nonprofit organization is able to raise over time. Beyond the need to build legitimacy and donor confidence, which may underlie the new bottom-line movement in the nonprofit sector, there has been much talk about the growing sophistication of philanthropy as evidenced in the expectation of donors that their contributions be well spent. This research asks how much reality lies behind this new rhetoric and whether the funders of nonprofit organizations have indeed begun to take more seriously the efficiency of the organizations they support. Thus, while the efficient management of nonprofit organizations may serve a range of purposes, researchers are interested here in whether it has an impact on an organization 's ability to attract public support as measured by contributed income.
This research paper moves toward an answer in five steps. First, researchers set the stage by considering the background issues and previous research related to this question. Second, researchers define the research hypotheses that guided non-profit organizations’ work. Third, researchers describe non-profit organizations’ data and methodology. Fourth, researchers present non-profit organizations’ results and analyze the findings. Finally, researchers conclude with some broader reflections on the question of nonprofit management and accountability.
Significance of the Problem
The rapid rise in the number of nonprofits seeking a piece of the limited amount of charitable contributions has increased competition within the sector and made it harder for many of these organizations to achieve long term financial stability. Charitable nonprofits raise funds through two principal means (Hansmann, 2005). The first is through the charging of fees for the delivery of services or the creation of commercial ventures designed to generate a stream of earned income. Over the past two decades, these commercial forms of revenue represent a critical source of operating funds that has given nonprofits the ability to launch and sustain initiatives by having clients and consumers pay for part or all of the cost of delivering services (Weisbrod, 2004). The second way nonprofits support their operation is through donations and grants. By emphasizing the public-serving nature of their work, many donative nonprofit service providers are able to elicit a stream of contributions that provides critical revenue for operations (Gronbjerg, 2004). For organizations that work with disadvantaged populations or that seek to provide a service for free or at a subsidized price, contributed income is often a critical ingredient in their financial strategy. Today, there are few entirely donative or entirely commercial nonprofit organizations. In the face of a tight market for contributions, many nonprofits attempt to alter and diversify their funding bases from a predominant reliance on contributions toward a more balanced approach that includes earned income. All the while, there remains a significant ongoing need for contributed income to fund those activities that are part of the mission of a nonprofit organization but not easily supported by client payments.
Chapter 2: Background and Literature Review
To date, research on the private funding of the nonprofit sector has tended to focus on donor motivations. Starting with the question of what determines the amount of giving, many studies have looked at the sensitivity of contributions to various changes in the funding environment. The goal of this work has been to explain donor decisions and to do so almost always without taking into consideration the activity of the recipient organizations. Studies of individual charitable contributions have modeled donations as a function of disposable income and the "price" of giving to a nonprofit (Clotfelter, 1985) or the "price" of obtaining a dollar of charitable output from a nonprofit (Steinberg, 2005; Weisbrod and Dominguez, 2005). In the field of corporate contributions, the impact of taxation on giving has also been studied, though the results are more mixed (Navarro, 2005). Studies of the giving patterns of private foundations have focused on the multiple roles and responsibilities that frame the strategic decisions those foundations make about how to use their resources (McIlnay, 2004). In these and other cases, modeling and theorizing have tended to treat the contributions process from a perspective in which the donor is actively involved in weighing alternatives and the recipient is a passive vessel of benevolence.
Another important line of inquiry is the relationship between other sources of nonprofit revenue and private donations. Specifically, this research addresses whether government grants and contracts "crowd out" charitable contributions (Brooks, 2000; Kingma, 2005; Okten and Weisbrod, 2000; Steinberg, 2004). The findings are mixed, however, across various subsectors and geographic regions with some studies finding evidence of a partial "crowd out" effect and other studies finding opposite evidence of a partial "crowd in" effect. Nonetheless, the thrust of this literature has been to evaluate the responsiveness of various revenue streams without explicitly taking into account the actions of the nonprofit itself.
Researchers start with a different set of concerns and assumptions about contributions to the nonprofit sector. Rather than begin with the question of what determines the amount of contributions made by supporters of nonprofit organizations, researchers draw on a different research tradition; one that starts with the role of information asymmetry (Akerlof, 2005) in the market for charitable contributions and moves to the question of what determines the fundraising success of nonprofits (Kelly 2004). Far from being bystanders to the deliberative process of donors, nonprofit organizations are, in fact, actively engaged in courting supporters by signaling the importance of their mission and the efficiency of their operations (Kim, 2004). This strategic positioning is a critical part of the giving process since it determines what information reaches donors as they make their decisions on where to direct their funds. The most basic form of positioning is around mission. Nonprofits define themselves around the causes they are established to serve, which they hope the public views as important enough to support through both volunteering and charitable giving. As the public shifts its attention to issues ranging from homelessness to early childhood education to famine relief, different sectors of the charitable market benefit from successive surges of public support. Because an organization 's mission is not usually subject to quick or radical change, maintaining financial support over long periods of time can be a difficult task. Donors are notorious for experiencing "compassion fatigue," as the demand for charitable resources for what seems like an endless range of causes marches on and on. Over the past two decades, there has been a conscious effort to change some of the dynamics of the contributions market and to help nonprofits find a dimension other than mission on which to position themselves, namely managerial and administrative efficiency. This has led to an explosion of handbooks and management manuals designed to give nonprofit leaders tools to improve their operations (Light, 2000).
On a daily basis, many nonprofit managers are confronted with a long list of challenges, including staff turnover, unreliable volunteers, difficult clients, and demanding funders. As a consequence, the successful nonprofit manager must constantly work to find ways to sustain the myriad of complex personal relationships that together allow a nonprofit organization to pursue its mission. While all nonprofits would like to develop long-term organizational plans and improve management practices, a harried agency director may, more often than not, be drawn to focus on the more immediate objective of simply making it through the day and keeping the organization afloat. Of course, some well-funded nonprofits are free from these mundane constraints, but many organizations, particularly community-based service agencies struggle mightily simply to keep their programs functioning. Funders are increasingly selective in their awarding of gifts and grants to nonprofits. Underfinanced and duplicative nonprofit organizations must now contend with the inability of private funders to finance completely the explosive growth of this sector. One consequence of this development is the rise in nonprofit bankruptcies and closings (Hager et al., 2004). What then is a nonprofit organization to do?
A popular response in the literature is for nonprofit organizations to manage themselves better and more efficiently in the new competitive and performance-driven world they now face. Improving management is seen both as a way of raising operational effectiveness and as a method of reducing costs. Dozens of books aim to help nonprofit practitioners improve their organizations and manage more effectively and efficiently (Antos and Brimson, 2004; Dropkin and LaTouche, 2004; Drucker, 2004; Eadie and Schrader, 2004; Firstenberg 2004; Pynes and Schrader, 2004; Wolf, 2004). Many of these titles attempt to bring business concepts such as reengineering, quality management, and benchmarking to bear on the nonprofit sector, usually with the intent of raising the level of organizational and program performance. A common theme that emerges from these texts is that the absence of a traditional bottom line in the nonprofit sector--far from freeing nonprofits to blindly pursue their missions--means that these organizations must manage themselves especially well and develop a special kind of operational discipline. Though rarely expressed directly, these books suggest that a management lag between the nonprofit and private sectors can be closed with a direct transfer of managerial knowledge and technology.
In large part, the push toward efficiency and performance is fueled by the rapid professionalization of many parts of the nonprofit sector over the past three decades (Frumkin, 2004). Professional staffs want to bring a new rigor to their work and develop standards to measure their performance, both as the basis for their own advancement within the field and in an effort to build a growing body of expert knowledge. For these professionals, the techniques of reengineering processes, quality management systems, and benchmarking are appealing because they hold out the promise of supporting and justifying the move from volunteer labor to well-compensated professional staffs. With their desire to avoid the charges of amateurism that have plagued this sector in the past, the growing ranks of nonprofit professionals have turned out to be the perfect audience for claims that cost effectiveness represents the new frontier of nonprofit management.
As professionalism has set in, competition for contributed income has intensified, particularly among start-up organizations. Many nonprofit managers confront the fact that there are often several nonprofit organizations with similar missions operating in close proximity with little coordination. In some fields, the competition is quite heated. In the case of international relief organizations, differentiation around overhead costs and programmatic efficiency is now commonplace. Realizing that individual donors to famine relief would, all things considered, prefer to see their funds reach those in need at the lowest cost possible, many relief agencies compete for the distinction of having the lowest administrative and overhead costs. Moreover, this competition is encouraged by the media, which regularly publishes (particularly around the holidays) ratings of charities designed to lead donors towards lean and well-run organizations. Under such conditions, it appears that few managers can afford to ignore the question of cost efficiency, measured most often in terms of the ratio of administrative to total expenses. Of course, the categorization of costs as either administrative or programmatic is a subject of considerable dispute and few industry standards exist in practice (Wilson, Hay, and Kattelus, 2004). As a result, the pressure for nonprofits to position themselves around efficiency only intensifies because challenging such claims is so difficult.
At the same time, foundations and corporations are increasingly tough-minded in their dealings with nonprofit organizations (Freund, 2004). Within institutional philanthropy, there is a move to secure greater levels of control over the entire grantmaking process. The most visible manifestation of this shift is the rise of project grants, which now outnumber general operating grants by a ratio of close to three to one (Foundation Center, 2004). Individual contributors, who together donate more than foundations and corporations combined, are also more aggressive in the way they conduct their philanthropy. Although many small contributions are made on a wish and a prayer, donors of large contributions regularly seek more information before making any commitments and then demand greater involvement and engagement with the organizations they support (Miller, 2004).
For nonprofits, changes in the way large institutional contributions are made means more fundraising work and more post-grant work as well. To satisfy these grant makers, nonprofit organizations must now -- at a minimum -- specify in great detail how funds will be spent, discuss their plans with foundation staff, submit to a site visit, write a project narrative, and provide a financial report. The greater level of oversight and heightened emphasis on effectiveness and efficiency necessitates the recruitment and training of program staff, who know not only how to provide services but also how to handle donors and the new rigors of securing contributed income. These changes have led to an even greater emphasis on fundraising skills within the sector and to the rising salaries of development professionals (Duronio, 2004).
There are currently significant limits to the ability of the contributions market to absorb and use information, however. Although many nonprofits are required to file on an annual basis a financial disclosure form with the Internal Revenue Service and then make this information available to the public upon demand, it remains unclear how well this information shapes the contributions decisions of many donors (Chisolm, 2004). Foundations and corporations routinely scrutinize audited financial statements and public reporting forms, but small individual contributors rarely inquire in any depth into an organization 's finances. In addition, there is considerable concern about the accuracy of the information detailed on the financial disclosure forms because the reporting categories are often vague and audits of nonprofit organizations are increasingly rare. The IRS only has a small enforcement office for nonprofits and it struggles to keep up with the explosive growth of the sector (Gaul and Borowski, 2004; Greene and Williams, 2004). Still, the information contained on the reporting forms can help us understand how many nonprofit organizations present themselves to the public. This public disclosure of information represents an organization 's most visible statement of its financial condition and managerial priorities.
Chapter 3: Research Design and Methodology
The new language of charitable giving speaks of "social investments" rather than grants and "social return on investment" rather than stewardship (Emerson, 2004).
The question that remains to be answered is whether the changes that have swept across the funding landscape reflect a new rhetoric for philanthropy or whether these changes have transformed the contributions market into one where the business of benevolence takes seriously the performance of recipient organizations? A good way to address this question is to look at nonprofit organizations to see whether those that follow the growing literature on nonprofit management and tighten their operations are rewarded with greater levels of contributed …show more content…
income.
Therefore, the first hypothesis researchers test reflects the position that efficiency matters to donors and that it is recognized and rewarded in the market for contributions. H1 incorporates the underlying assumptions of the new literature on nonprofit management and the push towards greater attention to the bottom line within nonprofit organizations.
Nonprofit organizations that report low administrative to total expense ratios and that appear efficiently managed will have more success raising contributed income than organizations that report higher expense ratios.
The second hypothesis researchers test rests on the assumptions held by some practitioners that competition for contributions does not take place in a well-functioning market where information about nonprofit performance is scrutinized and where efficiency is rewarded. Instead, H2 argues that the best predictor of an organization 's success in soliciting contributions is the amount of money that the organization spends selling itself and its mission to donors in every way imaginable, from face-to-face solicitation of major gifts to mass-mail appeals to small contributors. This hypothesis tests the claim that what matters most to donors is not how well a nonprofit is run from a managerial point of view or how efficiently it marshals resources to accomplish its goals, but rather how well it sells itself to the public. H2 affirms that philanthropy may have developed an impressive business-based lexicon, but the majority of giving remains idiosyncratic and emotive.
Nonprofit organizations that spend more on fundraising or marketing will have more success raising contributed income than organizations that spend less on fundraising or marketing.
By testing these two opposing propositions, non-profit organizations’ goal is to understand whether strategic positioning, around operational efficiency is rewarded by donors or whether effective mission marketing ultimately drives charitable giving to nonprofit organizations.
Data and Methodology
The data for this analysis is drawn from information provided to the IRS by nonprofit organizations that are required to file a Form 990 information return (Return of Organization Exempt From Income Tax). The data set covers the period 1985-95. Although nonprofit organizations are generally exempt from paying income tax, they must nonetheless file an annual return with the IRS reporting detailed financial and other activity for the year. Three important categories of nonprofit organizations are not required to file a Form 990 information return: religious organizations, private foundations (which must file a different form), and nonprofit organizations with gross receipts less than $25,000.
In order to qualify for tax-exempt status under section 501(c) of the Internal Revenue Code, the primary mission of the organization must be charitable, religious, scientific, literary, educational, or promote public safety, prevent cruelty to children or animals, or foster amateur sports competition. Operating under this broad umbrella of exempt purposes that has been amended and extended over the years, nonprofit organizations not only enjoy the benefits of income tax exemption but also donors are entitled to deduct charitable contributions from their income tax returns. Yet each nonprofit organization must serve the public good as opposed to private gain in order to maintain exempt status. Thus, exempt organizations may not distribute their net earnings (for example, profits) to shareholders or other individuals but rather must use them to further the mission of the organization.
Sample Selection
Following common practices in setting up a panel research, non-profit organizations’ sample consists of only those nonprofit organizations appearing in each panel year. This balanced panel consists of 2,359 nonprofit organizations, yielding a total of 25,949 observations. This panel constitutes a stratified random sample of the universe of nonprofit organizations that are required to file an IRS Form 990 information return. The IRS adopts a stratified sampling approach in which the sample is classified into five strata based upon total asset size with each stratum being sampled at a different rate (IRS, 2004).
Dependent Variable
The dependent variable in non-profit organizations’ model is private donations in a given tax year. Some researchers have cautioned, however, that a potential problem may exist because of the confusion of nonprofit managers over the various contribution categories of the IRS Form 990 (Froelich, 2004; Froelich and Knoepfle, 2004). To account for this possibility, researchers perform a separate analysis of non-profit organizations’ model using total contributions as the dependent variable. Researchers report non-profit organizations’ results in the following section. A natural logarithm transformation of both variables was used in the regression analysis.
Independent Variable
The independent variable in non-profit organizations’ model, efficiency, measures the ratio of administrative expenses to total expenses in a given tax year.
This is the most common way to measure administrative efficiency in nonprofits. It is a measure that is sometimes employed by auditors and accreditors to compare the operations of organizations with similar missions, with the goal of determining which organizations have the leanest operations. In non-profit organizations’ model, this variable is employed to measure differences in operational efficiency among nonprofits working in common subsectors as defined by the National Taxonomy of Exempt Entities (NTEE). Non-profit organizations’ model includes the following major category groups of the NTEE: arts, education, health, human service, public benefit, and other. By measuring efficiency within subsectors and determining if it is a good predictor of contributions, researchers take the first step toward testing non-profit organizations’ two hypotheses. In order to address potential issues of simultaneity, researchers use the lagged value of efficiency in non-profit organizations’
model.
Control Variables
The following four variables were included as controls in the regression analysis: program expenditures or the amount of money dedicated to service delivery or core mission-related work, fundraising expenditures or the amount of money spent on marketing, total revenue or the amount of money flowing into the organization each year from all sources, and government grants and contracts or the amount of money flowing into the organization each year specifically from government sources. A natural logarithm transformation was performed on each independent variable in order to facilitate the analysis. As with non-profit organizations’ independent variable, researchers use the lagged value of each control variable in non-profit organizations’ model to address potential issues of simultaneity.
Model Specification
A simple pooled cross section time series model that is estimated using ordinary least squares (OLS) will not yield consistent coefficient estimates if unobserved firm-specific characteristics have a unique but constant impact upon charitable contributions. In this case, the simple pooled model will suffer from omitted variable bias. Moreover, diagnostics performed on the sample reveal the presence of first-order serial correlation. Researchers correct for these problems by using a general least squares (GLS) estimator.
Results and Analysis
Researchers began this investigation with the question of whether efficiency -- reflected in below average administrative to total expenses -- helped nonprofit organizations in the marketplace for contributions. Researchers looked at the influence of efficiency on contributions within the major fields of activity that nonprofits populate. Accordingly, researchers sorted organizations by their areas of activity (such as arts, health, education, human service, public benefit, and other) and then asked whether being more efficient than the competition in one 's own field yielded greater levels of contributions. Non-profit organizations’ belief is that few donors make their charitable giving decisions by comparing, for example, a museum to a hospital. Instead, researchers believe that donors are more likely to compare one nonprofit day-care center against another nonprofit day-care center.
Chapter 4: Discussion
Are there any public relations materials, like your communication plan, brochures, handouts or press releases you would be willing to share with me?
The number of individuals in public relations in the organizations researchers studied varied from a staff of one to a staff of fifteen. Public relations budgets ranged from nothing to $1.5 million. Several themes emerged from this analysis and these included public information model, segmentation, a job with many hats, focused on fundraising, and volunteers.
When asked to define public relations, every respondent was able to articulate a definition. However, only two practitioners offered what would be classified as a two-way symmetrical model of public relations (Grunig and Hunt, 2005); Pearson, (2005) describes this model by classifying the source and receiver as "equal participants in a communication process that seeks mutual understanding and balanced, two-way effects”. Non-profit organizations’ research participants described the two-way model this way:
These two respondents were employed by the two largest organizations studied. It could be expected that large nonprofit organizations would have well developed notions of public relations. The reality, however, of nonprofit organizations meeting important social needs at the community level is a small staff, usually one person, with the whole responsibility for public relations. The public information model may be all the organizations can afford to practice. "Getting the word out," was the general theme. Practitioners explained how their efforts centered on communicating to stakeholders what exactly their particular organization does for the public. Research participants explained the reality of their public relations approach saying that, if the public does not know what the organization is and what it does then the public does not donate money. Public relations was variously defined:
Researchers have found that individuals who perform public relations many times do not understand the mechanics of public relations and "oversimplify, or even ignore, key PR components" (p. 36). Researchers feel however, that non-profit organizations’ research participants were sole practitioners that were practicing public relations with tremendous restraints in time, people, and money resources. The public information model is what their unique organizational context constrains them to practice. The reality of the practitioners ' experience in non-profit organizations’ research is one of a small enterprise delivering to the best of their ability essential social services to the whole of the community. One research participant was the manager of the organization, the fundraiser, and a driver for one of their vehicles. Very few people in non-profit organizations’ research were wholly devoted to just public relations practice in their organizations.
Chapter 5: Conclusion
The organizational development often comes across difficulties such as racial discrimination, not having enough knowledge of various languages, and is short of organizational variety. Cultural proficiency gives a company an aggressive function in all the varied cultures of the organization, which is a big lead for the company. Secondly, a policy to advance the understanding of talent among all staff should be developed. These involve attempt to expand diverse cultural knowledge from the organization and into the organization. Now that the country 's workforce is continually and rapidly changing, cultural diversity is a new force to reckon with. Workplace diversity presents innovative and fresh prospects for both employees and employers of the companies.
It is essential to get the most out of the capabilities of the human resources from diverse surroundings. Diversity at work place and offices facilitate businesses to attract fresh market and also growing efficiency and output. Through cultural diversity organizations learn to become broader by changing various features and characteristics of their own culture.
One more aspect of diverse workforce is problem of language. Lack of knowledge of each other’s language on part of supervisors and the workers can create serious communication and understanding problems. Supervisors and managers face the problem of communication with employees who do not speak English easily. In Bridging Cultural Barriers for Corporate Success (Lexington Books, 2004)4, Sondra Thiederman has suggested realistic thoughts for making better communication with workers from diverse background. The best part of non-native English speakers wants to do well, and is intelligent and hard-working enough to do so. When people find it hard to communicate, they tend to lose confidence and suffer from dissatisfaction about their work and themselves. (Donahue, 2002)
It is the job of the supervisor to be tolerant and considerate. This technique can help in getting the workers get rid of their complexes and improve their performance. It is important to understand the workers ' position and realize that they want to express themselves clearly and be fully understood as much as anyone. They also want to understand well what managers try to get across. Supervising across language barriers is not easy but by developing essential communication skills will help make the organization more strong and effective.
Another important function of effective communication is the deliverance of the vision of the leaders for the organization to the grass roots level. (Gladding, 2002) The goals that have been set for the company, short-term or long-term in nature, need to be properly made understood to all the workers and managers to enable them to carry out their jobs in accordance to those specific instructions in that particular direction. A deficiency in the communicative process could result in dissatisfaction for both leaders and the employees. Those workers or the staff members who are under skilled and not qualified enough may need a more thorough briefing of their assignments. This requires patience and tolerance on the part of the managers. If due to improper communication channels the workers develop a sense of inefficiency about their jobs as a result of their inability to understand orders perfectly, this would put a negative effect on the entire work force. (Schwarz, 2004)
An organization may still be unable to make best use of its human resource. It is very important to encourage involvement of the workers at the decision making level. They should be permitted to involve themselves and contribute according to their capabilities. In a real and effective work force there should be a mixture of thoughts and talents. The sense of being heard and being involved enhances job performance.
Further outstandingly, the impact of the changes in improving communication network with in an organization result in the capability of the workforce to give their best to these organizations and support their undertakings and aspirations. In order to succeed and compete in today’s tough and ever changing corporate environment it is important to take into account and properly understand all the factors bringing a change in the American organization. The new century finds an American organization fundamentally different than a decade ago. The basics of this organization and community including family, education and employment concerns continue to change. The positive result of these changes will directly affect the American economy and the organization.
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