Strategy from the inside-out: an introduction
This series of articles, of which this is the first installment, from Mike Stone explores the core concepts of a strategic planning approach for nonprofits. Mike welcomes feedback on these concepts, which will be included in a book manuscript.
“In an effort to save the bottom line, the modern nonprofit risks losing its soul.”– Bill E. Landsberg (“The Nonprofit Paradox: For-Profit Business Models in the Third Sector,” The International Journal of Not-for-Profit Law Volume 6, Issue 2, January 2004)
One challenge in the development of nonprofit strategy is the absence of an approach that is sensitive to the nuances of the nonprofit environment. Granted, basic business practices and controls are essential to a healthy nonprofit. But the traditional for-profit models of strategic planning do not serve nonprofits because they ignore the fundamental differences between the two sectors. For example:
• Nonprofit growth is constrained by a social mission. The overriding goal of a for-profit company is to stay in business, usually by expanding markets and increasing profits. For all the social good that may be created by for-profit businesses, the fact remains that they are unencumbered in their desire to shift products and services when a market opportunity presents itself. Not so for nonprofits, which operate under the influence of a governor of sorts, keeping the organization from exceeding the limits of its stated social mission.
• Nonprofits cannot create uncontested market space. For all the wisdom of the pioneering approach to market expansion, “blue oceans” exist for nonprofits only if those metaphorical waters are populated with potential clients and willing payers. Whereas for-profits can respond to consumer demand based on the traditional free market relationship between buyer and seller, a nonprofit must have both consumer need and third-party support in order to succeed in a given market.
• Bigger is not always better. The economic reality is that many nonprofits lose money on every client served (which is why the traditional market will not support the work and consequently, why fundraising is so important). For these nonprofits, reaching more people, a common strategic goal, means losing even more money. Strategic growth, a more appropriate goal, may mean doing less, perhaps for fewer people, but with greater precision and intensity. Greater mission impact is always better.
An Alternative Approach to Strategy
The central premise of my approach to strategy development is that nonprofits, like people, are at their best when they start from an inner core of self-awareness and then move outward into the world. For individuals, this means not trying to be someone you are not. For nonprofit organizations, it means pursuing mission impact rather than growth for the sake of growth. Individuals call it vocation. For nonprofit organizations, it is called strategy.
At its base, strategy is about organizational positioning. More specifically, nonprofit strategy is about finding that organizational “sweet spot” that allows for the greatest amount of mission impact in the most financially sustainable manner. The strategic position centers on the formulation of position statements in three areas:
– The Program Position, which states what you will do, for whom, and to what end.
– The Market Position, which defines how you will relate to those within your domain of operation.
– The Resource Position, which outlines the desired mix and sources of funding.
For nonprofits, strategy inheres in the bringing together of the three elements of organizational position into a cohesive vision for the nonprofit. But like young college graduates trying to find their way in the world, the greatest challenge for nonprofits often is knowing where to start.
Building strategy from the inside-out begins with two fundamental questions:
1. Who are we as an organization?
2. How can we build on who we are to create the greatest mission impact in the most sustainable manner?
The starting point for nonprofits strategy development is the organizational core. The organizational core represents a distillation of the organization’s activities to reveal the basic elements – the organizational essence – from which its impact emanates. The organizational core is comprised of the four organizational characteristics contained in the following statement:
• The use of your defining qualities to address the highest priority needs of your primary clientele within your domain of operation.
The organizational core is the building block of nonprofit strategy. To begin, the core provides a framing mechanism through which current programs and services are assessed for strategic fit. This is useful particularly in organizations that face challenges related to long-term sustainability. And as organizations look forward, the core provides a lens through which the organization can identify strategic growth opportunities.
The strategy driver is derived from the organizational core and provides the impetus for strategic growth. Using the organizational core as the starting point, nonprofit strategy can be driven in one of three ways:
• A client-driven strategy builds on current efforts to meet the highest priority needs of the organization’s primary clientele.
• A service-driven strategy builds on the defining qualities (i.e., competencies, expertise, etc.) and seeks to apply and/or adapt programs and services to new populations with similar needs.
• A domain-driven strategy takes as the starting point the needs, interests or priorities of the key stakeholders within its defined domain and seeks to address additional unmet needs within that domain.
It takes a great amount of thought, reflection and analysis to define the organizational core and identify the appropriate strategy driver. And once these two foundational elements are identified, there are a host of other considerations, questions and possibilities that will come into play. But if we begin from a point of clarity about who we are as an organization, we are more likely to avoid temptations and distractions that, while attractive in the short run, may in the long-run result in strategic confusion.
In the next essay, I will provide an example of a nonprofit using this approach to organizational strategy. The essay will highlight the process by which the organization developed its organizational core and identified its strategy driver.