The term not-for-profit organization (NFP) encompasses many different organizations whose only similarity is that they do not seek to make economic returns for their owners.
Who are NFPs (not-for-profit)
NFPs include:
Volunteer organizations: providing services such as neighborhood improvement, assisting the elderly, providing opportunities for children and youth, visiting the sick.
NGOs: set up around clear objectives to achieve some cultural or social goal e.g.. education of the young, art and music.
Governmental bodies: These range from departments of central government down to local administrative bodies. Obvious examples include Police services, armed forces and education services.
Mutually-owned public benefit corporations: These are effectively companies which do not issue shares to the public but rather whose capital is provided, and debts guaranteed to a certain limit, by others. They are free to raise debt from third parties Their members are the stakeholder groups they serve and they will have procedures to consult and report to them.
The taxation treatment of the incomes of NFPs is likely to be favorable because their surpluses are not treated as profits. For this reason many NFPs have to work hard to defend their status against accusations that they are merely a tax avoidance device. To do this they need to demonstrate a genuine public interest.
Business strategy issues are just as relevant to a not-for-profit organization as they are to a business operating with a profit motive. The tasks of setting objectives, developing strategies and controls for their implementation can all help in improving the performance of charities and NFPs.
Objectives of Voluntary and not-for-profit sectors
Objectives will not be based on profit achievement but rather on achieving a particular response from various target stakeholders.
Here are some possible objectives for a NFP:
(a) Surplus maximization (equivalent to profit maximization)
(b) Revenue maximization (as for a commercial business)
(c) Usage maximization (as in leisure center swimming pool usage)
(d) Usage targeting (matching the capacity available, as in the NHS)
(e) Full/partial cost recovery (minimizing subsidy)
(f) Budget maximization (maximizing what is offered)
(g) Producer satisfaction maximization (satisfying the wants of staff and volunteers)
(h) Client satisfaction maximization (the police generating the support of the public)
There are no buyers in the NFP sector, but rather a number of different audiences (or stakeholders):
(a) A target public is a group of individuals who have an interest or concern about the charity.
(b) Those benefiting from the organization’s activities are known as the client public.
(c) Relationships are also vital with donors and volunteers from the general public.
(d) There may also be a need to lobby local and national government and businesses for support.
The objective setting process must balance the interests and concerns of these audiences, which may result in a range of objectives, rather than a single over-riding one. In order to allow for this balance to be achieved:
NFPs will typically feature wide participation in the objective setting process. Indeed it may be a legal condition in their constitution and essential to maintaining their legal status. Stakeholder power and interests are likely to be more obvious in NFPs than in profit-seeking organizations.
