October 2008

‘Partnerships’: Potentials and pitfalls for not-for-profits

Leanne Cutcher, The University of Sydney

Jo Barraket (ed) Strategic Issues in the Not-for-Profit Sector, Sydney, UNSW Press, 2008 (256 pp). ISBN 9-78086840-934-4 (paperback) RRP $49.95.

The not-for-profit sector continues to make an increasingly important contribution to the economic and social well-being of developed market economies. Anheier (2005) argues that the sector’s expansion has been fuelled by greater demand for human services of all kinds, welfare reform, government privatisation policies, and advances in information and communication technology which have reduced the costs of organising. In a new study of the sector, the Australian Bureau of Statistics (2008) reports that at the end of June 2007, there were 40,976 not-for-profit organisations in Australia, employing 884,476 people. More than two thirds of these organisations provide human services—health, education and social services—and receive the majority of their funds from governments. (The remainder include a wide variety of cultural, sporting, political, environmental, and business and professional organisations.)

In the past, the management of not-for-profit organisations was seen as irrelevant and esoteric. Now there is much greater interest in understanding how these organisations, which are said to operate in the public interest, ought to be managed and organised. This greater interest arises, in part, because federal and state governments have been expanding provision of human services through contractual and tied program funding to the not-for-profit sector, which provides services in return. These new forms of funding bring with them greater levels of accountability and scrutiny. There have also been policy shifts that encourage collaboration and partnerships between not-for-profit organisations themselves as well as cross-sectoral partnerships with government and/or private enterprise. These partnerships create new forms of hybrid organisations which, in some cases, combine the logic of business with the goals and mission of not-for-profits. Reconciling the tension between business goals and a wider sense of mission is a key strategic issue facing the sector. It is also one of the major themes addressed in a new book Strategic Issues for the Not-for-Profit Sector, edited by Jo Barraket, that draws on original Australian and comparative research to provide insights into the challenges facing the sector.

In the past, the management of not-for-profit organis-ations was seen as irrelevant and esoteric.

As Jo Barraket sets out in the book’s introduction, the strategic tension between business goals and the traditional mission and values of not-for-profit organisations is, in part, the result of changing government policy over the past fifteen years. The change is captured in the shifting discourse from ‘government’ to ‘governance’. Barraket (p. 4) explains that the concept of ‘governance’ rests on the belief that complex social problems require responses from a range of institutions and organisations. This has led to the rise of market models of service provision and, more recently, an emphasis on partnerships and collaborations across the private, government, and not-for-profit sectors, not just government. She argues that while Australian policy makers have embraced the idea of market models there has been much less thought and commitment given to the idea of collaborations and partnerships. This collection makes a valuable contribution to stimulating debate and thinking about the potential of such partnerships, as well as the problems and pitfalls they can bring.

Myles McGregor-Lowndes (chapter 2) proposes that we rethink the very nature of the ‘partnerships’ that not-for-profits enter into with government and private enterprise. He argues that the current top-down, contractual arrangements minimise the possibilities of true collaboration. He presents the case for recasting partnerships as ‘joint ventures’, arguing that this model has the potential to produce better outcomes than the contractual partnerships that currently exist between government and not-for-profit organisations. He contends that while government uses the rhetoric of partnership to evoke the concept of a rich mutual relationship, the framework and legal documents underpinning these partnerships work against such mutuality (p. 52). He suggests that, by contrast, the legal framework surrounding joint ventures allows the various parties to genuinely focus on the goal of a shared outcome (p. 64). Working within this framework, partnerships take the form of specially created trusts or corporate vehicles to which parties make contributions, and that have a structure flexible enough for parties to be added or to withdraw at different stages of the project. He provides the example of the United Kingdom’s Local Improvement Finance Trusts (LIFT), which he argues have used the joint venture model to good effect. Within the LIFT model, members of the public, private, and community sectors have formed a joint venture to build and maintain primary healthcare centres over a 25-year period. McGregor-Lowndes describes how the ‘joint venture companies provide multiple facilities in a geographic area and parties may include general practitioners, chemists, dentists and other held professionals as well as local authorities, hospitals and the Department of Health and the Treasury’ (p. 67).

Government uses
the rhetoric of partnership: what
of the practice?

While McGregor-Lowndes is keen for not-for-profits to embrace an organisational form that is quite prevalent in the for-profit sector, it is interesting to note that strategic management academics writing about joint ventures between private firms have drawn on ideas from the not-for-profit sector, specifically the idea of ‘social capital’ to help improve private sector joint venture outcomes (see Hitt, Ireland & Santoro 2004). They use the concept of social capital to encourage managers to think about to the importance of information sharing, trust, and norms of reciprocity within joint ventures. Of course, the key issue in any form of strategic alliance, including joint ventures, is determining what proportion of resources and capabilities the two sides to the alliance are willing to commit. Alliances between government and not-for-profits are never going to be true equal partnership because one party, the government, controls most of the financial resources and sets the terms of the relationship, and this point is made to good effect by Rose Melville in chapter 4. Melville draws on empirical evidence from the community services sector to show that partnerships with the state still reflect a top-down and hierarchical view of policy making and only serve to complicate the day-to-day operational and political relationship between government and the sector. In essence Melville shows that the community sector has not been an equal partner with government in collaborative arrangements to date. Despite this Melville argues for greater engagement by the sector with government.

On the other hand, Sarah Maddison and Gemma Edgar (Chapter 8) ask whether it is appropriate for not-for-profit advocacy organisations to enter into partnerships with government at all. They draw on examples from past campaigns by the environmental and women’s movements to show what can be gained and what can be lost by ‘getting into bed’ with governments. For example, they contrast the strategy adopted by NSW-based environmental groups and Queensland-based groups around the issue of land clearing. They argue that the ‘consultative’ approach to vegetation management in New South Wales had effectively ‘captured’ the state’s conservation movement and delivered poor conservation outcomes (p. 206). In Queensland, by contrast, environmental advocacy groups relied upon a ‘unified movement effort’ that rejected the notion of consensus politics ‘in favour of a strategic blend of community mobilisation, electoral politics and protest’ (p. 206). The Queensland campaign culminated in the enactment of the legislation that ended land clearing in Queensland in December 2006. Maddison and Edgar argue that the ‘insider status’ that comes from collaboration with government can result in organisational homogenisation and a loss of innovation and that without legitimacy, independence, and vision not-for-profit advocacy organisations are likely to become ineffective.

The not-for-profit sector has always had a complicated relationship with
the state.

Paul Smyth’s (Chapter 9) case study of the Brotherhood of St Laurence (BSL) reminds us that the not-for-profit sector has always had a complicated relationship with the state. He plots this changing relationship from its beginnings in the 1930s, and poses the interesting question ‘what are the “ends and means” of welfare today’? This question suggests that before not-for-profit organisations enter into partnership arrangements with the state or private enterprise, they need to clearly define their mission and the strategy they propose to realise it. In doing so, not-for-profit organisations need to heed Porter’s (1996) invocation that strategy is not only what the firm decides to do but also what it decides not to do. In recent years, strategic management academics and consultants Robert Kaplan and David Norton (2001) have worked with numerous not-for-profit organisations, helping them to synthesise their mission and set clear strategic goals. They argue that the fundamental principles needed to create a strategy-focused organisation are applicable across all sectors. In particular, they promote use of their ‘balanced scorecard’, which is a strategy tool used to quantify, measure, and evaluate an organisation’s inputs, activities, outputs, and outcomes. Originally developed by Kaplan and Norton for the for-profit sector, it is aimed at encouraging organisations to measure performance in relation to four perspectives: the financial perspective, customer perspective, internal process perspective, and learning and growth perspective. Kaplan and Norton argue that not-for-profit organisations have the advantage of being able to put their ‘customers’ at the top of ‘the scorecard’, whereas for-profit organisations, who are beholden to shareholders, need to place the financial perspective at the top.

Yet this appealing and apparently straightforward advantage to not-for-profit organisations may not be quite as advantageous and uncomplicated as Kaplan and Norton claim. This is because Kaplan and Norton overlook the problematic nature of the ‘customer’ relationship in not-for-profit organisations. The whole idea of ‘new governance’, which is centred on notions of choice, is underpinned by the same flawed notion of the ‘sovereign customer’ that prevails in economic and strategic management theories of for-profit organisations. According to mainstream economic theory, market mechanisms allow consumers the widest possible freedom of choice—consumers are sovereign because their choices shape what providers of goods and services offer for sale. The impact of the notion of customer sovereignty has been so widespread that it has led client groups not normally understood to be in market-like relationships with service providers to be redefined as ‘customers’ and ‘consumers’. As Paul du Gay puts it, ‘from the hospital to the railway station, and from the classroom to the museum, patients, parents, pupils and passengers have all been re-imagined as ‘customers’ (1996, p. 77). These re-imagined customers are presented as active agents exercising their freedom to choose, and this powerful discourse has shifted government policy towards ‘fiscal responsibility and a generally heightened reliance on the market as allocator and distributor of resources’ (Ramia & Carney 2002, p. 7).

Without independence, not-for-profit advocacy organisations are likely to become ineffective.

This emphasis on market forces underpins the ‘new governance’ and inevitably changes the way not-for-profit organisations operate. They face far more rigorous scrutiny of their activities and have been required to establish precise, measurable, and binding performance criteria in exchange for funding (Cunningham 2001). As Ryan (1999, p. 128) explains, not-for-profits are now forced to re-examine their operations in a market that rewards discipline and performance. These changes have seen a range of not-for-profit organisations adopt priorities and strategies normally associated with for-profit organisations, and inevitably led to ‘mission drift’. Bronwen Dalton and John Casey’s contribution to Strategic Issues (chapter 7) provides a very interesting take on the problem of mission drift, by exploring how it can occur when not-for-profit organisations engage in commercial activities. One key concern is that ‘mission drift’ and an emphasis on measurable outcomes and output controls can alienate employees, whose loyalty and commitment has been the result of their identification with the organisation’s social values (Cutcher 2006; Cunningham 2001). This potential loss of commitment has important implications for service delivery to some of the most vulnerable members of our society.

For me it was around the issue of partnerships—when to enter into them, what form they should take, and how to maximise their outcomes—that this book makes a valuable contribution. The message seems to be that those working in the not-for-profit sector need to be mindful of both the benefits and potential pitfalls of entering into partnerships, while governments and policy makers need to be more willing to engage in true collaborations, rather than not ‘partnerships’ where one party (they) dominates and sets the terms of the relationship in ways that undermine the original intent of the collaboration. Let us hope that the new federal government is willing to think beyond market-based models of service provision that are underpinned by flawed ideas of choice and ‘customer’ sovereignty and to encourage true collaborations and cross-sectoral partnerships.

REFERENCES

Anheier, H.K. 2005, Nonprofit Organizations, Theory, Management and Policy, Routledge, London.

Australian Bureau of Statistics 2008, Not-for-profit Organisations, Australia, 2006-07, Cat. no. 8106.0, Australian Bureau of Statistics [Online], Available: http://www.census.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyCatalogue/B78AAE6739F6C1A0CA25749B00178E8E?OpenDocument [2008, Oct 9].

Cunningham, I. 2001, ‘Sweet charity! Managing employee commitment in the UK voluntary sector’, Employee Relations, vol. 23, no. 3, pp. 226–239.

Cutcher, L. 2006, ‘Profits before people: Shifting customer and employee relations in Australian credit unions’, International Journal of Human Resource Development and Management, vol. 6, nos 2, 3 & 4, pp. 248–262.

du Gay, P. 1996, Consumption and Identity at Work, Sage Publications, London.

Hitt, M., Ireland, D. & Santoro, M. 2004, ‘Developing and managing strategic alliances, building social capital and creating value’, in The Strategy Reader, ed S. Segal-Horn, Blackwell Publishing, London.

Kaplan, R.S. & Norton, D.P. 2001, ‘Balance without profit’, Harvard Business Review, January, pp. 23–26.

Ramia, G. & Carney, T. 2002, ‘Public management, organisational change and non-profit strategy: A network perspective’, paper presented in ‘Building Effective Networks’ stream at the Academy of Management Conference, Denver, Colorado, August.

Ryan, W.P. 1999, ‘The New Landscape for Non-Profits’, Harvard Business Review, vol .77, no.1, pp. 127–134.

Leanne Cutcher is Senior Lecturer in the discipline of Work and Organisational Studies at The University of Sydney. She is a Consulting Editor with the Australian Review of Public Affairs.