‘Business’ model for nonprofits has limits

John Borrillo

It is rare to find a nonprofit organization that does not proudly embrace “the business model” — an approach to public management that attempts to use business processes to drive outcomes in an environment that is increasingly competitive and where only the bottom line seems to matter.

Witness the growing controversy over nonprofit executive compensation:  Executive salaries that are paltry by for-profit standards are often justified by the incentives-based rationale of the business world and not by reference to the uniqueness of the not-for-profit sector.

Schools of public affairs and administration, and my own is certainly no exception, stand in the shadow of business schools.

But isn’t there a contradiction here?

If nonprofits provide the kinds of goods and services that the for-profit sector can’t or won’t provide, how can processes designed to maximize profit apply to organizations that are not constituted that way?

The best answer is, there are some useful business-born elements that can be imported to the nonprofit sector — certainly the emphasis on performance management can, and does, yield important results.

But the danger is to carry the analogy too far.

In New York, where the lion’s share of social services is contracted out to nonprofits, an uncritical embrace of “the business model” at every level of public policy has resulted in ever-higher mountains of paperwork produced by never-ending reporting requirements.

And there is the reality of “mission drift,” where organizations that exist to achieve certain social purposes are commandeered by the very contracts and funding sources upon which they are dependent for their survival.

But no one should want to go back to a time when there was no emphasis on outcomes and results, when contracts for social services were taken on faith, and when decisions about which organizations to support with public funds were based on political connections, reputation or pure chance.

Again, the error is to assume that there can be only one model or approach, and that everything that has been proven effective in one field must be immediately applicable to another, quite different field.

Of course, with enough effort and political will, it is possible to force square pegs into round holes, but there are always unintended consequences.

One is that the top-line uniqueness and responsiveness that once characterized nonprofit organizations will be completely eclipsed by bottom-line approaches, and with that will come the hostility of a public already disillusioned by business as usual.

John P. Borrillo teaches public affairs and communication in the master’s program at the Baruch College School of Public Affairs in New York City.

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