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Why Organizational Culture Is Critical
Your nonprofit probably seeks to realize a vision for a better society—everything from ending the AIDS epidemic, to building permanent housing for the homeless, to preserving Native American culture. There are a multitude of missions, yet each is inextricably bound to one simple truth; namely, that adequate revenue is essential to accomplish it. In fact, an organization's ability to raise revenue and to spend it effectively is among the most important signs of its sustainability.
There's a line in an old German play called Schlageter that goes, "Whenever I hear the word 'culture' ... I remove the safety from my Browning [pistol]!" While I trust you don't hold such extreme views about the topic at hand, you may be wondering why a book about nonprofits begins with a chapter on culture, of all things. As you'll see, the culture of a nonprofit, though not always conspicuous, is nevertheless the principal driver of every organization's ability to advance. And that organizational culture, taken together with its fundraising implications, is a key indicator of how well that organization will ultimately be able to fulfill its mission.
In this chapter, we'll examine:
How we define organizational culture
The three critical aspects of a nonprofit's organizational culture: whether it is dependent on a dominant source of revenue or multiple revenue streams, the extent to which it is inwardly or outwardly focused, and the capacity of an organization to revisit its fundamental assumptions
What it takes to change organizational culture in order to achieve the next level of mission impact
Despite the primacy of needing sufficient revenue, most nonprofits in the United States have organizational budgets of less than $250,000 and are never able to grow past this threshold. They are stagnant. No matter how you look at it, there is a striking disconnect between their dream of a better world and the reality of that dream ever being fulfilled. That, in my humble view, is a true call to arms.
HOW DO WE DEFINE ORGANIZATIONAL CULTURE?
I happen to be writing during an economic downturn—really, a downturn one week, an uptick the next, and a flat line the following week. Nevertheless, it's a period of declining or flat endowments and major donor giving, meaning that revenue shortfalls are acutely preventing organizations from achieving their visions. Nearly every nonprofit I know of is strapped for cash, and many have shelved growth plans. Yet, in spite of these prevailing circumstances, I can still cite hundreds of nonprofits, from tiny organizations to massive ones, that defy this characterization and have met, if not exceeded, their revenue goals. How did they accomplish this?
We know for certain that even at peak phases of the business cycle, the nonprofit sector is grossly undercapitalized. One reason (among many) is that certain hidden dynamics prevent an organization from raising more revenue, and thereby stunt its growth and thwart its vision. Peter Drucker, the "father of modern management," dubbed it the informal reality of an organization (as opposed to the formal definition of its structure). Drucker discovered that this informal reality is the true driver of an organization and how it is run. For example, some organizations are highly entrepreneurial. In the nonprofit world, entrepreneurial organizations are often those that are predominantly outcome-oriented. They emphasize quality assurance and outcome measurements and focus on customer service. Other organizations are heavily bureaucratic. They emphasize leadership hierarchy and compliance with a rigid schedule of reports and procedures. An executive I met who had gone to work for an international children's charity not long ago remarked, "This place is more corporate than IBM, where I used to work." The level of bureaucratic requirements at the children's charity was something he never expected to find in the nonprofit world. In other words, he experienced "culture shock."
So what exactly is organizational culture? Business textbooks define it as those "values and behaviors that contribute to the unique social and psychological environment of an organization." This definition isn't necessarily wrong; it just misses the way an organization's culture operates in reality, and how those values and norms engender habits that either lead to or preclude success. While it's true that history and shared values form culture, in my experience, the most important element shaping an organization's culture is leadership.
Consciously or not, the mentality of an organization's leadership permeates every office and cubicle of the nonprofit. The leadership of a nonprofit steers the priorities of the organization, including its fundraising strategy. But organizational culture doesn't just end there. Every member of the organization—the CEO, the board of directors, and the professional and administrative staff—contributes to the culture, and therefore should understand how it operates so as to build an element of organizational vitality rather than, as is too often the case, a blunt instrument of indoctrination. A bludgeon, if you will, of poorly crafted conformity.
THREE CRITICAL ASPECTS OF A NONPROFIT'S ORGANIZATIONAL CULTURE
From a fundraiser's point of view, there are three critical aspects in a nonprofit's organizational culture. They have to do with the choices made concerning the dominant source of revenue versus multiple revenue streams, the extent to which an organization is inwardly or outwardly focused, and the capacity of an organization to revisit its fundamental assumptions.
A Dominant Source of Revenue vs. Multiple Revenue Streams
The nonprofit sector has distinct revenue streams that exert a powerful influence on each organization's culture. Organizations typically become wedded to a single dominant revenue source and, to some degree, it shapes the board's and staff's perceptions of reality. A nonprofit that subsists on government contracts will likely develop a strong financial office to manage those contracts. And even though its board of directors may also be closely connected to private wealth, the organization never sees the possibility of exploiting those connections to cultivate individual donors. It is culturally blind to it because everyone's too stuck in thinking that "we get our funding from government." The individual giving program remains nonexistent or embryonic, at best.
Similarly, a sluggish nonprofit that barely survives on membership dues may be reluctant to solicit grants or major gifts because doing so seems alien or bothersome. The same revenue single-mindedness may be true of an agency funded primarily through hosting a gala event. Consider this call I received from a religious-based food pantry that wanted to add a grant program to its fundraising program.
"How have you been raising money to date?" I asked.
"Through one major annual gala and six smaller events throughout the year," the person answered. "It's been that way since we were founded fifteen years ago."
This food pantry depended on special events, so it concentrated on booking a celebrity for the annual dinner because 75 percent of its fundraising for the entire year comes from ticket sales to the gala event. "Why bother with other types of fundraising," their thinking went, "when you can get by just throwing a handful of parties every year?" This is precisely how a single revenue stream influences or, rather, overinfluences an organization. It's the proverbial tail wagging the dog.
Other organizations build full-throttle individual donor programs because they are dependent on a large number of donations to support their good work. But their "multiples" of revenue occur in the same way within the same revenue stream (which is not to be confused with true, effective diversification, which I'll discuss later in greater detail). They try in vain to construct a mountain out of $50 checks.
We often speak of culture as being ingrained or embedded. In each of the previously mentioned cases, we can detect a singular focus on one particular fundraising tactic that excludes, ipso facto, all other fundraising approaches. While these self-imposed restrictions are indicative of a lack of flexibility and a certain reluctance to depart from customary ways, what's worse is that they cripple the fundraising program by curtailing revenue and thereby limiting the success of the organization. That's why, when culturally deciphering your organization's revenue streams, you must grasp the degree to which rigid, inflexible thinking about fundraising may be blocking its path. This sort of self-awareness can then give rise to more positive, flexible thinking, which will correlate to higher revenues.
In some fundraising programs, flexibility may simply mean finding multiple rivulets within the same revenue stream. For instance, a nonprofit living off federal contracts may need to seek out opportunities for state funding, to minimize its vulnerability to congressional budget cuts. Or consider the nonprofit that relies on major gifts. It may be well advised to cultivate smaller gifts to fuel the next phase of major giving by cultivating more donors, some of whom may eventually contribute at higher levels. The point is to go deep within one revenue source, instead of going wide to many different sources or sticking (out of habit) with what's already not working.
An Organization's Inward or Outward Focus
The second critical aspect of organizational culture, from a fundraising perspective, is the inward or outward focus of the nonprofit. What do I mean by these two distinctions? Typically an inwardly focused organization lives in a cocoon of its own making, managing its programs with little concern about the larger community that surrounds it, whereas an outwardly focused organization tends to mark its territory externally, through advertising, marketing, public relations, and other types of community outreach. Neither of these perspectives is faulty; in fact, many organizations will cycle through more inwardly or outwardly focused periods as their needs change. But too frequently we see extremes of inwardness or outwardness and, as the expression goes, therein lies the rub. What further complicates this conflict is that discovering which way a nonprofit leans, inwardly or outwardly, and to what degree, is usually easier for an outside observer than it is for members of the organization itself, so the problem is often not readily apparent to those it afflicts. Indeed, many organizations never reflect on this element of their makeup at all.
To better illustrate the perils of cultural imbalance, let's take a look at the Neighborhood Services League (NSL), an inward-focused nonprofit that was required to reformulate its approach to fundraising because 80 percent of its funding came from only one funder: city government. The NSL sponsors a number of human services programs such as housing, day support, and case management that are highly effective in helping a variety of people in need. NSL had expansion dreams, based on the real needs of its clients, which the current funder simply couldn't afford. When senior managers developed a five-year plan for future growth, they discovered that their projections fell millions of dollars short of what was required. Hence, they needed new funding partners and a new development approach; consequently, they elected to ratchet up their grant-seeking and establish an individual donor program.
Unfortunately, as effective as the NSL was in providing social services, it was for all intents and purposes invisible in the community at large. You'd even ask a few NSL clients whom they received their services from, and they'd answer, confusedly, "I think that's the city." While many, if not most, nonprofits suffer from poor branding, Neighborhood Services League, with its utterly nondescript name and otherwise anonymous presence, was distinctive in its wholesale lack of marketing distinction. "But we have our newsletter," the executive staff would say in defense. True, but bereft of a marketing plan, NSL never properly branded its name or expanded its network, and thus languished in obscurity.
An organization with an inwardly focused culture, like NSL, may do well with certain revenue streams (e.g., government and foundation support), but it shoots its fundraising program in the foot when it comes to soliciting individual donors or seeking grants. Even if the fundraiser uses state-of-the-art donor prospect researching techniques to identify potential donors, high emotional investment is required to secure high-level gifts. The willingness of individuals to give depends on how they feel about your organization. If prospective or current donors have never heard of your organization, no matter how much good it does, the emotional context for the donation doesn't exist and instead has to be manufactured, which takes considerable time and effort. Similarly, the grant-seeking idea was handicapped because, as any grant writer will tell you, when you apply for grants, funders want to know what collaborations you have with other nonprofits (and often they'll insist that you have them because they are a sign of your organization's credibility). The NSL was an island unto itself; it had no collaborations, nor did it have Memorandums of Understanding with any other agencies to procure services for NSL clients.
NSL's problems aren't unique; rather, they are the classic result of an organizational culture that is too inwardly focused. Before we examine how to dig NSL and others out of this rut, or avoid it altogether, let's take a look at what can go wrong with a cultural focus that looks too far outward. The best way to describe that type of organization is to think about Hans Christian Andersen's classic tale "The Emperor's New Clothes." The agency that is too outwardly focused, in its advertising, its promotional materials, and at its annual community ball, prances about, boasting about its effectiveness even as the social problems that it is supposedly tackling go ... well, untackled. Its programs don't work or fall well short of the needs of its clients and the goals of its mission statement, yet the CEO is great at telling a (largely untrue) story about the agency to all who will listen. The United Way of the 1980s was a case in point. Its television ads were stellar, well produced, and ubiquitous, but many of its partnership efforts with its membership organizations left much to be desired.
If you discern that your organization is too inwardly or outwardly focused, here are some ideas for how to correct your issues.
Too Inwardly Focused
Survey your funders or organize a listening tour. Even if they are government funders, ask them open-ended questions such as, "How do we compare to our peers?" or "What is your impression of our capacity and our ability to meet our client's needs?"
If individual donors fund your organization, arrange to meet them and ask the same sort of open-ended questions.
Report back to your board and process the feedback with them.
Ask your funders, "Are there any other organizations with whom we should partner?" I once asked a nonprofit client's main foundation funder this very question and he answered: "I've been waiting for your organization to ask that question for the last five years."
Too Outwardly Focused
Do a listening tour of clients to see how the program is working for them. Truly listen. You could also survey your clients using either focus groups or online survey tools such as Survey Monkey. Once the results are obtained, share them with those who gave the input.
Reexamine how much exposure the board and administrative staff have to the program. They may be too distant from the mission advocacy of the program and need to be brought closer through a regular volunteer experience or immersion tour.
Excerpted from The Nonprofit Fundraising Solution by Laurence A. Pagnoni, Michael Solomon. Copyright © 2014 Laurence A. Pagnoni. Excerpted by permission of AMACOM.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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PART ONE WHAT GETTING TO THE NEXT LEVEL REALLY MEANS....................
CHAPTER 1 WHY ORGANIZATIONAL CULTURE IS CRITICAL.................... 11
CHAPTER 2 LEADERSHIP FROM THE BELLY OUTWARD.................... 25
CHAPTER 3 TUNING UP THE BOARD FOR EFFECTIVE FUNDRAISING PERFORMANCE........ 45
CHAPTER 4 HIGHER-LEVEL THINKING FOR GREATER FUNDRAISING PERFORMANCE....... 69
PART TWO ADVANCED FUNDRAISING TACTICS TO RAISE MORE REVENUE................
CHAPTER 5 BUILDING A DONOR CONSTITUENCY WHERE NONE EXISTS.................. 93
CHAPTER 6 PLANNING AND STAGING COST-EFFECTIVE PARLOR GATHERINGS............ 107
CHAPTER 7 CHALLENGE GIFT DRIVES AND CORPORATE MATCHING GIFTS............... 117
CHAPTER 8 REAPING THE BOUNTY OF YEAR-END GIVING.................... 127
CHAPTER 9 FUNDRAISING AND RELATIONSHIP BUILDING THROUGH SOCIAL MEDIA....... 141
CHAPTER 10 FORMING POWERFUL LEADERSHIP COUNCILS.................... 151
CHAPTER 11 TAKING A NEW APPROACH TO CORPORATE SPONSORSHIPS................. 165
CHAPTER 12 MAJOR FUNDRAISING CAMPAIGNS: THE MORAL EQUIVALENT OF WAR........ 177
CHAPTER 13 CREATING OR ADVANCING YOUR PLANNED GIVING PROGRAM............... 195