Motivation for NFPs
The motivation for the existence of NFPs is important to consider as it tends to be different to profit seeking organisations and this has implications for governance. Firstly a NFP organisation is motivated by some kind of societal concern. Normally this involves the provision of a service to some part of that society and this service provision is normally unrelated to payment for that service.
One motivation for an NFP therefore is the acquisition of resources in order to undertake the provision of those services. Thus there is a concern with the optimizing of the utilisation and allocation of what is inevitable scarce and restricted resources. Similarly there is a concern with transaction cost minimization. These issues are similar to those of profit seeking organisations but the way in which they are decided and the way in which effectiveness is measured tends to be quite different.
Because there is no profit motive then this way of providing motivation to managers and rewarding them for their performance does not exist and alternatives must be sought. Another factors which must be borne in mind is the matter of who decides what is good performance. For a profit seeking organisation the customer will ultimately decide by choosing to buy or not buy. In a NFO there is no customer and the service beneficiaries do not pay (or at least not full cost) for the service received.
Thus the determining of measures of performance is important for these organisations. So too is the setting of standards and the reporting of performance. This is normally done through the development of performance indicators. Often a variety of measures are used including:
o Budgetary control / cash flow
o Performance indicators
o Non-financial measures
o Qualitative factors
For the evaluation of performance then there is less relevance of accounting measures and a correspondingly greater importance of non-financial measures. This inevitable involves problems of quantification and a necessity for deciding between alternatives. One technique which is particular to this environment is that of cost benefit analysis. And one concern of such organisations is to demonstrate efficiency by minimising the proportion of costs which are used as administration -indeed this can lead to manipulations of accounting information as efficiency has consequences for attracting new funds.
Implications for managers
It will be apparent that there are a number of issues facing managers of these organisations. The first is concerned with the acquisition and utilisation of resources. There is considerable uncertainty regarding the acquisition of resources and this makes planning particularly difficult. The planning horizon therefore tends to be short even though the projects which some NFPs are involved in are inevitably long term in duration.
Other issues which concern managers include the setting of objectives and the measuring of performance. Finance, budgeting & control of course are particularly important in this environment. Another factor is concerned with the influence of stakeholders. Without customers and without shareholders and investors there are a range of other stakeholders who are important and have a great deal of influence. These will include such stakeholders as donors, recipients and society at large.
As far as the external environment is concerned then there are a number of issues which are important and distinctive. The first is the question of market identification; this is essential for planning but is not necessarily obvious. Then, as we have implied already there is the fact that service delivery is not evaluated by its beneficiaries who do not pay for its receipt. There are a lot of different stakeholders who all have a view about performance and some influence on its evaluation - a complex situation.
NFPs are - in theory at least - not in competition with each other: this is true as far as helping beneficiaries is concerned but there is an element of competition in the acquisition of resources. For the provision of services there are generally several organisations involved in providing the same services and it might be thought that collaboration - rather than competition - might be an effective way of providing such services. Certainly high profile disasters always attract assistance from several large charities which often collaborate and pool resources.
One of the factors in this sector however is that the largest NFPs are most able to acquire additional resources. Thus there is competition for market share because this leads to easier resource acquisition. In theory also NFPs exist to fulfil a particular purpose. Once that purpose has been satisfied there is no purpose to their continued existence. For both of these factors however the egos of the people managing the NFPs become a factor as each strives to extend its life, extend its purpose and extend its size and market share.