TABLE OF CONTENTS

1.0 Introduction ...................................................................................... 1 1.1 Overview ......................................................................................... 1 1.2 Problem Statement ........................................................................... 3 1.3 Definition of Terms ........................................................................... 5 2.0 Literature Review on Strategic Management for Organizations ...... 8 2.1 The Importance of Strategic Management ......................................... 8 2.2 Competitiveness of Non-Profit Organizations .................................... 12 2.3 Strategic Management for Competitive Advantages in NPOs.............. 16 3.0 Discussion and Recommendations .................................................. 20 4.0 Conclusion ....................................................................................... 23 References .............................................................................................. 24

1.0

Introduction

1.1

Overview

Non-profit organizations exist solely to provide programs and services that are of self-benefit. These programs, services and policies supports and complement governments effort to provide for the public in a specific country. Non-profit organizations are able to earn a profit which is more accurately called a surplus, referring to earnings that must be retained by the organization for its selfpreservation, expansion and future plans. These earnings do not benefit individuals or stake holders (Grobman, 2008). Although nonprofit organizations (NPO) may employ unpaid volunteers and even executives may work for no compensation, there are substantial funds managed by NPO to hire and reward their internal corporate leadership, middle management personnel and workers.

The existence of NPOs in developed countries as well as in developing and undeveloped countries has been shown to benefit the overall development of the nations. Thus, since the late 1980s, there has been a growing consensus that NPOs also should ensure that they are able to achieve their corporate targets more effectively 1

by using the same methods employed by for-profit organizations. These include effective internal management, ensuring

accountability for results, and monitoring the performance of different divisions or projects in order to better benefit from their capital and workers (Drucker, 1989).

The basis for such measures is strategic management. Strategic management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives (David, 1989). This is the process of specifying the organizations mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives and then allocating resources to implement the policies, and plans, projects and programs.

Strategic management provides overall direction to the enterprise. According to Arieu (2007), "there is strategic consistency

when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context."

1.2

Problem Statement

Strategic planning is crucial to ensure effective and efficient operations of the NPOs but most importantly for its sustainability and continued viability (Jerratt, 2009). However, a lot of NPOs are incorporated to address current issues and when those issues are resolved, they lose their corporate objectives which may result in its natural deaths. Others are formed but do not have head or tails of the direction that it should follows, how to run the organization and gradually become non-existent.

Furthermore, there are more and more entrepreneurial and concerned people who incorporate NPOs and use this avenue as a lifelong career. Thus, NPOs are also facing growth whereby there exist numerous NPOs created for the same or similar cause. For example, in Malaysia there are plenty of NPOs posing as charitable bodies such as MAKNA, Malaysian Menopause Society, Malaysian Cancer Society, and many more. There are also many organizations fighting for the cause of a greener environment. These organizations exist due to government grants, charity and other revenue source, which is limited in terms of amount and variety. Thus, competition is also faced by NPOs; their existence is continually being challenged 3

by community acceptance and their capability to sustain their activities financially.

Nevertheless, it has never been a compulsory need for NPOs to create their business plan or strategic management development programs. However, the dynamics of todays global environment imply that a strategic management program might be important and even critical for the continuous existence of NPOs.

This

paper

highlights

the

issue

of

whether

strategic

management is necessary for NPOs. This issue is discussed based on personal opinion and reviewed literatures.

In my opinion, I very much agree that strategic management is a core activity of any organization regardless of type for-profit organizations, NPOs or non-government organizations, government organizations. I believe that with the present competitive global environment which is felt locally as well as in the international level request a critical need for strategic management in NPOs.

1.3

Definition of Terms

In presenting this paper, there are two main terms which are widely use in this paper: strategic management and non-profit

organizations (NPOs). Thus, these terms are explicitly explained as follows:

1.3.1 Strategic Management

According to Lamb (1984),

Strategic management is an

ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed

circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.

Dan (2010) defined strategic management as the groundwork for a companys vision and allows a company to 5

be

ready

to

capitalize

on

opportunities.

Strategic

management is a process of evaluating a companys mission, establishing the companys design, developing the companys organization and relationships, and guiding the companys plan to execution to ensure that the management is consistent with the companys strategy.

1.3.2 Non-Profit Organizations

According to Salamon et al. (1996), non-profit organizations are defined based on five conditions: (1) formal

organizations, (2) private (separated from government), (3) not for profit distributing (4) self-governing and (5) voluntary.

They further explained that the conditions of (1), (2), and (4) indicate that NPOs should be independent formal organizations. This set of conditions effectively implies that the essence of NPOs is that they are restricted by non-profit distribution condition and they are at least partially supported by volunteer activities and donations.

Non-profit

organization

is

also

defined

as

An

incorporated organization which exists for educational or charitable reasons, and from which its shareholders or trustees do not benefit financially. Any money earned must be retained by the organization, and used for its own expenses, operations, and programs. Many non-profit

organizations also seek tax exempt status and may also be exempted from local tax including sales taxes and property taxes (www.investorwords.com).

2.0

Literature Review on Strategic Management for Organizations 2.1 The Importance of Strategic Management

Strategic management starts with strategic planning. In the strategic planning process, there are five general steps: goal/objective setting, situation analysis, alternative consideration, implementation and evaluation (Crittenden and Crittenden, 2000).

The traditional process for developing strategy consists of analyzing the internal and external environments of the company to arrive at organizational strengths, weaknesses, opportunities, and threats (SWOT). The results from this situation analysis, as this process is sometimes called, are the basis for developing missions, goals, and strategies. In general, an organization should select strategies that take advantage of organizational strengths and environmental organizational opportunities weaknesses or neutralize environmental or overcome After

and

threats.

strategies are formulated, plans for implementing them are established and carried out (Thompson and Strickland, 1996). Figure 1 below shows the strategic management process in the

organization.

Figure 1: The Strategic Management Process (Thompson and Strickland, 1996)

Non-profit organizations are limited in terms of resources, thus necessitating the need for situational analysis. As shown in Figure 1 above, strategic management is responsible not only to set the direction of the organization through its vision, mission and values statements but also to ensure strategic controls of resources, building relationships, design structures, and develop control system measure and evaluate performance. Non-performing organizations are not viable in a competitive environment. 9

Thus, through strategic management, an organization ensures the direction of the organization and there is a clear guidance on how to reach the goals of the organization.

Stokely (2005) argues that the world is a fast changing place. In recent decades, organizations including NPOs have also undergone changes. According to Stokes, change makes success formulas obsolete. It is important for the organization to be proactive in doing what is necessary to anticipate and respond to change. Thus, strategic management ensures that these changes are addressed from time to time. Otherwise, the alternative is obsolescence of the organization.

According to Porter (1996), the core purpose of strategy is to create a unique and valuable position that leads to sustainable competitive advantage. The challenges are to realign the

organizations activities based on the market position and to carefully position the organization to achieve the corporate vision. A successful differentiate competition. positioning the strategy or value proposition those of must the

organizations

services

from

10

Porter (1996) also added that marketing is the process of getting and retaining customers. For non-profit organizations, customers come in the form of those who benefits from the services provided by the NPOs. Thus, even though the NPOs are not profitoriented, they are still obliged to meet their corporate vision, missions and goals and ensure customer satisfaction. In addition, NPOs are also facing competition from similar service providers. These organizations are fighting for grants, government aids and funds from various sources. In order to qualify and obtain these funds, the organization must be competitive and shows its ability to meet the corporate objectives.

Kenneth Andrews (1971) stated that there are four integral elements of strategy: (i) market opportunity; (ii) corporate competence and resources; (iii) personal values and aspirations; and (iv) acknowledge obligations to segments of society other than stockholders (p. 19). Thus, this implies that a strategy must define what could be done (opportunities), what can be done (resources), what one considers worth doing (goals) and what should be done (responsibilities).

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2.2

Competitiveness of Non-Profit Organizations Non-profit organizations in todays environment are not free from competition, risks and uncertainties. Moore (1996) stated that the adoption of strategic management is now widespread in all types of organizations as the executives try to control their environment and reduce uncertainty. Strategy becomes the art of bringing values and resources together to influence and shape the future.

One of the critical resources of NPOs is funds. NPOs are dependent on grants and funds provided by several bodies as well as through revenue from its services provision. However, most NPOs have limited funds and thus budgeting becomes important. Blumentritt (2006) stated that strategic management and budgeting are different but they have inter-related activities. When properly applied, both processes improve the organizations ability to create and sustain superior performance. With superior performance, it would be easier for the NPO concerned to apply for extension of grants or request for new and larger amount of funds.

For any organizations, strategic performance indicates two aspects of the organization its operational goals which include introducing new services, getting more customers, or improving 12

efficiencies. Another aspect is financial performance which considers money-based outcomes such as revenue growth, margins and return on investments (Blumentritt, 2006).

In NPOs, it is also critical to have excellent financial performance because surplus (profit) from its services provision can ensure continuing providing the services to stakeholders as well as to provide efficient service delivery through good management system, adoption of new technology, training and development for executives and staffs and so on.

Blumentritt (2006) explained that strategic management is designed to set a firms courses of action, identifying the strategies it will use to compete in the marketplace and how it will organize its internal activities. Budgeting, on the other hand, is used to efficiently allocate the firms available financial resources and to monitor the performance of managers and staffs.

Besides fund, NPOs also face some challenges in manpower issues. NPOs might not be able to engage workers with the best human capital assets due to competiveness in the job market. These human assets contain skills, competence, commitment, motivation and loyalty of employees. Some of the key components include: 13

know-how, technical expertise and problem solving capability, creativity, education, attitude and entrepreneurial spirit (Marr, 2005).

People might opt for a career with more viable options and potentials for growth and development in the long-term. Thus, not only do NPOs faced with recruitment but might also be challenged with problem of staff turnover and commitment. According to Allen and Meyer (1990), organizational commitment is defined as the employees feelings of obligation to stay with the organization: feelings resulting from the internalization of normative pressures exerted on an individual prior to entry or following entry.

To elaborate further, Allen and Meyer describes three types of commitment: (1) Affective commitment: an employee identifies with, is involved in, and has emotional attachment to the

organization; (2) Normative commitment: based on a sense of obligation an employee feels that they ought to stay, as things may change, for example; and

14

(3)

Continuous commitment: an employee recognizes the cost associated with leaving the organization, and therefore, they feel that they have no choice but to stay

Strategic management helps to define what and how the organization can find and retain quality staffs by ensuring these three types of commitment are achieved through some relational efforts concocted by strategic planning.

La Piana (1999) brought a crucial issue in current and tomorrows non-profit organizations. He stated that the non-profit sector is highly inter-dependent. This is because; NPOs normally have coalition and work together with NPOs, for-profit organizations and government organizations in conducting their programs. La Piana stated that no no-profit organization can long survive and succeed in advancing its mission while living independent of other non-profits and various other types of organizations. For instance, St. Johns Ambulance, a non-profit organization works closely with the health and medical institutions, educational institutions as well as other similar NPOs such as the Red Cross, JPA3 and so on to carry out first aid courses for the public.

15

These organizations gain information, political power, and personal and professional support from and in concert with other non-profits as well as other types of organizations. Thus, close working relationships, partnerships and even joint ventures between non-profit organizations are fairly natural occurrence.

Therefore,

strategic

management

must

be

enforced

to

determine what and how these relationships can help to strengthen the identity, image and reputation of the non-profit organization.

2.3

Strategic Management for Competitive Advantages in NPOs

There are many non-profit organizations which used the strategic management process in their organizations such as the Girl Scouts and Boy Scouts, the Red Cross, the Salvation Army, chambers of commerce, educational institutions, medical institutions, public Utilities, libraries, government agencies, and religious organizations.

Killen, Walker and Hunt (2005) explained that strategy concepts are sets of enabling strategies and strategic initiatives that are coherent and mutually supportive. Organizations are faced with multitude of solutions, ideas and suggestions which should be 16

considered. These could include improvements in the use of existing resources to innovative new technologies. Strategies are developed by considering each outcome opportunity and identify the possible solutions that address the key opportunities.

Strategies are important to NPOs because in most cases, these organizations function as a monopoly, produce services that offer little or no measurability of performance, and are totally dependent on outside financing. These organizations should use strategic management as it provides an excellent vehicle for developing and justifying requests for needed financial support (Nicolae, 2008).

Although strategic management has been accorded as critical in determining organizational performance and continued existence, Moore (1995) cautioned that strategy should be seen, rather, as laying out the general path but not as the exact steps by which an organization intends to create value. Moore explained that strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. This implies that strategist should think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the

17

chosen approach. It requires a frame of mind that admits of no boundary between means and ends.

Elcock

(1996)

stated

that

the

process

of

developing

organizational strategy must be iterative. Means are as likely to determine ends as ends are to determine means (Lindblom, 1959). Thus, Elcock (1996) explained that strategic process means toggling back and forth between questions about objectives, implementation planning and resources. An earlier idea about corporate objectives may have to be revised and changed if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both.

Strategic management provides a sense of direction which is important to steer the organization but Elcock cautions that this can also stifle creativity, especially if the strategies enforcement is rigid. Leaders in NPOs must be aware that this is an uncertain and ambiguous world where fluidity is more important than rigidity when it comes to strategy. Elcock mentions a phenomena called marketing myopia resulting from a rigid adherence to planned strategy. When strategy becomes internalized into a corporate culture, it can lead to group think can causes the organization to 18

define itself too narrowly. For example, an organization initially formed to cater to the needs of education among rural women might rigidly adhere to such cause and unable to deviate its course when in actual fact, addressing the low education level among women might not solve the big issue of poverty. The organization might have to address other issues such as providing economic empowerment to these women or working collaboratively with other organizations in order to address multiple issues.

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3.0

Discussion and Recommendations

The presentation of factual information above implies the importance of strategic management for all organizations including non-profit

organizations. However, it also cautions that too much of a strategy can lessen the creativity and innovation of a particular organization. Strategic management is a continuous process of determining and evaluating the direction of the organization.

However, in the world of technology, just strategic management is not applicable. A better approach lies in strategic quality management which according to Juran and Gryna (1993) is about the process of establishing long-range quality goals and defining the approach to meeting these goals. This implies the merger of corporate strategy and total quality management wherein incremental quality plans are replaced by bold initiatives such as cycle-time reduction and business process reengineering.

Thus, it is suggested that strategic quality management should be implemented by non-profit organizations to ensure that their corporate mission, vision and goals are based on high quality performance. Low and Sze (2005) explained that there are seven key principles of SQM which are:

20

(a)

Total commitment: it is important that leaders of NPOs emphasize the need for commitment from all staff members. Resources in the organization have to be allocated to cater for commitment development among staffs (Riggs, 1994). Total commitment should also be reflected in the organizations mission statement, goals and objectives.

(b)

Customer-driven service: Riggs (1994) explained that the essence of customer driven service is satisfying clients by doing the right thing the first time. Thus, it is important that all employees see the customer as the focus of their activity, regardless on the type of activity. It is also important that employees solicit feedback from customers on the organizations services (Hill and Jones, 1998).

(c)

Eliminate rework:

NPOs should optimize use of resources and

thus, ensure to simplify, standardize, and get the work done right the first time (Riggs, 1994). (d) Teamwork: As with other organizations, teams and not individuals are the organizational units that are accountable for performance. Everyone in the organization should share responsibilities and benefit from team learning (Riggs, 1994). (e) Training: Even in NPOs, training is imperative as strategic quality management will fail because however well designed the service on which it is offered, the organization will not be able to provide a quality service or product if its employees are not fully trained to do 21

the job (Stebbing and Pengelly, 1994). Training can create the framework to help guide the organization towards quality

improvement (Riggs, 1994). (f) Empowering and respecting people: NPOs have critical issues with human resources. There is a need to ensure that requires decisions to be delegated to the lowest level. Delegating also makes sense when it results in decisions being made by those who must implement them. (g) Ongoing process: Strategic quality management is a continuous process and that it is part of the organization in the long term (Riggs, 1994).

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4.0

Conclusion

It is concluded that strategic management is important and critical to any types of organizations. For NPOs, strategic management is important in both aspects to determine operational goals as well as financial goals. Although NPOs are not profit-oriented, it is equally important that NPOs generate income to sustain its activity, thus requiring efficient and effective operational and financial processes in the organization.

This paper has presented a strong argument to support the notion that strategic management is important to non-profit organizations. As the world is facing issues from political, economical and social activities, either locally or globally, non-profit organizations roles as watchdog, collaborator, supporter and networker have become more pertinent in current and future situations.

Therefore, NPOs cannot exist merely for the sake of existing. It has a big responsibility to carry and thus, necessitates the intervention of strategic management so that these NPOs are able to perform outstandingly and provide quality services to its clients.

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David, F. (1989). Strategic Management, Columbus:Merrill Publishing Company, Drucker, P. (1989). "What Business Can Learn from Nonprofits". Harvard Business Review: 1-7. Elcock, H. (1996). "Strategic Management," in Farnham, D. and S. Horton (eds.), Managing the New Public Services, 2nd Edition, New York: Macmillan Grobman, G. M. (2008). The Nonprofit Handbook: Everything You Need to Know to Start and Run Your Nonprofit Organization, White Hat Communications Hill, C.W.L. and Jones, G.R. (1998), Strategic Management: An Integrated Approach, Houghton Mifflin Company, Boston, MA. Jerratt, N. (2009, April 6). Strategic Planning and Its Importance to Non-profit Organizations. Retrieved April 11, 2010, from http://ezinearticles.com/?Strategic- Planning- and- Its- Importance- toNon- profit-Organizations&id=2191321 Juran, J.M. and Gryna, F.M. (1993), Quality Planning and Analysis, McGraw-Hill, New York, NY. La Piana, D. (1999). Beyond Collaboration: Strategic Restructuring of Non-profit Organizations, Washington: The James Irvine Foundation & The National Centre for Non-profit Boards Lamb, R. B. (1984). Competitive Strategic Management, Englewood Cliffs, NJ: Prentice-Hall 24

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