Web Chapter C

Strategic Management and Business Policy, 13e (Wheelen) - PIV
Web Chapter C: Strategic Issues in Not-for-Profit Organizations
1) Most not-for-profit managers have traditionally felt that business concepts were relevant to
their situation.
Answer: FALSE
Diff: 1 PageRef: C-50
Topic: Why Not-for-Profit?
2) Girl Scout cookies are an example of strategic piggybacking.

Answer: TRUE
3) Not-for-profit organizations account for an average of one in every 40 jobs in nations

throughout the world.
Answer: FALSE
4) Not-for-profit organizations include private nonprofit corporations and public governmental

units or agencies.
Answer: TRUE
5) Examples of private nonprofit corporations include welfare departments, prisons, and state
universities.
Answer: FALSE
6) The evidence is conclusive that there is an association between strategic planning efforts and
performance measures such as growth.
Answer: FALSE
7) Examples of public or collective goods include paved roads, police protection, and schools.
Answer: TRUE
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8) A person cannot use a private good unless she or he pays for it; generally once a public good
is provided, however, anyone can use or enjoy it.
Answer: TRUE
9) Private nonprofit firms enjoy exemptions from various state, local, and federal taxes.
Answer: TRUE
Diff: 1 PageRef: C-51 - C-52
10) Private nonprofit organizations qualify for special reduced-cost mailing privileges.
Answer: TRUE
11) Privatization is the selling of state-owned enterprises to private individuals or corporations or

the hiring of a private business to provide services previously offered by a state agency.
Answer: TRUE
12) The service orientation of not-for-profit organizations is reflected in the fact that they do not
use the term "customer" to refer to the recipient of the service.
Answer: TRUE
13) The feature that best differentiates not-for-profit organizations from each other as well as
from profit making corporations is their source of revenue.
Answer: TRUE
Topic: Importance of Revenue Source
14) The NFP organization depends solely on revenues obtained from the sale of its goods and
services to customers.
Answer: FALSE
15) The not-for-profit organization depends heavily on dues, assessments, or donations from its
membership, or on funding from a sponsoring agency.
Answer: TRUE
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16) Revenue in a not-for-profit can come from people who do not even receive the services they
are subsidizing.
Answer: TRUE
17) Because the recipient of the service in a not-for-profit organization typically does not pay the
entire cost of the service, outside sponsors are required.
Answer: TRUE
18) The less money the not-for-profit organization receives from clients receiving the service or
product, the less market oriented the organization.
Answer: TRUE
19) The pattern of influence on the organizations strategic decision making derives from its
sources of revenue.
Answer: TRUE
20) In profit-making corporations, there is typically a simple and direct connection between the
customer or client and the organization.
Answer: TRUE
21) The not-for-profit organization is totally market oriented.

Answer: FALSE
22) The public university is heavily dependent on student tuition and other client-generated
funds.
Answer: FALSE
23) The public university is more heavily dependent on outside sponsors such as a state
legislature for revenue funding.
Answer: TRUE
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24) The marketplace orientation underlying portfolio analysis does translate into situations in
which customer satisfaction and revenue are directly linked.
Answer: FALSE
25) A not-for-profit can be said to have institutional advantage when it performs its tasks more
effectively than other comparable organizations.
Answer: TRUE
26) A SWOT analysis is not as relevant to a not-for-profit as it is to a profit-making organization.

Answer: FALSE
27) According to Newman and Wallender, one of the characteristics of not-for-profit

organizations constraining their behavior and affecting their strategic management is that service
is often intangible and hard to measure.
Answer: TRUE
Topic: Impact of Constraints on Strategic Management
28) Because the not-for-profit organization typically lacks a single clear-cut performance
criterion, divergent goals and objectives are likely.
Answer: TRUE
29) Planning in the not-for-profit organization becomes more concerned with service, which can
be easily measured, than with resource inputs which cannot.
Answer: FALSE
30) A major role of the not-for-profit board is to ensure adequate resources.

Answer: TRUE
31) Boards of business corporations tend to be larger than are boards of not-for-profit
organizations.
Answer: FALSE
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32) One issue of strategy implementation is that decentralization can be complicated.
Answer: TRUE
33) In the not-for-profit organization, inputs rather than outputs are heavily controlled.
Answer: TRUE
34) Strategic piggybacking refers to the development of a new activity for the not-for-profit
organization that would generate the funds needed to make up the difference between revenues
and expenses.
Answer: TRUE
Topic: Not-for-Profit Strategies
35) Not-for-profit organizations are advised by the U.S. IRS that it may jeopardize its tax-exempt
status if they engage in a business "not substantially related" to the organization's exempt
purpose.
Answer: TRUE
36) One of the potential drawbacks to strategic piggybacks is that it may help not-for-profit
organizations better use their resources.
Answer: FALSE
37) The U.S. National Association of College and University Business Officers predicts that
within a few years over 90% of colleges and universities in the United States will be using
strategic piggybacks.
Answer: TRUE
38) Dwindling resources are leading an increasing number of not-for-profits to consider

liquidation as a way of reducing costs.
Answer: FALSE
39) Since 1990, less than 10% of U.S. hospitals have been involved in mergers and acquisitions.
Answer: FALSE
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40) Strategic alliances involve developing cooperative ties with other organizations.
Answer: TRUE
41) According to Peter Drucker, why do nonprofits need management even more than profit-
minded businesses?
A) They are required by government regulations to follow certain guidelines.
B) To attract funding and donations, they need the proper exposure.
C) Nonprofit organizations lack the discipline of the bottom line.
D) They need proper management to avoid commercialism.
E) Nonprofit organizations need to act like profit-minded businesses to attract qualified and
competent personnel which are needed in both.
Answer: C
42) According to the textbook, not-for-profit organizations have accounted for an average of one
in every ________ jobs in nations throughout the world.
A) 10
B) 20
C) 30
D) 40
E) 50
Answer: B
43) Not-for-profit organizations employ over ________ of the U.S. workforce.

A) 25%
B) 35%
C) 45%
D) 55%
E) 65%
Answer: A
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44) Not-for-profit organizations own approximately ________ of the private wealth in the United
States.
A) 55%
B) 45%
C) 35%
D) 25%
E) 15%
Answer: E
45) Private nonprofit corporations include all of the following EXCEPT

A) hospitals.
B) institutes.
C) prisons.
D) private colleges.
E) organized charities.
Answer: C
46) Public governmental units or agencies include all of the following EXCEPT
A) welfare departments.
B) prisons.
C) health and human services.
D) private colleges.
E) state universities.
Answer: D
47) Strategic management has dealt primarily with what type of organization in the past?
A) profit-making firms
B) government organizations
C) nonprofit organizations
D) socialistic organizations
E) none of these
Answer: A
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48) What is a "public" good?
A) A good in which the benefits can be enjoyed by someone who didn't pay for the good.
B) A good which must be purchased by the user.
C) An externality arising from a private good.
D) A public good can only be supplied by governmental bodies supported by tax dollars.
E) none of these
Answer: A
49) According to the textbook, what is one of the reasons why the not-for-profit sector of an
economy is important?
A) not-for-profit businesses generate a substantial portion (35%) of the GDP.
B) not-for-profit organizations use any excess of revenue over costs and expenses to accrue to
their stockholders to improve the public standing.
C) A private nonprofit firm tends to receive benefits from society that a private profit-making
firm cannot obtain such as preferential tax status.
D) without the not-for-profit sector, most of the workforce would be without employment.
E) not-for-profit organizations produce goods and services which are imperative for good
international trade relations.
Answer: C
50) Not-for-profit organizations typically do NOT use which term to refer to the recipient of
their service?
A) patient
B) student
C) customer
D) client
E) "the public"
Answer: C
51) On what sources does the not-for-profit organization depend to pay for much of its costs and
expenses?
A) dues from its membership
B) assessments
C) donations
D) funding from a sponsoring agency
E) all of the above
Answer: E
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52) Which feature best differentiates not-for-profit organizations from each other as well as from
profit-making corporations?
A) the ability to earn a profit
B) the ability to earn a surplus
C) number of professionals they employ
D) their source of revenue
E) their management
Answer: D
53) The selling of state-owned enterprises to private individuals or corporations or the hiring of a
private business to provide services previously offered by a state agency is referred to as
A) privatization.
B) polarization.
C) rightsizing.
D) for-profitizing.
E) customization.
Answer: A
54) The textbook lists various areas of life that cannot easily be privatized and are often better
managed by not-for-profit organizations. Which of the following is NOT one of these areas?
A) charities
B) government
C) religion
D) education
E) consulting
Answer: E
55) In which of the following organizations is the customer/client likely to have the greatest
amount of influence over organizational activities?
A) a public university
B) a gas station
C) a private college
D) a welfare agency
E) a community hospital
Answer: B
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56) Which one of the following is NOT true concerning the revenue sources of not-for-profit
organizations?
A) Service can be received long after the dues are paid.
B) Revenue comes primarily from dues, assessments contributions, or funding from a sponsoring
agency.
C) In some instances, sponsors of not-for-profit organizations receive none of the service but
may provide partial or total funding of needed revenues.
D) The organization tries to influence the client to continue to buy and use its services to ensure
that future revenues will be forthcoming.
E) Revenue comes from a variety of sources, not just from sales to customers and clients.
Answer: D
57) A study of Minnesota nonprofits found that donations accounted for almost ________ of
total revenues.
A) 10%
B) 30%
C) 40%
D) 60%
E) 80%
Answer: C
58) Not-for-profit organizations such as unions receive most of their revenue from
A) government grants.
B) their members.
C) donations.
D) benefactors.
E) fellowships.
Answer: B
59) A study on Minnesota nonprofits found that 35 percent of total revenues came from
A) donations.
B) government grants.
C) program service fees.
D) members.
E) unions.
Answer: C
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60) Which one of the following is NOT true of the relationship between the not-for-profit
organization and the person receiving the service?
A) In most instances, the sponsors receive none of the services.
B) Not-for-profit organizations tend to be totally dependent on sales of its products or services,
and are therefore extremely interested in pleasing its customers.
C) The recipient of the service typically does not pay the entire cost of the services thus requiring
a sponsor to contribute funds.
D) Sponsors provide partial to total funding of needed revenues.
E) Not-for-profit organizations can be partially or totally dependent on sponsors for funding.
Answer: B
61) According to the textbook, which entity in a private university is likely to have a stronger
influence on the university's decision making?
A) the sponsors
B) the parents of students
C) the administration
D) the students
E) the faculty
Answer: D
62) According to the textbook, a private university depends on ________ for the majority of its
revenue.
A) student tuition and other client-generated funds
B) state legislature
C) government grants
D) athletic paraphernalia
E) governor executive orders
Answer: A
63) According to the textbook, which entity in a public university is likely to have a stronger
influence on the university's decision making?
A) the sponsors
B) the parents of students
C) the administration
D) the students
E) the faculty
Answer: A
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64) What is the key to understanding the management of a not-for-profit organization?
A) It is the ability to bring a concern to the attention of the public media watchdogs.
B) It is the ability to coordinate the recipients of the not-for-profit organization services/product
to influence the direction of the organization.
C) It is learning who pays for the delivered services.
D) It is the process of applying influence on the sponsors.
E) It is encouraging government intervention to ensure that not-for-profit organizations are
meeting their stated obligations.
Answer: C
65) Which of the following is NOT true of the usefulness of strategic management concepts and
techniques as applied to not-for-profit organizations?
A) Strategic management concepts are generally not applicable to not-for-profit organizations.
B) The marketplace orientation underlying portfolio analysis is not as applicable when there are
only indirect links between client satisfaction and revenue.
C) The objectives of a not-for-profit organization are difficult to objectively measure.
D) Strategic management techniques are sometimes modified because sponsors, not the
marketplace, determine revenue.
E) Some strategic management concepts can be equally applied in business and in not-for-profit
organizations.
Answer: A
66) Which strategic management concepts are just as relevant to a not-for-profit organization as
they are to a profit-making organization?
A) SWOT analysis
B) Mission statements
C) Stakeholder analysis
D) Corporate governance
E) all of the above
Answer: E
67) When the not-for-profit organization performs its tasks more effectively than other
comparable organizations, it is said to have a(n)
A) client-based advantage.
B) invested advantage.
C) institutional advantage.
D) public good advantage.
E) societal advantage.
Answer: C
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68) Which one of the following is NOT a constraining characteristic of strategic management in
a not-for-profit organization?
A) Client influence may be weak.
B) Service is often intangible and hard to measure.
C) Strong employee commitment to professions or to a cause may undermine their allegiance to
the organization employing them.
D) Resource contributors may intrude upon the organization's internal management.
E) Rewards and punishments are based upon clearly defined performance standards.
Answer: E
69) When public organizations are privatized, the trend is to have

A) clients pay a larger percentage of the costs.
B) clients pay a lower percentage of the costs.
C) clients apply for subsidies from the government.
D) organizations solicit state agencies for more funding.
E) organizations sponsor fundraising events.
Answer: A
70) Which of the following is NOT a characteristic of not-for-profit organizations which acts to
constrain the organization's behavior and affect its strategic management?
A) Service is often very intangible and hard to measure.
B) Resource contributors may intrude upon the organization's internal management.
C) Strong employee commitment to a profession may undermine their allegiance to the
organization employing them.
D) Strong client influence causes conflicts with sponsors.
E) Restraints on the use of rewards and punishments may result from these characteristics.
Answer: D
71) According to Newman and Wallender, the existence of multiple service objectives developed
to satisfy multiple sponsors will result in
A) service that is often intangible and hard to measure.
B) client influence that may be weak.
C) strong employee commitments to professions or an undermining of allegiance to the NFP.
D) resource contributors that may intrude on internal management.
E) restraints on the use of rewards and punishments.
Answer: A
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72) According to Newman and Wallender, a NFP may have a local monopoly and the clients'
payments may be a small source of funds resulting in
A) service that is often intangible and hard to measure.
B) client influence that may be weak.
C) strong employee commitments to professions or an undermining of allegiance to the NFP.
D) resource contributors that may intrude on internal management.
E) restraints on the use of rewards and punishments.
Answer: B
73) The constraining characteristics affecting the strategic management of NFPs

A) are only applicable to profit-making organizations.
B) can often be found in profit-making as well as in not-for-profit organizations.
C) are only applicable to not-for-profit organizations.
D) are not applicable to either profit-making or not-for-profit organizations.
E) are identical in all profit-making and not-for-profit organizations.
Answer: B
74) Which one of the following is NOT one of the four complications to strategy formulation?
A) Ambiguous operating objectives create opportunities for internal politics and goal
displacement.
B) Professionalism simplifies detailed planning but adds rigidity.
C) Goal conflicts interfere with rational planning.
D) External environmental factors cannot be predicted.
E) An integrated planning focus tends to shift from results to resources.
Answer: D
75) Why might goals and objectives be very divergent in a not-for-profit organization?
A) It is much more difficult for a not-for-profit organization to establish such criteria than it is
for a profit-making organization because of the greater diversity of duties.
B) Differences in the concerns of various important sponsors may prevent top management from
stating the organization's mission in anything but very broad terms.
C) Goals and objectives take on very little meaning in most not-for-profit organizations.
D) Government involvement often dictates the operations of the not-for-profit organization.
E) none of these
Answer: B
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76) Which of the following strategy formulation complications describes the not-for-profit
organization's situation which tends to provide services that are hard to measure because they
rarely have a net bottom line?
displacement.
B) Professionalism simplifies detailed planning but adds rigidity.
D) External environmental factors cannot be predicted.
E) An integrated planning focus tends to shift from results to resources.
Answer: E
77) Which of the following tends to complicate the strategy formulation process of a not-for-
profit organization?
displacement.
B) Linking pins for external-internal integration become important.
C) Rewards and penalties have little or no relation to performance.
D) Job enlargement and executive development may be restrained by professionalism.
E) Decentralization is complicated.
Answer: A
78) A fear of funding cancellation often forces a not-for-profit organization to

A) develop ambiguous objectives.
B) develop clear objectives.
C) develop quantified objectives.
D) develop a narrowly defined mission.
E) develop concise goals.
Answer: A
79) Board members of a not-for-profit usually receive

A) compensation equal to their current salary.
B) no compensation for serving on the board.
C) compensation in the form of free services.
D) compensation in the form of non-financial benefits.
E) compensation equal to one half of their current salary.
Answer: B
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80) According to the textbook, Eckerd College has over ________ members on its board of
directors.
A) 50
B) 30
C) 70
D) 10
E) 90
Answer: A
81) According to the textbook, the attendance rate of not-for-profit board meetings is
approximately ________ as compared to ________ for business corporations.
A) 50%; 90%
B) 60%; 10%
C) 70%; 10%
D) 20%; 80%
E) 90%; 95%
Answer: A
82) Which of the following tends to complicate the strategy implementation process of a not-for-
profit organization?
A) Decision-making authority is delegated to the lowest manager.
B) Professionals are constantly trying to enrich their jobs.
D) Decentralization is complicated.
E) Inputs rather than outputs are heavily controlled.
Answer: D
83) Which complication of the impact on strategy implementation is concerned with the creation
of "buffer" roles to relate to both inside and outside groups?
A) Goals conflicts interfere with rational planning.
B) Decentralization is complicated.
C) Professionalism simplifies detailed planning but adds rigidity.
D) Linking pins for external-internal integration become important.
E) Job enlargement and executive development can be restrained by professionalism.
Answer: D
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84) According to the textbook, the larger the board,
A) the more control it exercises over top management.
B) the less control it exercises over top management.
C) the more likely the organization can attain additional funding.
D) the more likely the organization will be audited.
E) the less likely the organization will be audited.
Answer: B
85) A study of Minnesota nonprofits indicated that ________ of the program directors had
degrees or experience in business administration.
A) 5%
B) 15%
C) 29%
D) 52%
E) 81%
Answer: C
86) Which is one of the problems associated with constraining characteristics and their effect on
how behavior is motivated and performance controlled?
A) Rewards and penalties have little or no relation to performance.
B) Corporate cultures serve as limiting factors in motivation.
C) Performance reviews provide objective criteria but do not allow for subjective appraisals.
D) Behavior appraisals interfere with rational planning.
E) Employee influence is weak.
Answer: A
87) A study of Minnesota nonprofits indicated that ________ of the staff had degrees or
experience in business administration.
A) 15%
B) 30%
C) 50%
D) 75%
E) 90%
Answer: A
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88) When top management retains all decision-making authority so that low-level managers
cannot take any actions to which the sponsors may object, this issue refers to
A) offensive centralization.
B) defensive centralization.
C) proactive centralization.
D) reactive centralization.
E) autonomous centralization.
Answer: B
89) Cited by the textbook, one complication that could interfere with strategy implementation as
it relates to its employees and professional norms is
A) complicated decentralization.
B) shifting of resources.
C) linking pins.
D) the restraint of job enlargement and executive development.
E) weak client influence.
Answer: D
90) A special complication to strategy evaluation and control arising from the constraining
characteristics finds inputs rather than outputs are heavily controlled, thus placing the emphasis
on
A) achieving maximum profitability at all costs.
B) promoting greater operating efficiency.
C) creating more effective programs for the public good.
D) setting maximum limits for costs and expenses.
E) setting the minimum limits for costs and expenses.
Answer: D
91) The textbook indicates that a not-for-profit organization should not spend more than
________ on administrative expenses.
A) 75%
B) 60%
C) 50%
D) 10%
E) 35%
Answer: E
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92) The textbook indicates that for a not-for-profit organization, the costs of fund-raising should
not account for more than ________ of total income.
A) 5%
B) 10%
C) 15%
D) 25%
E) 40%
Answer: C
93) If a not-for-profit organization acquires or develops a new business that is related typically in
some manner to the organization's primary mission in order to help subsidize the deficit-
producing primary mission, this is referred to as
A) strategic piggybacking.
B) PPBS.
C) mission enhancement.
D) strategic funds deferral.
E) interorganizational linking.
Answer: A
94) Strategic piggybacking is a form of a ________ strategy.

A) conglomerate diversification
B) concentric diversification
C) vertical integration
D) cost leadership
E) focus
Answer: B
95) In terms of portfolio analysis and not-for-profit organizations, question marks receive
funding from
A) stars.
B) dogs.
C) cash cows.
D) alliances.
E) other question marks.
Answer: C
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96) The textbook indicates that approximately ________ of colleges and universities offer
auxiliary services (such as bookstores) as sources of income.
A) 40%
B) 50%
C) 60%
D) 70%
E) 80%
Answer: D
97) According to the textbook, GlaxoSmith-Kline pays ________ to use its name on Nicorette
chewing gum.
A) the Surgeon General's office
B) MADD
C) the American Cancer Society
D) United Way
E) American Red Cross
Answer: C
98) Why does the U.S. Small Business Administration take a negative position when a not-for-
profit organization uses various income-generation ventures to defray the operating costs of the
organization?
A) Meeting expenses and costs becomes the foremost goal of the organization.
B) It views the activity as unfair competition.
C) It does not conform to generally accepted accounting principles (GAAP).
D) It does not provide a strict adherence to the goals of the organization.
E) The recipients of the organization's products or services do not benefit from the income-
generating ventures.
Answer: B
99) The U.S. Internal Revenue Service (IRS) advises that a not-for-profit organization that
engages in a business not "substantially related" to the organization's exempt purpose may
jeopardize its tax-exempt status, particularly if the income from the business exceeds what
percentage of the total organizational revenues?
A) 5%
B) 20%
C) 50%
D) 80%
E) 90%
Answer: B
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100) Which one of the following is NOT one of the potential negative effects of strategic
piggybacks?
A) The revenue-generating venture could lose money.
B) The venture could subvert or interfere with the primary mission.
C) A successful venture could provide excess funds allowing the not-for-profit organization to
grow much faster and larger than is advised.
D) The public as well as the sponsors could reduce their contributions because of the negative
response to "money-grubbing" activities.
E) The venture could interfere with the internal operations of the not-for-profit organization.
Answer: C
101) The U.S. National Association of College and University Business Officers predicts that
over ________ of colleges and universities in the United States will be using strategic
piggybacks within a few years.
A) 50%
B) 60%
C) 70%
D) 80%
E) 90%
Answer: E
102) Which of the following is NOT one of the resources Edward Skloot suggests a not-for-
profit organization have before it begins a strategic piggyback?
A) something to sell
B) trustee support
C) a reward system
D) entrepreneurial attitude
E) venture capital
Answer: C
103) Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that an
organization should assess its resources to see if people might be willing to pay for goods or
services which are closely related to the organization's primary activity?
A) something to sell.
B) trustee support
C) critical mass of management talent
E) venture capital
Answer: A
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104) Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that
there must be enough available people to nurture and sustain an income venture over the long
haul?
B) trustee support
E) venture capital
Answer: C
105) Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that if
trustees have strong feelings against earned-income ventures, they could actively or passively
resist commercial involvement?
B) trustee support
E) venture capital
Answer: B
management must be able to combine an interest in innovative ideas with businesslike
practicality?
B) trustee support
E) venture capital
Answer: D
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because it often takes money to make money, engaging in a joint venture with a business
corporation can provide the necessary start-up funds as well as the marketing and management
support?
B) trustee support
E) venture capital
Answer: E
108) Developing cooperative ties with other organizations in order to enhance a not-for-profit's
ability to serve clients or to acquire resources while still enabling them to keep their identity is
called
A) strategic piggybacking.
B) PPBS.
C) mission enhancement.
D) strategic funds deferral.
E) strategic alliances.
Answer: E
109) The New York and Presbyterian Hospitals Health Care System was a merger between
A) Baptist Health Systems and Research Health Services.
B) Health Midwest and Research Health Services.
C) New York Hospital-Cornell Medical Center and Columbia-Presbyterian Medical Center.
D) Columbia-Presbyterian Medical Center and Health Midwest.
E) Baptist Health Systems and Columbia-Presbyterian Medical Center.
Answer: C
110) Since 1990, over ________ percent of U.S. hospitals have been involved in mergers and
acquisitions.
A) 15
B) 30
C) 45
D) 60
E) 75
Answer: C
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111) Four universities agreed to create and jointly operate a new school of international business
in the state of
A) North Carolina.
B) New York.
C) Kentucky.
D) Ohio.
E) Michigan.
Answer: D
112) The Collaborative Ventures Program, which has given more than $4 million in grants to
help colleges set up money-saving collaborations, is part of an initiative run by the
A) Peabody Foundation.
B) Teagle Foundation.
C) United Way.
D) UNCF.
E) Americorps.
Answer: B
113) Define a not-for-profit organization.

Answer: Typically not-for-profit organizations include private nonprofit corporations (such as
hospitals, institutes, private colleges, and organized charities) as well as public governmental
units or agencies (such as welfare departments, prisons, and state universities).
114) Why is the not-for-profit sector of the economy important?

Answer: The not-for-profit sector of an economy is important for several reasons. First, society
desires certain goods and services that profit-making firms cannot or will not provide. These are
referred to as public or collective goods. Certain aspects of life do not appear to be served
appropriately by profit-making business firms, yet are often crucial to the well-being of society.
It is in these areas that not-for-profit organizations have traditionally been most effective.
A second reason why the not-for-profit sector is important is that a private nonprofit organization
tends to receive benefits from society that a private profit-making firm cannot obtain. Private
nonprofit firms enjoy exemptions from various state, local, and federal taxes.
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115) Discuss the importance of revenue source in the not-for-profit organization.
Answer: The feature that best differentiates not-for-profit organizations from each other as well
as from profit-making corporations is their source of revenue. The profit-making firm depends
on revenues obtained from the sale of its goods and services to customers, who typically pay for
the costs and expenses of providing the product or service plus a profit. The not-for-profit
organization, in contrast, depends heavily on dues, assessments, or donations from its
membership, or on funding from a sponsoring agency, such as the United Way or the federal
government, to pay for much of its costs and expenses.
116) According to Newman and Wallender, what are the five constraints on strategic
management in the not-for profit?
Answer: Newman and Wallender list the following five constraints on strategic management:
Service is often intangible and hard to measure.
Client influence may be weak.
Strong employee commitments to professions or to a cause may undermine allegiance to the
organization employing them.
Resource contributors may intrude on the organization's internal management.
Restraints on the use of rewards and punishments may result from other constraints.
117) What are the four complications to strategic formulation in the not-for-profit organization?
Answer: The four complications to strategic formulation in the not-for-profit organization are as
follows:
Goal conflicts interfere with rational planning.
An integrated planning focus tends to shift from results to resources.
Ambiguous operating objectives create opportunities for internal politics and goal displacement.
Professionalization simplifies detailed planning but adds rigidity.
Diff: 3 Page Ref: C-56 - C-57
118) What are the three complications to strategic implementation in the not-for-profit
organization?
Answer: The three complications to strategic implementation in the not-for-profit organization
are as follows:
Decentralization is complicated.
Linking pins for external-internal integration become important.
Job enlargement and executive development can be restrained by professionalism
25
119) What is strategic piggybacking? What are the potential drawbacks?
Answer: The term strategic piggybacking refers to the development of a new activity for the not-
for-profit organization that would generate the funds needed to make up the difference between
revenues and expenses. The new activity is related typically in some manner to the not-for-
profit's mission, but its purpose is to help subsidize the primary service programs. There are,
however, a number of potential drawbacks. First, the revenue-generating venture could actually
lose money, especially in the short run. Second, the venture could subvert, interfere with, or even
take over the primary mission. Third, the public, as well as the sponsors, could reduce their
contributions because of negative responses to such "money-grubbing activities" or because of a
mistaken belief that the organization is becoming self-supporting. Fourth, the venture could
interfere with the internal operations of the not-for-profit organization.
26

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Strategic Management and Business Policy, 13e (Wheelen) - PIV

Web Chapter C: Strategic Issues in Not-for-Profit Organizations

2) Girl Scout cookies are an example of strategic piggybacking.

3) Not-for-profit organizations account for an average of one in every 40 jobs in nations

4) Not-for-profit organizations include private nonprofit corporations and public governmental

11) Privatization is the selling of state-owned enterprises to private individuals or corporations or

21) The not-for-profit organization is totally market oriented.

26) A SWOT analysis is not as relevant to a not-for-profit as it is to a profit-making organization.

27) According to Newman and Wallender, one of the characteristics of not-for-profit

30) A major role of the not-for-profit board is to ensure adequate resources.

38) Dwindling resources are leading an increasing number of not-for-profits to consider

43) Not-for-profit organizations employ over ________ of the U.S. workforce.

45) Private nonprofit corporations include all of the following EXCEPT

69) When public organizations are privatized, the trend is to have

73) The constraining characteristics affecting the strategic management of NFPs

78) A fear of funding cancellation often forces a not-for-profit organization to

79) Board members of a not-for-profit usually receive

94) Strategic piggybacking is a form of a ________ strategy.

113) Define a not-for-profit organization.

114) Why is the not-for-profit sector of the economy important?

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