Organizational Culture

Why Culture Is Critical

May 11, 2017 | Laurence A. Pagnoni

The “American Canyon Society” is a fictitious name for a real organization. It is not departing too far from reality to say that its mission is to circulate scientific and historical information about the canyons of America. The “ACS” publishes a quarterly journal about its field of interest. It also sponsors a series of symposia for scientists and outdoor enthusiasts. The journal was initially a black-and-white affair with little original content. In recent years, a new editor took over and turned it into a handsome, color magazine with original contributions from writers who donate their time. The cost of the journal has vastly exceeded its budget. Culture.

The “American Canyon Society” is in a quandary about how to make ends meet. It has decided to raise membership dues, its sole source of revenue. Whenever a financial crisis threatens, the “ACS” always raises its dues; like a government, it reflexively “increases taxes.” As it happens, one of my colleagues sits on the “ACS” Board of Directors and has presented a development plan for soliciting foundation and corporate support, and individual donations to finance a number of modest initiatives. Some of the board members are intrigued. The President of the “ACS”, however, does not want to engage in outside fundraising because he is afraid the organization “will lose its independence”.

The dilemma faced by the “ACS” is essentially:

(a) it is living beyond its means
(b) the new editor of the journal should observe budgetary constraints
(c) it should not contemplate new initiatives until the journal is made solvent
(d) none of the above

If you answered “none of the above,” you’re right. The problem with this organization has nothing to do with the cost of its journal. It has everything to do with the culture of the organization.

Why Organizational Culture Is Critical

To understand the critical role of organizational culture, stop and think about this: Nonprofit organizations are seeking to realize a vision of a better society. Yet most nonprofits in the United States have organizational budgets of less than $250,000 and never grow past this threshold. It is painfully evident at present, during an economic downturn, how revenue shortfalls prevent organizations from achieving their visions. But even at peak phases of the business cycle, the nonprofit sector is grossly undercapitalized. One reason among many for this is that in certain cases an internal factor stops the organization from raising more revenue and effectively stunts its growth and thwarts its vision.

The important point to grasp is that organizations, like the societies of which they are a part, have distinct cultures. Anthropologists tell us how the culture of one society may differ from that of another. Management consultants clarify the ways in which the culture of one organization may differ from that of another. For example, some organizations may be highly entrepreneurial. In the nonprofit world, entrepreneurial organizations tend to be those that are extremely outcome-oriented. They emphasize quality assurance and outcome measurements, and focus on customer service. Other organizations may be heavily bureaucratic. An executive I recently met had gone to work for an international children’s charity not long ago. “This place,” he told me, “is more corporate than IBM where I used to work.” The emphasis in that organization is on the leadership hierarchy and compliance with a rigid schedule of reports and procedures.

An organization’s culture is created by its leadership (consciously or not), its history, and its shared values, and that culture permeates every cubicle of the nonprofit. From the point of view of a fundraiser, there are three critical aspects of organizational culture in the nonprofit sector. We will examine each of them in turn. They have to do with the organization’s dominant source of revenue and the possible diversification of the revenue stream; the extent to which an organization is “inward-” or “outward-looking;” and the capacity of an organization to revisit its fundamental assumptions.

A Dominant Source of Revenue or Diversification?

Nonprofits have distinct revenue streams that exert a powerful influence on the organization’s culture. Organizations typically become wedded to a dominant revenue source, which to some degree shapes the perception of reality of the board and staff. A nonprofit that, for example, subsists on government contracts might develop a strong financial office to manage those contracts. The board of directors may be well connected to private wealth, but the organization will not “see” the possibility of leveraging those connections to cultivate individual donors. Its individual giving program may, justifiably, be nonexistent or embryonic

Similarly, a sluggish nonprofit, like the “ACS” that muddles along on membership dues, may be reluctant to solicit grants or major gifts because doing so seems alien and bothersome. Another nonprofit, dependent on special events, will concentrate on booking a celebrity for its annual dinner; the tickets sold to people attending the gala will constitute its fundraising for the entire year. Other organizations build full throttle donor programs because they are dependent on a large number of donations to support their good work. In each case, one detects a singular focus that excludes other options, even a certain lack of flexibility and a reluctance to depart from customary ways. These self-imposed restrictions curtail the fundraising program.

In some cases, flexibility may mean finding multiple rivulets within the same revenue stream. That is, an agency living off federal contracts may need to seek out opportunities for state funding to minimize its vulnerability to congressional budget cuts. A nonprofit relying on major gifts may be well advised to cultivate smaller gifts to fuel the next phase of organizational growth. In other cases, a dominant revenue source can at least be complimented with a secondary revenue source which the nonprofit devotes significant resources to develop.

In the case of the “ACS,” dues were raised uniformly under the assumption that everyone had the same capacity to give! When my colleague proposed the idea of increasing dues according to each member’s capacity, even that new idea was dismissed as “too aggressive!” Culture prevailed: this is how we have done it before and will continue to do it. It was more than one person’s stubborn view; it was group-think! This organization needs to look itself in the eye and tell itself the truth: Unless its stops stopping itself from diversifying its revenue, it will not stabilize its finances, let alone advance to the next level.

Inward or Outward?

The second critical aspect of organizational culture, from a fundraising perspective, is the “inward” or “outward” focus of the nonprofit. Discovering which way a nonprofit leans—inwardly or outwardly—is easy to determine from a dialogue with the CEO, staff, or Board.

To illustrate, I introduce you to the “Neighborhood Services League.” The “NSL” offers programs that are highly effective in helping a variety of people in need. Although oriented substantially to government grants, this organization has had an eye-opening experience. Senior management developed a 5-year plan for future growth and discovered that their projections fall millions of dollars short of their need. They have therefore determined to ratchet up their grant seeking and establish an individual donor program.

However, as effective as the “NSL” is in providing social services, it is basically invisible in the community. “We have our newsletter,” say the executive staff. True, but they do not understand the importance of outside marketing and, unfortunately, have never branded their name nor expanded their network. Raising this subject
draws blank stares.

An organization with an inward-focused culture does well with some revenue streams (government and some foundation support) but shoots its fundraising program in the foot with individual donors. You can use state-of-the-art prospecting techniques to identify prospective donors, but their willingness to give depends on how they feel about your organization. If they have never heard of your organization, despite all the good it does, the emotional context for the donation does not already exist. It has to be manufactured, which takes time and effort. An outward-focused organization creates the groundwork for asking for private money from individuals. That is why the Salvation Army (one of the largest nonprofits in the world) spent a fortune on commercials this past holiday season. The cost of those commercials will be repaid by many years of sustained giving, because the image projected by those commercials—the woman ringing the bell—has touched the heart of millions.

The bell in that remarkable ad tolls for all of us in the nonprofit sector. It tells us that fundraising and marketing go hand-in-hand. The impact the nonprofit has on its community is the product the fundraiser is selling to the prospective donor. An “inward-focused” organization needs to think strategically about developing the kinds of programs that will amplify its impact. But it first has to understand the way its culture limits it impact and, as a result, its capacity to connect with individual donors. Even if it chooses to stay inwardly inclined, it should at least be conscious of that choice. Too many nonprofits never decide.

Revisiting Fundamental Assumptions

Finally, I want to tell you about the “Peace and Justice Center.” This nonprofit offers weekend seminars, in a rustic setting, on progressive issues. The “Center” has been around for a long time, but its adherents have aged and attendance at its seminars has markedly slipped in recent years. It has lived off of a single revenue source for most of its history—seminar fees—and has perennially been an inward- rather than outward-focused organization. The “Center” has made efforts to correct these faults. In recent years, it has started (then stopped) a grants program, been active in individual donor solicitation, and is seeking to raise its organizational profile. But  it is still a failing, stagnant nonprofit. One donor referred to it as “anachronistic.” The reason why illuminates the third critical aspect of organizational culture.

It is ingrained in the culture of some organizations to ask hard questions about its fundamental purposes and operations. Other organizations bury their heads in the sand. The “Peace and Justice Center” has traditionally seen itself as a provider of seminars. It considers each seminar as a separate, discrete entity, and is not used to thinking in other ways or open to new ideas. If it only looked at its operations in a larger perspective, it would see that it could reframe itself as sponsor of projects. It could undertake a peace and justice project—creating an “Agenda for Tomorrow,” for example. The project would encompass a series of weekend seminars focusing on different aspects of social change. If each individual seminar in the series was marketed as a facet of a larger effort, it might draw more—and younger—participants. The whole package would be more compelling and attract more funders, and at the end of the series the “Center” would have evolved an attention-getting product. The “Peace and Justice Center” might then conceivably realize its dream of playing a more vital role in national debates. But the “Center” resists change. It cannot entertain fundamental challenges to the way it does business. It will likely struggle on indefinitely with dwindling finances and the same insoluble dilemmas.

Conclusion

I am aware that the most difficult thing to do is to take a new product to a new market. As a fundraiser I understand the reluctance of nonprofits to commit to a similar process. We are often asking nonprofit organizations to take a new fundraising strategy to a new group of donors. But we recommend these measures because 1) new strategies can be implemented faster than most people think, and 2) they are lucrative.

But the first question that must be addressed is the possible inhibiting effects of an organization’s culture. Is your nonprofit overly conditioned to a single revenue stream? Should you go more deeply into that dominant revenue stream or diversify? Should we diversify to a second revenue source and/or more than two? Is the organization too inward-oriented? Is the executive staff unable to take an objective look at its fundamental operations?

Therein may lay the roots of your fundraising dilemma.

What is your experience of challenging or creating organizational culture?  Please leave your comments at the blog.

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