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Nonprofit

Management

Chapter 3: Theories of the Nonprofit


Sector and Nonprofit Organizations

Theories Explaining the Nonprofit


Sector

Failure Theories
Supply-Side Theories
Theory of the Commons

Economic Terms

Goods: Includes both products and services and can be


categorized as:

Private Goods involve those goods that we buy and


consume privately (we enjoy the benefit individually and
our enjoyment doesnt impact others)
Public Goods involve those goods that are paid for by
the government because the positive benefits extend to a
broader section of the population

Externalities represent the positive benefit or


negative consequences of our purchase/consumption of
a good that extend beyond ourselves
Free Riders those (beyond the purchaser or
consumer of a private good) who also enjoy the positive
benefits

Failure Theories

Market failure occurs when the market does not efficiently


allocate resources:

Positive externalities (snow plowed roads)


Negative externalities (environmental pollution)
Information asymmetries (resulting in good shortages or
excesses)
Monopolies (CRTCs rejection of Bell-Astral deal)

Government failure occurs when government policies are


unable to achieve their desired outcomes

Political Providing certain services may be politically


controversial or may not be a priority when budgets are set
Structural Time horizon that elected officials operate within
do not allow for long-term solutions
Systemic Government agencies (which are often large and
bureaucratic) may not be able to respond quickly enough

Nonprofits as Gap Fillers

In context of failure theories, nonprofits fill


gaps left by market and government failure
In some cases, nonprofits may be viewed as
more trustworthy than for-profit providers
Nonprofits may provide intermediary
services (e.g., on behalf of poor, elderly,
homeless) to access government programs
However, failure theories dont address
those services provided by both government
and nonprofits OR those services (like
worship) that cant be explained by
market/government failure

Supply-Side Theories

Supply-side theories focus on why a goods provider


produces a product or service rather than on why a
consumer desires to purchase it
Entrepreneurship theory: goods provision occurs
because of the vision and initiative of the provider

Historical, faith-based foundation of many nonprofits


Todays social entrepreneurs (including organizations
like Trico Charitable Foundation) and their triplebottom line (social, economic, and ecological
outcomespeople, profit, planet)

Theories of altruism and giving:

Some contend giving is less altruistically-oriented and more in


self-interest (e.g., control over society, tax benefits); others
suggest both

Supply-side theories complement failure theories in


suggesting that nonprofits are more than just gap fillers

Theory of the Commons

Lohman (1992) argues there is a third good, a


common good
Common goods are those which are produced
outside the market, state, and household
through the vehicle of associative communities
Cannot be consumed by an individual, but nor
are they of interest to all
A common good to one community may not be
so to another community

Lohmans theory is similar to Salomons


member serving category

Changing Definitions

In general:
Private goods paid for by individual users
Public goods paid for via tax system
Common goods paid for by communitys
members

Changing definitions today yield several


exceptions:
Healthcare
Education
Highways

Why Do Nonprofits Exist?


Your Take

Why do you think nonprofits exist?


Market or government failure theories
Supply-side theories
Theory of the commons

Organizational Concepts:
External Environment

Open systems
Resource dependency
Isomorphism

Open Systems

Systems are closed or open depending upon


extent to which it interacts with and is
influenced by environment

Open Systems View

Task Environment:
Competitors, Unions
Regulatory Agencies, & Clients

Structure
Inputs:
Material
Capital
Human
Information

Technology

Task

People
Organizational Boundary

Output
s:
Products
Services

Open Systems

Systems are closed or open depending upon extent to


which it interacts with and is influenced by
environment
Closed systems are those which are entirely selfsufficient and impervious to influences from
environment
Most nonprofits are dependent on and interact
frequently with their external environments
Dependent upon external resources, clients, volunteers
Unlike businesses, nonprofits need to:
Shift away from over-emphasizing the internal mechanics of
an organizations operation (e.g., bureaucracy)
Focus on the relationship between an organization and its
external environment (e.g., social context)

Resource Dependency
Theory

Resource dependency theory (Pfeffer and Salancik,


1978) explains the behaviour of organizations that are
highly dependent upon their external constituencies
(e.g., revenue, information, and other resources)
Rather than examining their internal structures and
dynamics, it may be more revealing to examine the
nonprofits external interdependencies
Some of the behaviours that may be influenced include:

Goal displacement: nonprofits alter their goals and


activities to satisfy key constituencies
Performance measurement: nonprofits may be obliged
to measure outcomes as condition of their receiving funds
Internal impact: relationships within the nonprofit may
be influenced by the role the fundraising team plays in
generating resources

Isomorphism

Isomorphism reflects the tendency for


nonprofits in the same field to become more
like each other as a result of facing similar
influences from their environments
Different types of isomorphism include:
Coercive: behaviours may be forced upon
nonprofits because of laws, regulations, or
accounting standards
Mimetic: nonprofits mimic successful models
(benchmarking)
Normative: nonprofits in similar fields reflect
standards of practice commonly found in that field

Organizational Concepts:
Internal Structures and Culture

Attempt to explain why some organizations


are relatively bureaucratic and centralized,
while others are more entrepreneurial and
flexible
Task environment -- internal structure as a
reflection of the day-to-day transactions that
make up an nonprofit organizations work
Organizational culture

Artifacts
Values
Assumptions

Organizational
Culture
A pattern of basic
assumptions that are
considered valid and
that are taught to new
members as the way to
perceive, think, and feel
in the organization

Copyright 2012 Nelson Education Limited.

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Levels of Organizational
Culture

Artifacts
symbols of culture in the physical and
social work environment
Values
Espoused
what members of an organization say they value
Enacted
reflected in the way individuals actually behave
Assumptions
deeply held beliefs that guide behaviour and tell
members of an organization how
to perceive and think about things
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Artifacts
Personal enactment/behaviours
Ceremonies and rites
Stories
Ritual
Symbols

Copyright 2012 Nelson Education Limited.

Organizational
Culture Levels
Visible, often not
decipherable

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Artifacts
Personal enactment/behaviours
Ceremonies and rites
Stories
Ritual
Symbols

Organizational
Culture Levels
Visible, often not
decipherable

Values (Espoused and Enacted)


Stable, long-lasting beliefs about
what is important
Include conscious strategies, goals,
and philosophies

Copyright 2012 Nelson Education Limited.

Greater level
of awareness

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Artifacts
Personal enactment/behavours
Ceremonies and rites
Stories
Ritual
Symbols

Organizational
Culture Levels
Visible, often not
decipherable

Values (Espoused and Enacted)


Stable, long-lasting beliefs about
what is important
Include conscious strategies, goals,
and philosophies

Basic Assumptions
Notions that are taken for granted
on how something should be
Are the ultimate source of values
and behaviours

Copyright 2012 Nelson Education Limited.

Greater level
of awareness

Taken for granted,


invisible, and
preconscious
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Functions of
Organizational Culture

Culture provides a sense of


Culture reinforces the values
identity to members and
in the
increases their commitment to
organization
the organization
Culture allows employees to
interpret meaning of
organizational events

Culture serves as a control


mechanism for
shaping
behaviour

Photo courtesy of The Great Little Box Company

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Copyright 2012 Nelson Education Limited.

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