The Important Difference Between Nonprofits and Businesses

I've been reading Jim Collins's monograph, "Good to Great and the Social Sectors," which is about the differences between business and nonprofit organizations. I work for a university, and people often say it should be run more like a business. University administrators, who hear it more than I ever will, have taken that sentiment to heart in many ways.

But management expert Collins explains in this little book why that's the wrong approach. For example, he points out "...most non-business leaders simply do not have the concentrated decision power of a business CEO." He talks about two types of leadership: executive and legislative. While executive leaders have the power to make unilateral decisions, in legislative leadership nobody--not even the chief executive--has enough structural power to make decisions on his or her own. That's one reason why we can't run a university like a business. According to Collins, because of this relative lack of power, "Legislative leadership relies more upon persuasion, political currency, and shared interests to create the conditions for the right decisions to happen."

Another idea he explores is the role of money as an indicator of success: "In business, money is both an input (a resource for achieving greatness) and an output (a measure of greatness). In the social sectors, money is only an input, and not a measure of greatness." This is not as obvious as it seems. Educational institutions are pressured to justify their activities economically. We're forced to measure research productivity, technology transfer, public and private support, services, popularity, even educational projects, in dollars. In Nebraska, I've seen this pressure grow in the last 15 years.

Of course, outcomes and indicators other than money are identified in our strategic planning, and even celebrated from time to time. Collins proposes selecting alternative indicators of success that I find very intriguing. His section on "rethinking the economic engine without a profit motive" has great advice for re-phrasing the question "How much money do we make?" This is a short, smart read that may interest anyone who is part of a nonprofit organization.