The Changing Competitive Landscape: Non-profit vs. For-Profit
by Amy Karson & Rebecca Ratzkin

For-profit and non-profit organizations have traditionally competed in very different ways, but spillover from increased scrutiny within the for-profit world due to numerous high-profile scandals such as the Enron and Tyco debacles has revamped the competitive landscape of the non-profit sector. Although extreme competition exists within both the for-profit and non-profit sectors, external rivalry has historically forced for-profit firms to operate at maximum efficiency, focusing attention on production and organizational effectiveness rather than output. Within the non-profit world, organizations traditionally concentrate on output (e.g., productions, exhibitions, concerts, ticket sales, etc.), and frequently compete for funding, a typically demanding endeavor. Until recently, however, non-profits were not forced to compete on organizational effectiveness. But the rules are changing and non-profit organizations are now held to higher standards regarding organizational effectiveness and competence.

Donors, who typically work day to day in the for-profit sector, are more inclined to give to those institutions which they believe will deliver the most “bang for the buck”. In other words, the organizations that have the ability to sustain themselves both financially and operationally so that their impact is greater in the long term will have greater success in attracting donors and securing contributions. Also, many for-profit managers sit on non-profit Boards and are likely to introduce practices they adhere to in their corporate world into the non-profit boardroom.

Greater scrutiny of non-profit financial statements and business practices by all relevant stakeholders and donors has had an impact on organizations’ ability to raise funds and sustain programming. Non-profit organizations are being pushed to further constrict their already rigid overhead budgets. In order to adhere to new scrutiny, these groups are seeking numerous alternative and unique ways to decrease overall expenditures while remaining operationally efficient. In order to accomplish this arduous task, many non-profits have entered into merger, acquisition or partnership agreements.

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Examples include the Utah Opera and Utah Symphony, the Ulster Performing Arts Center and Poughkeepsie’s Bardavon Opera House as well as the merger of the Commonwealth Shakespeare Company in Boston with the Citi Center for the Performing Arts. The clear advantage of these mergers is the elimination of cost and programming redundancies, thereby resulting in increased efficiency. However, conflicts and disputes can arise due to the different cultures of each organization, and are potentially threatening to the long-term sustainability of the merged enterprises. This occurs as well within the for-profit  sector (e.g., Daimler-Benz and Chrysler). Partnerships, in which the organizations retain independence but collaborate on a specific project (e.g., Open Book) literary arts center in Minneapolis, the Latino Theater Company and Latino Museum in Los Angeles, can be utilized in pooling resources for facility development.

Additionally, there has been an increase in other expense-reducing initiatives such as the shared services model, allowing non-profits to out-source administrative tasks so they can concentrate on programming efforts. One type of shared service model is the ÔcenterÕ, which serves non-profits through a fee-based model, helping them handle the day to day back-office functions usually through a long-term relationship. These groups typically share numerous administrative functions such as bookkeeping, accounting, financial planning and benefits management. Non-profits can potentially save 50-70% in total overhead expenditures and increase overall organizational competence through this model.

Over the course of the next few years, we will continue to see dramatic changes in the way non-profit organizations are managed, an increased focus on operational efficiency and organizational effectiveness, and augmented parallels between the competitive landscapes of both the non-profit and for-profit worlds. Understanding the options, such as mergers, partnerships, or shared services and how they may facilitate organizational effectiveness is important to better prepare for future opportunities during challenging times.

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