To say that there is big change going on in the not-for-profit landscape is probably an understatement. If we just look at the human services field, changes currently span:

  • Reforms that put the purchasing power in the hands of individuals rather than organisations, and open out the market. The NDIS and impending Aged Care Roadmap changes embody this shift.
  • A shift in the way governments are buying NFP services from block funding to commissioning for outputs
  • A gradual shift in new arrangements for delivery such as social impact investment from the periphery to more mainstream thinking
  • Opportunities for expansion, such as the transfer of resources (either ownership or management) from government to NFPs, such as in the housing and disability spheres.

These changes offer real opportunities to NFPs, but they are not without significant risks. At one extreme, these opportunities can have NFPs scrambling in all directions to pursue new business and capture market share. At the other extreme, the rate of change can be paralysing, leaving organisations unclear about where to focus and instead immersing themselves in consolidating the existing business. Neither of these approaches will see vibrant organisations able to deliver on mission in 10 years’ time. My conversations with key players in Government and in the NFP industry tell me that these issues are real and matter right now.

So how do you sort through the morass of issues to sort through which opportunities to pursue and which to forgo? Here is a simple process that I’ve put together from long experience in strategy formulation, many conversations with players in NFPs and a wide understanding of the literature around decision making and strategy. The good news is, there are just three steps, plus one step to NOT do, although there is still deep thought involved.

Step 1: Formulate a strategy

Every organisation needs to have a business strategy if it wants to be successful. Strategies involve choosing what not to do, as well as what to do. They mean turning down opportunities you don’t think fit as well as pursuing the ones that do fit.

Strategies for NFPs typically come back to two key questions:

  • How do we deliver on our mission? In the case of human services NFPs, this is generally defined in terms of outcomes for people.
  • How to we make our business sustainable? This is usually defined through the extent to which the revenue stream provides for covering the cost of doing business, investing in innovation and furthering mission.

With that in mind, you can move onto building up your own strategy. There are many tools for strategy development and strategic analysis. However, in my experience from working as a policy setter/funder/regulator in Government and an advisor to NFPs it comes down to working out the answers to these six set of questions:

  1. What are we trying to achieve? That is, what is our mission? What will it look like when we see it achieved (ie concrete measures of progress)
  2. What are our real strengths, the things we are really good at? Eg specialisation, staff, customer service, partnerships, responding to particular issues, day-to-day business, back office
  3. Where will we choose to draw our business boundaries? (Note, these are geographic but also business or service streams). Given the potential geographies and service streams we could move into, where do we go and where not go? Are we looking at vertical or horizontal integration?
  4. How will we compete more effectively than our competitors? What are their likely offerings? Where are our points of differentiation? Are we the more credible alternative? What value can we offer?
  5. What necessary capabilities do we have and what resources can we draw upon to build a complete offering? Resources might include partnerships, local connections, previous business experience and understanding (particularly when moving into new areas)
  6. What systems do we need to have in place to make the strategy work? Do we have the right back office systems? Do we know the cost of doing business under different streams? Do we have the right staff?

Likely you will have a strategy already developed. In that case, just test it to make sure it covers all these points as comprehensively as you need to.

Step 2: Test the cost vs reward of the offerin

Currently—and particularly in NSW—there are open tenders for infrastructure that could create significant organisational opportunities. The market changes I outlined above are creating other opportunities, such as in aged care. While it may be enticing to just pursue all the opportunities because of the potential reward, it’s important to remember that each opportunity has a risk or cost attached to it.

For example, just look at the transfers of management responsibility for social housing. There are three stages to consider costs and reward:

  • The game itself. That is, the tender or other process that’s required. What are the costs of participation? Some will be direct (for example, staff time), some indirect (such as time not spent pursuing mission). Contrast that with the likelihood of success: who are the competitors? How successful are they likely to be? How credible an alternative are we? Given all this, is the chance of reward proportionate to the cost of playing?
  • The period of transition. This might involve staffing up, expanding operations, opening new offices, boosting infrastructure. There is likely a period where the outgoings will exceed the incomings. How long is this period likely to go for? Are we able to cover the costs associated with that period? Can we attract the new staff needed for the expansion? How will we address issues like culture where there are many new staff entries? Do we need to invest in our systems to support this expansion? What is the total transition cost likely to be?
  • The longer-term business. How long will it take to move the new stream to a financially sustainable footing? How quickly can we see a return on mission? What metrics can we put in place to monitor the reward vs costs?

Step 3: Test the offering against your strategy

Once you have as many answers to these questions as possible, you should revisit the strategy you formulated in step 1 to see whether you need to adjust the strategy, and to determine how well the offering fits with your strategy.

Have one pass at this without considering any specific offering. You may, in fact, already have the answers to these questions from your strategic planning. If, for example, you are considering a tender, think about the way that tender aligns with your strategic positioning.

  • Does it provide an opportunity to further mission?
  • Does it draw on your strengths?
  • Is it inside the business boundaries you have drawn?
  • Do you have the right capability, or are you able to draw on the relevant resources?
  • Do your systems support a) an analysis of the offering and b) its implementation if you are successful?

Important corollary: what not to do (ie decide your future based on intuition)

There has been a lot of research that shows us that relying on intuition in high-stakes decision making can be dangerous. Daniel Kahneman, in his excellent book Thinking Fast and Slow, outlined two types of thinking: system 1 (the automatic decisions we make based on associations in our memory) and system 2 (the more considered, deliberative approach to reasoning).

The reason system 1 thinking isn’t good for high-stakes decisions is that we are each subject to biases in the way we see the world. Hundreds of biases have been identified by researchers, but Better Humans have the nicest summary I have found, with 20 mental strategies.

Some of those biases that kick in when we need to act fast include:

  • we need to feel confident in our ability to make an impact and feel like what we do is important (eg optimism bias)
  • in order to stay focused, we favour the immediate relatable thing in front of us over the distant future (eg hyperbolic discounting)
  • because we want to get things done, we are motivated to complete the things we’ve already invested time and energy in (eg sunk cost fallacy)
  • we favour options that appear simple, with more complete information, over those that are more complex and ambiguous (eg ambiguity bias).

The bottom line here is that having a process for decision making is important. There is endless evidence that going forward on gut feel is fraught with potential for bad decisions. And the consequences of bad decisions typically affect sustainability—which in turn will affect achievement of mission.

Is that all there is to it?

Of course there is a lot more we could talk about: how to do sound decision analysis, how to institute adaptive planning so you can rapidly assess new offerings, how to create nimbleness in delivery, what investments might be “no regrets” activities for this changing world (such as investments in leadership, staff and relationships, systems to understand your business performance and so on). But the steps above will help in sorting through the immediate decisions in a time when it can be bewildering.

If you need more help, The Insight Partnership specialises in collaborative strategy and problem solving. Get in touch and we can talk about what we might be able to do, together.