Adaptive Leadership Challenges
At Smaller Nonprofit Organizations:
A System Dynamics Approach
John Voyer
School of Business
University of Southern Maine
96 Falmouth St., Box 9300
Portland, ME 04104-9300
Phone: 207-780-4597
Fax: 207-780-4662
Email: voyer@usm.maine.edu
Susan Chinn
School of Business
University of Southern Maine
96 Falmouth St., Box 9300
Portland, ME 04104-9300
Phone: 207-780-4750
Fax: 207-780-4662
Email: schinn@usm.maine.edu
Charlotte Pryor
School of Business
University of Southern Maine
96 Falmouth St., Box 9300
Portland, ME 04104-9300
Phone: 207-780-4401
Fax: 207-780-4662
Email: cpryor@usm.maine.edu
Abstract
Dwindling government resources and demands for increased accountability have
challenged nonprofit organizations to meet their primary missions while also creating efficient
and effective back-office accounting and information systems. Even though many nonprofits say
that accounting and information support systems are mission-critical, they tend to staff these
systems weakly and to be less efficient than they could be. The present paper uses a system
dynamics model to show how the “Limits to Growth” and “Shifting the Burden” systems
archetypes help explain this situation. The model runs show that the exercise of leadership is the
underlying issue—nonprofit managers must challenge organizational cultures and mindsets that
act as limiting factors, causing the nonprofits to avoid implementing fundamental solutions to
their problems. The paper discusses several action recommendations.
Many nonprofit organizations with limited staff and budgets face challenges in managing
support activities because their key focus is on primary activities. Support activities, such as
accounting and information systems, often call for specialized knowledge and dedicated staffing,
but many organizations underestimate the importance of managing them for accomplishing their
primary mission or goal. Nonprofits view these activities largely as a cost, and therefore they are
prime targets of cost reduction efforts. The problem is especially acute for small and mid-sized
nonprofits because scale economies work against them (Bradley, Jansen, & Silverman, 2003).
The adaptive challenge facing these nonprofits stems from the realities of increased competition
for dwindling public resources, the effects of technology, and growing public and private
demands for accountability.
Funding issues
Cutbacks on state and federal levels, because of an inability or unwillingness to increase
taxes or float bonds, and because of slow economic growth (Corder, 2001; Sheth, 1993), have
affected nonprofit organizations. These effects have shifted many organizations toward
increased reliance on private financial support. The Nonprofit Audit Risk Alert for 2004,
published by the American Institute of Certified Public Accountants, reports that contribution
revenue for 2003 was generally up from 2002; however, contributions were still below the
annual giving levels of prior years (AICPA, 2004). Although wealthy donors responded to the
improving economy by increasing their contributions, the giving levels of less wealthy donors
have depended on how the economy affects them individually (AICPA, 2004). Further,
charitable giving by most of the largest U.S. corporations decreased in 2003 for the second year
in a row (Lewis, Murray, & Gardyn, 2004). Many corporations indicated, however, that they
expected to maintain or increase their giving levels in 2004 so long as the economy remained
strong (Wilhelm, Kerkman, Krauze, Moore, & Schwin, 2004). Endowments have recovered
somewhat after significant losses from 2001 through 2003 (AICPA, 2004). Because of some of
these trends, many nonprofits have been optimistic about the future, expecting improving
conditions and continued revenue growth in 2004 (West, 2004).
Accountability issues
Despite recent improvement in private funding sources, costs of operations continue to
rise in the form of increasing liability and health insurance costs. Nonprofits have survived
financial pressures by cutting back on operating budgets and reducing administrative overhead
(AICPA, 2004). Nonprofits often cut administrative costs disproportionately, even though
program service costs may be more of a problem (Bradley, Jansen, & Silverman, 2003). The
requirements established by many funding organizations reinforce this tendency. For example,
the Combined Federal Campaign requires participating nonprofits to certify that their combined
fund-raising and administrative costs make up no more than 25 percent of the organization’s total
support (NCCS, 2004). In addition, nonprofits face increasing demands for accountability from
both public and private sources. At the individual level, donors want accountability but often
have trouble obtaining information about the legitimacy of the organizations soliciting funds and
how the donations are spent, and large donors may request financial statements and IRS 990
forms (which nonprofits file with the U.S. Internal Revenue Service [IRS] in lieu of tax returns)
before agreeing to provide support. This appears to be a result of the increased emphasis on
accountability connected with the issuance of Sarbanes-Oxley (AICPA, 2004), a U.S. federal law
intended to improve organizational governance and financial accountability. Thus, pressures on
administrative support functions are growing.
Staffing and other infrastructure issues
Information technology is a continuing source of pressure for support operations.
Personnel may have widely varying levels of expertise or training, or may shoulder a support
responsibility for which they have no training at all. Even if trained IT and accounting personnel
are present, turnover is a continuing problem because of higher salaries in the for-profit sector
(Barrett & Greene, 2001). For new and continuing staff, training is often shortchanged (Barrett
& Greene, 2001; Hecht & Ramsey, 2002; Light 2002). The staff also needs training to keep up-
to-date with software upgrades, changes in hardware, networking, etc. (Smith, Bucklin &
Associates, 2000). Because many small-to-mid size nonprofits face these issues of small staff
and constrained resources, they operate as “adopters” of technology; that is, they operate in crisis
mode by “making do” with existing technology (Fried, 1995). A cultural component supports
this behavior—nonprofits often shortchange themselves on resources that do not appear to
enhance the primary mission (McCarthy, 2003).
As nonprofits turn to private and public grants for sources of funds, they face increasing
overhead in both fund accounting practices and in grant writing and preparation. Grant terms
often extend across a nonprofit’s fiscal years. Ensuring that nonprofits use grant funds in
accordance with the grantor’s terms often requires careful tracking of expenditures that extend
into multiple accounting periods. This requirement places additional administrative burdens on
the recipient organization. Grants also often come with restrictions on their use that may not
account for the total cost of the technology investment. Funding bodies such as United Way and
government bodies such as the IRS also require nonprofits to comply with their reporting
requirements (Smith, 2002). Because of all of these factors, nonprofits often have greater
record-keeping requirements compared to their for-profit counterparts (Cutt, Bragg, Balfour, &
Tassie, 1996). In an era of dwindling government resources and demand from donors and
grantors for increased accountability, nonprofit organizations are increasingly faced with the
challenges not only of meeting their primary missions, but of supporting those missions through
efficient and effective accounting and information systems.
Motivation for the Current Study
This paper grew out of a previous consulting experience, which the authors conducted at
a mid-size nonprofit organization in Maine in the U.S. Private nonprofit organizations employ
one out of every eight workers in Maine; 78% of those workers are in health care and social
services (“Notes on nonprofits,” 2003). In a 2000 report produced by the National Council of
Nonprofit Organization, the charitable sector alone accounted for 12.8% of the Gross State
Product, much higher than the national average of 7.8% (Maine Association of Nonprofits,
2001). During the consulting experience, the authors studied a charitable organization’s
accounting and information systems. We found many problems, such as lack of trained staff to
perform accounting functions, part-time staff shouldering full-time responsibilities, lack of
training in database design or systems analysis, lack of error tracking and resolution of technical
problems, and unclear lines of responsibility for accounting and information system functions.
Our case study led us to develop a survey of other Maine nonprofits to see if these problems
were typical in a state that depends on its nonprofits as a source of employment and revenue.
3
We presented the results in an earlier study (author information withheld during review), which
highlighted issues in these support areas. We noted that although many issues appear to be
technical problems, these organizations face underlying leadership challenges. We now explore
the leadership challenge, which, if successfully met, could help solve the immediate technical
issues. This would lead to better utilization of support activities to enhance, rather than detract,
from the mission of the organization.
Adaptive challenges: The typical nonprofit’s response
Because of the increase in competition for dwindling public resources, the effects of
technology, and growing public and private demands for accountability, small nonprofit
organizations are facing a changing environment that adds up to what Heifetz and Linsky call an
adaptive challenge (Heifetz, 1994; Heifetz & Linsky, 2002). One characteristic of adaptive
challenges is that they are not amenable to technical solutions, but require organizational
learning. Learning must take place in two ways—the organization’s management must
recognize that the problem is an adaptive challenge, and then the organization’s members must
learn how to meet the challenge. This means that small nonprofit organizations need to change
their systems, including their information technology and accounting systems, to address the new
circumstances that confront them.
However, our survey results showed that most small nonprofits have not met this
challenge in the area of information and accounting systems. Their management personnel
exhibit classic behavior in the face of adaptive challenges—they tend to think, initially, that the
problems they face are amenable to technical fixes. Our results show that the managements of
most nonprofits say that their back-office systems are critical to their organizations’ success, but
they act as if they are relatively unimportant grafts onto the truly important primary activities
that their organizations perform. In this respect, they exhibit a disconnect between what Argyris
and Schon (1974) called the “espoused theory” (that information and accounting systems are
critical to organizational success) and the “theory in use” (information and accounting systems
are poorly funded and staffed). Accordingly, nonprofit management merely patches up
inadequate systems, or tries to find cheap or underutilized labor to manually perform many
information-based activities, or both. In reality, information systems are crucial support
activities (Porter, 1985) that, if properly designed, maintained, and used, would greatly leverage
the small nonprofit organization’s primary activities.
The role of systems archetypes
This typical approach to adaptive challenges is reminiscent of two systems archetypes
first discussed by Senge (1990): the “Limits to Growth” archetype shown in Figure 1, and the
“Shifting the Burden” archetype shown in Figure 2. In the “Limits to Growth” archetype, the
organization seeks to grow or change but its efforts are held back by slowing actions (often
called resistance [Block, 2000]), which are governed by a limiting factor of some sort. (See
Senge, et al, 1999, for an extended discussion of this archetype and its implications.) In the case
of the organizations examined here, the limiting factors are the mindsets and culture of typical
managers and employees of small nonprofit organizations. These people are passionate about
the services they deliver on behalf of their organizations, and this is where they focus their
efforts and training. Time and effort spent on upgrading back-office systems are considered time
and effort poorly spent. The key to breaking free of this archetype is to find the limits and
4
a
G ~
=] 3) come eas Seid
Figure 1 The "Limits to Growth" systems archetype
release their hold on the organization’s members. In the case of small nonprofits, this means
changing the culture or mindset, a point to which we will return shortly.
In the “Shifting the Burden” archetype, an organization faced with a problem may choose
to address it with a “quick fix,” or symptomatic solution, or it may choose to implement a more
fundamental solution, even though the latter takes a long time and may be more expensive.
Should it choose the quick fix, which is common, it typically does ameliorate the problem in the
short term (since quick fixes are, indeed, fixes).
But it runs the risk of getting on a treadmill—as
the first quick fix’s effects wear off, the
Solution organization must find another quick fix, and then
another, and so on. It is not difficult for such an
ep) organization to reach the point where its ability to
implement a fundamental solution is forever
Side compromised. We believe that the small
Problem Effect nonprofits in our survey are ensnared in this
ee archetype. Rather than redesign and upgrade their
back-office systems for long-term effectiveness in
the new reality, many of them instead use
patchwork software and hardware solutions and
employ manual labor to get many of the functions
Symptomatic
Fundamental done. This approach is no doubt motivated by the
Solution same things—culture and mindset—that create the
“Limits to Growth” archetype in the small
Figure 2 The “Shifting the Burden” systems nonprofit. The leverage in this archetype is to be
archetype willing to live with the temporary worsening of
the problem that occurs while the organization
works on the more time-consuming fundamental solution of implementing new hardware and
software and their attendant training and learning curves.
Leadership is what is needed in either of these situations. Heifetz and Linsky (2002)
define leadership as “disappointing your own people at a rate that they can absorb.” If mindset
and culture are at the root of what is holding back change, then it seems obvious that relaxing the
limits, or moving towards time-consuming solutions, or both, would be tremendously
disappointing to the people who work in these organizations. Yet, what is required is that leaders
(who may or may not be authority figures in the organizations—see Heifetz, 1994) step forward,
5
Desired adherence
Initial adherence to to old culture
old culture
—e ene
a, ta g adherence to old
Total cost CostS under old Seater ee tene : Tine to change
methods Dens HH __ adherence to old
Adherence to sults
time to help feos
Tasks done using toculture — “ ——Ceture switch
old methods
Waites une: © Baca Effect of lative
aod Hssatsfaction "Effect ofrelative dissatisfaction on
{ dissatisfactionon adherence to noms f
adherenceto mommy,
Costs under new
paca Relative
dissatisfaction
Augmented IS and
Accounting capability —® Disatisfation
Cost per task using
new methods ied capability M$
desired capability
Frasks done using
new capabilites
‘ inal desired
time to change capability
desired capability time to undo _
Time to update
capabilities
Figure 3 A system dynamics model of the leadership challenge in small nonprofit organizations
first, to make their people aware that they indeed do face an adaptive challenge, and, second, to
work with them to make the necessary, fundamental, changes to the back-office systems.
A system dynamics model of the leadership challenge in small nonprofit organizations
Figure 3 shows a system dynamics model that captures the “Limits to Growth” and
“Shifting the Burden” archetypes inherent in this situation. The model has three stocks: “Tasks
done using old methods,” “Tasks done using new capabilities,” and “Adherence to old culture.”
The nonprofit may try to accomplish its support activities in one or a combination of two ways.
It may rely on its old support capabilities (the first stock mentioned in the model), or it may
adopt new support capabilities (the second stock mentioned in the model), or both. This is a
“Shifting the Burden” archetype because relying on its old support methods is the quick fix—it
gets the job done more quickly, but less efficiently. Adopting the new support capabilities is
more effective and efficient, but takes longer. The “Limits to Growth” archetype shows up in the
nonprofit’s adherence to its old culture (the model’s third stock). If it closely adheres to it
(which is the default under the “Shifting the Burden” archetype), the nonprofit will tend to
continue using the old support methods. If it departs from the old culture, it will eventually
adopt newer, more efficient methods for its support activities. However, taking the longer
fundamental solution route will create pain for the nonprofit’s members and stakeholders, as its
“Augmented IS and Accounting capability” falls short of its desired capability during the lengthy
process of fundamentally improving the support systems. The model contains an auxiliary
variable, “Dissatisfaction,” that captures this pain.
There are three other noteworthy features of the model. One is a “culture switch” on the
inflow to “Adherence to the old culture.” This allows the model to switch from rigidity to
flexibility in capturing the nonprofit’s adherence to the culture. The second feature is the
structure of the change to “Adherence to the old culture.” It is a standard “goal-gap” formulation
6
controlled by the “Time to change adherence to old culture.” The latter variable allows testing of
the effects of various speeds of change. A third feature is an auxiliary variable called “Desired
capability.” Changing this variable allows us to simulate changes in the nonprofit’s
environment. We did this in all the scenario test runs to follow by creating a step increase in the
desired capability. The final noteworthy feature is the cost structure captured in the model. This
is a stylized model, so we did not use real numbers. However, the model incorporates lower
costs associated with the use of new, more efficient methods, higher costs associated with the
older methods, and total costs of all methods used. This allows comparison of the cost
implications of various scenarios.
Model runs of various scenarios
We set the model to simulate substantial change in the environment (operationalized as a
step increase in desired capability), ran the model under two scenarios—traditional (high)
adherence to the old culture (which we called the “old culture” scenario), and low adherence to
that culture (which we called the “new culture” scenario)—and compared the results. In both
scenarios, we allowed “Adherence to the old culture” to vary (i.e., the culture switch was on) and
we set the time to change culture to 5 years. The difference between the two scenarios was that
in the “old culture” scenario we set both initial and desired adherence to the old culture to 1,
while in the “new culture” scenario we set those to zero.
Results of comparison of “old culture” and “new culture” scenarios
Figure 4 shows the results for costs, which are about 40% higher at the end of the period if the
traditional culture continues its sway. This is a straightforward result, as one would expect the
higher adoption of new methods to be more efficient than the continued use of the older ones.
Adherence to the traditional culture also leads to lower capability for the nonprofit, as shown in
Figure 5, of about 25%. This is a clear illustration of the “Shifting the Burden” archetype in
action—the more the nonprofit continues to rely on older methods, the less will be its ultimate
capability level. However, there are two other noteworthy aspects of this archetype that show up
in these scenario runs. First, since abandoning the traditional culture is the fundamental solution,
it takes longer. This is evident in
Total Cost Figure 6, which shows that the
80 “augmented” capability of the
nonprofit is lower for most of the
60 period (until rising to the highest
level at the end) for the firm
40 choosing to adopt new methods.
This leads to a backlash, captured
20 in the higher level of
dissatisfaction during the change
0 period, as shown in Figure 7.
0 1 2 3 4 5
Year
Old culture dollars/year
New cuiture dollars/year
Figure 4 Total costs under “old culture” and “new culture”
scenarios.
Tasks done using new capability
100
70
55
40
°
v
we
s
a
Time (year)
Old culture
New culture
Figure 5 Capability increases under “old culture” and “new culture” scenarios.
Augmented capability
100
40
°
2 3 4
Time (year)
a
Old culture tasks,
New culture tasks
Figure 6 “Augmented Capability” under “old culture” and “new culture” scenarios.
Dissatisfaction
0 1 2 3 4 5
Time (year)
Old culture tasks
New culture tasks
Figure 7 “Dissatisfaction” under “old culture” and “new
culture” scenarios.
These results clearly show the “Limits to Growth” archetype at work. When the cultural
limit is in place in the “old culture” scenario, no growth (in this case no improvements in
efficiency) occurs. When it is lifted, greater efficiency occurs. The “Shifting the Burden”
archetype also manifests itself, in that the greater adjustment period required by the nonprofit’s
going after the fundamental solution results in greater dissatisfaction, even though the
organization is better off in the end.
One problem with these comparisons is that they make reasonable assumptions about the
old culture scenario—a nonprofit that adhered to the old culture and stayed that way—but not for
the new culture scenario. That scenario, as run in the model, assumed a nonprofit that, from the
beginning, had low adherence and stayed that way. In other words, the comparisons in Figures 4
through 7 are between the stodgiest nonprofits and very-early-adopter nonprofits. The latter are
the ones, which are very rare, that adopt more-efficient methods in advance of being forced to do
so. The results of the runs shown in Figures 4 through 7 support the oft-noted superiority of
being ready before the crisis hits (see, for example, Nystrom and Starbuck, 1984 and Starbuck,
Greve and Hedberg, 1978), even though that advice is rarely put into practice.
Results of “organizational change” scenarios
A better, more realistic, comparison would be between, on the one hand, a stodgy
nonprofit that wanted to stay that way and, on the other, a stodgy one that made a decision to
change to a new culture. Accordingly, we tested two other scenarios: “moderate change,” where
the “time to change” was lowered from ten years to three years, and “fast change,” where that
variable was further lowered to one year. Figure 8 shows the results for costs, where the
improvements, even with a one-year change in cultural adherence, were astonishingly small—
roughly one percent. The improvements for capabilities, shown in Figure 9, were also modest, at
about two percent. The reason for these results is that the nonprofits in this scenario never totally
abandon the old culture (see Figure 10). The change and the nonprofits’ abilities to adjust are
too slow, and they continue to use many of their old methods, thereby losing the potential
Total Cost Under Moderate or Fast Change Scenarios
Ow
0 1 2 3 4
Time (year)
Ol culture dollars/year
Moderate change dolrs/year
Fast change dolrs/year
Figure 8 Total cost under moderate change and fast change
scenarios
New Capabilities Under Moderate or Fast Change Scenarios
65
61.25
575
53.75
50
0 1 2 3 4 3
Time (year)
Old culture tasks
Moderate change tasks
Fast change tasks
ies under “moderate change” and “fast
change” scenarios.
Figure 9 New capabi
10
Adherence to the Old Culture under Moderate and Fast Change Scenarios
° T z 7 + 3
Tne yea)
it cuhae diners:
Maden change es
Fascha isn:
Figure 10 Adherence to old culture under “moderate change” and
“fast change” scenarios.
efficiency benefits of the newer ones. Apparently, what is called for is more rapid or radical
change.
Accordingly, we decided to try two other change scenarios: “rapid change” with a time to
change of six months and “radical change” with a time to change of three months. Figure 11
shows the results for costs, which are about four percent better under rapid change and about
nine percent better under radical change. This compares unfavorably to the forty percent
improvement under the “new culture” scenario. Improvements in the nonprofit’s capabilities are
shown in Figure 12, and they are about seven percent for rapid change and eighteen percent for
radical change. This compares quite unfavorably to the sixty-five percent improvement under
the “new culture” scenario. We will have more to say in the discussion section about these
results, but it is worth mentioning here that it is unlikely that most organizations would be able to
change in three months, let alone six months or a year. It is nevertheless instructive to see the
results of these runs, and to note that the inertia shown by them is probably realistic in the
Total Cost under Rapid and Radical Change Scenarios
80
66.25
52.5
38.75
25
Year
Old culture
New culture
Rapid change iy
Radical change dollars/year
Figure 11 Total costs under “rapid change” and “radical change”
scenarios.
11
New capabilities under Rapid and Radical Change Scenarios
100
85
70
55
40
0 1 2 3 4 5
Year
Old culture tasks
New culture tasks
Rapid change tasks
Radical change tasks
Figure 12 New capabilities under “rapid change” and “radical
change” scenarios.
nonprofit (and probably the for-profit) world.
Effects on dissatisfaction
Before moving on to the discussion of the results of the various runs, it is interesting to
examine what happens with “stakeholder satisfaction” under some of the scenarios. Figure 13
shows satisfaction for the “old culture,” “new culture” and “radical change” scenarios. As one
would expect, the least amount of dissatisfaction is under the “old culture” scenario, because the
organization takes relatively little augmentation from the new systems and so “wastes” little time
in adjusting. The most amount of dissatisfaction is under the “new culture” scenario, because the
opposite happens—the nonprofit’s members use no augmentation from their old systems as they
Dissatisfaction under Various Scenarios
60
45
30
15
0
0 1 2 3 4 5
Year
Old culture tasks
Rapid change tasks
Radical change tasks
Figure 13 Dissatisfaction under various scenarios
12
Adherence to the Old Culture under Various Scenarios
0.5
0.25
Year
Old culture dimensionless
New culture dimensions
Radical change dimensionless
Figure 14 Adherence to the old culture under various scenarios
take the time to learn the new ones. This is also an unsurprising result.
What is a bit surprising is what happens under the “radical change” scenario—
dissatisfaction is relatively low compared to what happens under the “new culture” scenario.
This is because the adoption of the new culture is not instantaneous. Even with radical change,
it takes almost a year for the nonprofit to adopt the new culture (see Figure 14). During that
time, the organization continues to use some of its old systems, and indeed, it never lets go of all
of them (see Figure 15). Hence, its “augmented capability” never gets as low as it does for the
nonprofit in the “new culture” scenario, and so it never irritates its stakeholders quite so much.
In addition, in the “radical change” scenario the nonprofit remains in change mode for a
relatively brief period, as compared to the “new culture” scenario. Of course, the reason for this
is that it never fully adopts the new methods, so it gets to its somewhat-but-not-fully-changed
new state in a relatively short period.
Tasks Done Using Old Methods under Various Scenarios
40
30
20
10
0
0 1 2 3 4 3
Year
Old culture tasks
Rapid change tasks
Radical change tasks
Figure 15 Tasks done using old methods under various scenarios
13
Discussion
The scenario test runs shown in Figures 4 through 15 have many implications. First, it is
clear that, in the presence of an adaptive challenge that calls for greater efficiency, nonprofit
organizations are better off questioning their traditional culture and adopting higher-efficiency
methods, despite the slower implementation. As the “new culture” scenario showed, nonprofits
that are early adopters of the new systems save the most, although they also must weather the
greatest amount of stakeholder dissatisfaction. Second, removing the limiting factor of the old
culture leads, despite a delay, to a higher-capability organization. Both of these results are
straightforward. Unfortunately, our earlier research showed that early adopters in the nonprofit
world are rare.
Third, members (and stakeholders) of the nonprofits that choose to adopt more efficient
methods will have to live with how “augmented capability” will, for a time, lag behind what they
would get with continued quick fixes. This is a situation where leadership must come to the fore.
The nonprofit’s management, its membership and its stakeholders must remain patient as it
implements the changes. Fourth, management of those courageous nonprofits that choose to
abandon the quick fixes of the past will have to weather some complaining from their
stakeholders, as the latter express their dissatisfaction during the adjustment period. This is
another area where leadership is crucial.
Fifth, we must remember that leadership involves “disappointing your own people at a
rate that they can absorb.” If the level of dissatisfaction created by very early change is too high,
then the scenarios showed that there is some value in waiting until after the crisis hits and then
slowly relaxing the grip of the old culture. However, there is not much improvement under this
change management approach. It appears to be better to change quickly once the crisis hits. In
the rapid and radical change scenarios, the organization made better improvements, and
experienced less dissatisfaction, than it did when it tried to respond slowly. This was because it
made enough changes to adapt a bit better and get some efficiency improvements, but held on to
enough of the past methods to end its change process quickly enough so as not to ruffle feathers
for too long.
Recommendations
From these scenario tests, we believe that we have learned enough to make several useful
recommendations.
1. Leaders in small nonprofits come to grips with the realities facing their organizations.
They must recognize that their organizations face adaptive challenges stemming from
economic constraints, changes in technology, and stricter accountability expectations.
2. The scenarios showed quite convincingly that making this realization, and taking action
on it, before an adaptive challenge has reached crisis proportions was by far a more
powerful approach. The gains in efficiency and capability were much greater.
3. The leaders must also labor to help their subordinates and stakeholders learn these
lessons, so that they are more amenable to making the changes.
14
These three recommendations, taken together, should start to loosen the limits on change
that are rooted in the mindsets and cultures of most small nonprofits. The second
recommendation requires /earning on the part of the nonprofit organization’s members
and especially its stakeholders, especially its funding sources. These stakeholders may
need to learn that, as the organization implements longer-term solutions, the short-term
effects may not be positive. For example, it might happen that for a time a nonprofit’s
administrative costs would rise above 25% of its total expenditures. It is crucial that the
organizations’ stakeholders and members understand and accept that this short-term pain
will, in the long term, make them better able to deliver services—perhaps in greater
quantity and with greater quality than ever before.
4. Leaders should involve the rank-and-file heavily in the information systems change
processes. This will help all concerned to deal with their inevitable disappointment as
they work on “less interesting” or “less important” things like support activities.
5. Ifthe nonprofit chooses to wait until after the adaptive challenge has hit with full force,
the scenario tests showed that radical change, implemented very quickly, was preferable
to moderate or even fast change. Gains in efficiency and capability, while not as great as
those under for nonprofits that changed during the early stages of the adaptive challenge,
were greater than for those who changed more slowly.
Conclusion
Recent evidence shows that small nonprofit organizations are in a new, more difficult
environment (that is, they face an adaptive challenge) with regard to their information and
accounting systems needs. These organizations would be much better off were they to adopt
better, more efficient systems for these support activities. Yet, our previous research showed
that small nonprofits tend to be ensnared in two systems archetypes—‘Limits to Growth” and
“Shifting the Burden.” Using a system dynamics model, this paper examined the implications of
these archetypes for those types of organizations. Examination of scenarios run with the model
showed that they would be better off, despite some downsides, meeting this adaptive challenge
as early as possible. They would also be better off recognizing the need to deal with
disappointment and dissatisfaction among their members and other stakeholders. Lastly, they
would be better off changing radically, once the adaptive challenge has reached crisis
proportions, to gain as much benefit as possible.
In all these scenarios, the underlying need is for the exercise of leadership, which requires
that the managements of small nonprofits disappoint their stakeholders at a rate that they can
absorb. In the case of early change, this is likely to require managers to find ways to increase
their members’ and stakeholders’ ability to absorb the lengthy dissatisfaction they will notice as
the organization adopts new methods and abandons old ones. In the case of late adopters, this is
likely to require small nonprofits’ managers to provoke radical change, to gain the most
efficiency and capability as possible while keeping the change period short. In all cases, the task
for nonprofit managers who want to exercise leadership is to help their organizations better use
their support systems to provide the highest, most efficient level of service possible.
15
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