41
42 incorrect, inadequate or insufficient financial records, thus creating the perception that such an organisation cannot handle its finances appropriately, or even worse, is dishonest in its dealings.
In addition, NPOs often do not have the resources to employ outside experts and consultants and experience great difficulty in attracting these professionals to manage their books without charge (Mzini, 2011).
The difficulty in attracting dedicated and sufficiently skilled personnel and volunteers bleeds over into the area of the leadership and management of NPOs(Leuvennink, 2010). A non-profits ability to attract and retain suitably skilled and qualified leaders, managers and board members for a long period of time is often dependent on the established reputation of the organisation, as well as highly dependent on luck. Even NPOs desperately require passionate, visionary, intelligent and hardworking leaders, managers and board members to guide the overall functioning of the organisation, especially due to the various complexities and uncertainties they are bombarded with. However, NPOs must often deal with the reality of leaders, managers and board members that come and go, that are not dedicated or passionate enough about the social mission of the organisation and/or that do not have the necessary skills or knowledge to deal with their organisational roles and responsibilities (Dees, 1998; Mzini, 2011).
The human resource dilemma is further intensified by the fact that personnel and volunteers in a NPO often play many roles at the same time due to a lack of the needed numbers of skilled personnel and the cost of paying new recruits. This is especially true of start-up or small NPOs, while larger and more financially stable organisations with developed infrastructures and capacity enjoy the privilege of sufficient numbers of personnel with specialized roles and responsibilities (Schuh & Leviton, 2006). As Schuh and Leviton (2006, p. 176) note: “…a more vertically differentiated organisation will have specialists in human resources, budget, communications, fund raising and management information systems. By contrast, in less developed agencies, it is common to find the executive director cleaning offices, sending notices to the board, and at the same time, preparing the financial report.”
Multiple roles played by a single person contributes to organisational ineffectiveness and inefficiencies, and prevents the person from utilizing their unique skills for the benefit of the organisation. It may also result in burn-out, disillusionment, boredom and/or unhappiness in non-profit personnel. However, NPOs depend significantly, if not entirely, on the service of volunteers at the grassroots level (those directly involved in public campaigning initiatives and
43 projects) right up to those in management and leadership positions who direct the organisation as a whole. This, combined with the non-profits need for a continuous source of volunteers to remain operational and efficient, means that NPOs cannot be very selective or demanding in terms of the people they employ (Du Plessis & Petzer, 2011).
Also, volunteers may take on roles within a NPO enthusiastically at first, but as time wears on and the hardships of life in such an organisation or the personal circumstances of volunteers take their toll, such passion and enthusiasm could fade, resulting in these people leaving the organisation in search of greener pastures. This is aptly explained in the following quote from a volunteer from a NPO known as Second Life: “Eventually, that first adrenaline rush wears off, or the conflicting demands of one’s first life and second life come to the fore, and the individual realizes that something has to give. Some very dedicated and talented volunteers decided to drop out of Second Life completely, either for a limited time or, as far as we know, permanently”
(Panganiban, 2007, p. 24).
In addition, professionals with a commercial or business background may be ostracized by individuals or groups within the organisation who are highly committed to the social mission of the organisation, simply because they are perceived as belonging more to the business or for- profit world, than the non-profit one (Dees, 1998). They may also avoid supporting such a person due to their fear that the business professional may push the organisation away from its social mission in lieu of financial gains and reporting, marketing, commercialization, etc.
Organizational capacity refers to the ability of the organisation to begin or undertake a new project (Schuh & Leviton, 2006) and as such will depend significantly on the availability of human resources within the organisation. It is often assumed that organizational capacity is at its greatest when a new project starts, but in reality, this capacity is greatest when a project has been completed or is close to completion because it is then that most of the staff members have served their function, processes have been put into place to streamline functions and the project is an integrated part of the organisations overall operation (Schuh & Leviton, 2006). This has important implications for the sustainability of the overall organisation in that the organisation must not take on too many projects as this will result in the excessive depletion of its organizational capacity to the extent that the overall functioning of the organisation is negatively affected. However, we must also consider that NPOs engage in such projects in order to attract or accrue financial resources to ensure sustainability. Often this is their primary concern when
44 taking on many projects, with consideration of organizational capacity taking a back seat.
Therein, lies a further challenge of the non-profit form as there needs to be a balance between the number of projects engaged in or undertaken by the non-profit, and its overall organizational capacity.
Central to NPOs’ fight for survival is the immense difficulty in attracting a continuous source of revenue for all of projects and operational costs (Greenlee & Trussel, 2000; Mosley, Maronick,
& Katz, 2012; Mzini, 2011; Weerawardena et al., 2010). Since the NPO must depend on donations, gifts and grants from external providers, its financial welfare and sustainability is highly turbulent, and inherently uncertain. The financial position or vulnerability of the NPO is determined by a number of factors such as whether the organisation has equity, the quality and quantity of its funding sources, the types of funders that contribute to it, whether it possesses adequate operating margins, whether its administrative costs support the infrastructure of the organisation, etc. (Schuh & Leviton, 2006).
In addition, it must also compete with for-profit and government organisations for financial resources, especially when the non-profit offers the same services or products as the other organisations (Dees, 1998; Ryan, 1999). Thus, its financial position can fluctuate between being stable at times and unstable at other times depending on changes in its environment, more specifically, its funding environment (Schuh & Leviton, 2006), contributing to the non-profit occupying a very precarious position (Morris et al., 2007). Undoubtedly, all non-profits experience this quest for constant funding as a major and ongoing challenge.
With regards to funding, NPOs also have to be extremely cautious in the acceptance of funding and the sources thereof. Some funders and donors may attach certain conditions to the utilization of their contributions and the non-profit must then ascertain the suitability of accepting or declining such funding. With commercial and government funding partners, non-profits run the risk of having to surrender control over financed projects and programs which in itself can threaten the social mission of the organisation, especially if the organisation is managed by weak, passive or greedy leaders who are not sufficiently committed to upholding the mission of the organisation(Pulgar-Vidal, 2002). This becomes particularly problematic when the NPO desperately requires financial resources, but the acceptance of which may endanger their reputation or not be congruent with its social mission (Dees, 1998).
45 A common challenge for non-profits who receive funding is the allocation of such funding. Most often than not, funding is provided for particular projects only (Lewis, 2003b; Ryan, 1999).
What they fail to consider are the numerous operational and administrative costs in running such projects, such as the water and electricity charges for office space, equipment needed to ensure the project is effective, transport costs, etc. Operational and administrative costs may seem insignificant and beyond the scope of the funder’s concern, but without them, a successful project is impossible. Imagine receiving the financial resources to feed an entire village, only to not have enough money to arrange transport to such a village or the necessary office equipment or administrative capacity to facilitate supportive networks to get the food to its destination.
Funding that comes with such conditions can also not contribute to improving the operational capacity and overall effectiveness of the organisation (Ryan, 1999), even though it is these very aspects that can greatly determine the success or failure of the implementation of such projects.
Added to this, is the rising cost of both tangible and intangible resources which requires NPOs to be extremely cautious and strategic in the allocation of funds, grant monies and donations (Weerawardena et al., 2010) for projects and for the overall functioning and operation of the organisation.
An associated challenge in attracting funding is how the NPO represents itself to the greater public (Schuh & Leviton, 2006). There exists a preconception that non-profits are much less professional, organized and competent than their for-profit counterparts (Leuvennink, 2010;
Pulgar-Vidal, 2002; Ryan, 1999). As Leuvennink (2010, p. 32) states, “ Some business people still have the outdated perception of the non-profit sector as ‘charity work’ badly run by bored volunteers. They see the sector as peripheral, and dependent on the generosity of others.” This means that NPOs often lose out on valuable funding due to this perception and the accompanying perception that for-profit agencies are more competent and effective than not-for- profit ones (Ryan, 1999).
This plays an important role in the debate around the adoption of business and management practices with advocates basing their argument on the view that because non-profits are perceived as unprofessional, unorganized and incompetent they should utilize business and management practices borrowed from the for-profit world to ‘remedy’ this shortcoming. The perception of the non-profit as ‘professional’ and organized in their operations can influence whether they receive funding, and the extent thereof, thus some organisations may create the
46 perception that they are actually more professionally mature and organized than they are in reality in order to attract funding. Alternatively, NPOs can downplay their level of professionalism, organisation and funding in an attempt to attract even more funding (Schuh &
Leviton, 2006) by trying to convince potential funders that they are in dire need of financial resources and somewhat helpless, thereby eliciting their support through the elicitation of the funder’s sympathy. An example from Schuh and Leviton (2006, p. 178) depicts this state of affairs: “As assessment proceeded, it emerged that the agency had a large, profitable subsidiary that did not come up in initial conversations about financial resources. When asked why they did not initially mention the subsidiary, the staff said that they were worried that people would stop giving to the agency if they knew about it.”
Undoubtedly, this presents many issues pertaining to the lack of ethicality and the existence of dishonesty in creating a perception that does not match reality, especially with regards to NPOs that are meant to uphold particular social values and virtues. NPOs should be custodians and guardians of particular social values and virtues, but on the other hand, they do need financial resources to survive in order to keep upholding these social values and virtues. Creating the perception of being more professionally mature can help to attract funding as the givers will be convinced by the seeming professionalism of the organisation that their donations, gifts and grants will go towards the projects indicated by the non-profit. In this way, the NPO will attract more funding with this ‘false’ image than if they had revealed their shortcomings to funders, thus perpetuating such dishonesty even further. Thus, there exists a vicious reinforcing loop in which both donors and non-profits encourage the false representation of the organisation as a means of ensuring financial sustainability.