by Jan Leeman, MBA '95
The question "What is the client organization's external environment?" is often the appropriate first step in assisting an ACT client. A nonprofit organization's mission, vision, values, and strategy all must be well matched to the environment in which it functions for the organization to thrive.
It can be difficult for a consulting team or a client to focus this important question because of the large scope of the phrase "external environment." Talking to board members, potential and active donors, staff members, industry experts, and those served by the client can help to define it more clearly within the specific context. In response to this complexity, ACT has created a quick and simple template for understanding the external environment. The results of an Environmental Scan project will be valuable to clients as a stand-alone project or as part of a larger project.
- Part A: Nearby organizations review
- Part B: Peer organizations review
Part A: Nearby organizations review
Inside and outside of an organization there are often different perceptions about the uniqueness of the organization's mission and services. Some believe the organization to be absolutely unique while others see the organization as having overlapping mission, geography, processes, or funding sources with other organizations. A comprehensive survey allows all stakeholders to work from the same facts about exactly which organizations are serving the community of interest.
Part B: Peer organizations review
Peer organizations-”those organizations having very similar missions, theories of change, processes, and outcomes—can be a valuable source of ideas and quantitative metrics. Relative performance to peers is one of the (many) ways to understand an organization's performance and how well the organization is matched to the external environment.
- Create a comprehensive list of organizations working in the same geographic area that provide similar or complementary services.
- Categorize the organizations.
- Gather additional information.
Create a comprehensive list of organizations working in the same geographic area that provide similar or complementary services.
Data should be gathered from discussions with multiple members of the client's staff, Internet keyword searching (e.g., girls education San Mateo County), and discussions with local experts. This list should be as extensive as possible.
Categorize the organizations.
After the list is complied in spreadsheet form, organizations should be categorized into three classes: VERY SIMILAR TO CLIENT, SOMEWHAT SIMILAR TO CLIENT, and NOT VERY SIMILAR TO CLIENT based on ACT team's analysis. This analysis should be reviewed by the client. Note: There may not be any organizations in the VERY SIMILAR category.
Gather additional information.
For organizations in the VERY SIMILAR and SOMEWHAT SIMILAR categories, add the following information for each organization to the list: mission statement, name of executive director, # of employees, and annual budget. The spreadsheet is a project deliverable.
- Create a list of up to six peer organizations using Guidestar databases and discussions with client.
- Conduct research on each peer organization - Mission, Vision, and Values; key data; and recent events for each organization.
- Obtain peer organization Executive Directors' perspectives on positive and negative developments and trends.
- Complete Environmental Scan Summary slide and review with client.
Create a list of up to six peer organizations using Guidestar databases and discussions with client.
- Research client organization in Guidestar (www.guidestar.com). Guidestar has information on 1.5 million nonprofit organizations. Organizations are classified using NTEE codes (National Taxonomy of Exempt Entities; see footnote 1 below). Find the NTEE codes for client organization. If Guidestar doesn't have a NTEE code for the client, search NTEE codes to find the appropriate code.
- Search Guidestar for peer organizations using NTEE codes. Generate a list of at least six peer organizations for analysis and comparison with client. Peer organizations should be selected so that each peer organization has similar activities to the client. Some of the peer organizations may be other branches of organization located in a different geographic area. (Some searches by NTEE code may have search results containing too many organizations. Limit scope of search by annual income range, if needed). GSB research has found that NTEE codes are quite accurate.
- Review websites of peer organizations to verify similarity with client organization.
- Review list of peer organizations with client. Have client add at least one organization to the list. Finalize list of peer organizations.
Conduct research on each peer organization - Mission, Vision, and Values; key data; and recent events for each organization
Conduct literature review on each peer organization using the following sources:
Peer organizations website
Print last two annual reports and last two newsletters for future reference.
Library database search (source: GSB Library reference desk)
Use Lexis/Nexis Academic Universe in the GSB library or online ProQuest for GSB alumni to search for recent events for each peer organization. This form of literature searching can be hard to do well—work with research librarians at Jackson as appropriate.
Fill out as much of the Peer Organization Profile form as possible.
Obtain peer organization Executive Directors' perspectives on positive and negative developments and trends.
Discuss with client areas of interest for calls to executive directors Call Executive Director at each peer organization with following questions:
- What's been your organization's greatest success over the last two years?
- What's the most important challenge facing you this year?
- What's the most important long-term challenge for your organization?
- What trends are you experiencing in funding and revenues?
- Do you see your mission or strategy changing in the next two years? How?
Add results of the interview to Peer Organization Profile.
Complete Environmental Scan Summary slide, and review with client.
Provide client with contact information for peer organization executive directors
1 Nonprofit organizations cover a wide range of activities, services, and programs. Without a classification system that groups similar charities by purpose, type, or major function, it is difficult to understand the work of the nonprofit sector. The National Taxonomy of Exempt Entities (NTEE) is a definitive classification system for nonprofit organizations recognized as tax exempt under Internal Revenue Code 501(c)(3). The system, developed by the NCCS with the guidance of leading nonprofit scholars and practitioners, is used by the IRS, as well as by INDEPENDENT SECTOR, the Foundation Center, AAFRC Trust for Philanthropy, and many grantmakers, foundations, researchers, and others working with nonprofit organizations. A streamlined version of the system is known as the National Taxonomy of Exempt Entities-Core Codes (NTEE-CC).
- Nearby Organizations spreadsheet
- Peer Organization Profile forms (6)
- Environmental Scan Summary slide
- Assign one person to do a complete analysis of each peer organization. It's best to have one person be the expert on each peer organization.
- Have client add at least one peer organization to the list. Have client add at least one question to the executive director question list.
15 Minutes-Interview with Cheryl Phillips, Journalist, Seattle Times
The Sound of No Music-”The Perils of Confusing Mission and Strategy
15 Minutes - Interview with Cheryl Phillips, Journalist, Seattle Times, Stanford Social Innovation Review, Fall 2004, 11-14.
A discussion of the methods that an investigative journalist uses to learn more about non-profit organizations.
The Sound of No Music - The Perils of Confusing Mission and Strategy, Stanford Social Innovation Review, Fall 2004, 44-53.
A detailed discussion of the difference between mission and strategy.
Model ACT Projects
Related Questions and Answers
Where can I get case studies for nonprofits that have re-branded or extended their brand?
Where can I get case studies for nonprofits that have re-branded or extended their brand? I am looking for information on specific nonprofits like the American Red Cross, Habitat for Humanity, or the United Way. How would I find out their advertising budgets? I have tried the Harvard Business Review, but there are not too many resources on specific organizations.
I have two suggestions. Regarding ad budgets, take a look at AdWeek. I searched under the term "American Red Cross" and found articles that discussed their ad agency changes and one article that indicated that the Red Cross spent 10 million dollars on advertising in 2003. For case studies on re-branding, I had success in finding articles on re-branding by typing in "American Red Cross case study brand" in Google. For example one about the partnership with Home Depot for emergency supplies. In addition there is one Harvard Business School case for Habitat for Humanity.
Where can I get good advice on building high-performing supply chains?
Where can I get good advice on building high-performing supply chains starting with disaggregated, rural remote and ending up with urban?
I don't have personal expertise in supply chain design and implementation. I suggest you look to the academic community to find experts. The Stanford GSB has a program in Global Supply Chain Management that publishes original research. You would need to contact them to get access. Harvard Business School cases are likely to have some relevant information-”search on "supply chain". Here's one in particular that looks very good.
How can I determine revenue potential for a marketing plan with a specific multicultural target?
I am preparing a new marketing plan with a specific multicultural target. Since this is a new program, how do I determine revenue potential, both short term and long term projections?
In my experience one of the most conservative ways to forecast revenue is to look at businesses similar to your own and find out their past and current revenues. Being conservative is important because if the revenue projections are too optimistic then you risk missing your budget and running short of cash. A second method is "bottoms up" analysis which focuses on coming up with a conservative estimate of the number of customers, the revenue per customer, the profit per customer, etc. My least favorite forecasting method is "top down" which uses the overall market size multiplied by the estimated market share (percent of market). This method often yields statements like "if we get 1 percent of a one billion dollar market then we'll have 10 million dollars in revenue" which is of little help in actually achieving the forecast.
If you give me some additional information on your business, I may be able to provide a more detailed response.
Where can I get market research for our new fundraising model?
We have developed an innovative tool for in the nonprofit sector that will aid all 501c firms to create a sustainable fundraising model. Who should brunt the cost of our financial tool? Do we price the product so that donors will have no costs and the NPO covers all fees? Or, should we share the cost between donor and NPO? Where can I get market research on such a new concept in the social enterprise communities?
Perhaps gathering data on Charitable Remainder Trusts and Charitable Lead Trusts would be helpful. The Charitable Lead Trust (CLTs) shares many characteristics with the CPA, so data on the number and size of CLTs, the fee structure for CLTs, etc. may be helpful in coming up with ideas for pricing your product.
What are the risks, if any, of starting a global nonprofit in Michigan?
I'm pursuing starting a nonprofit with a global mission. My future anticipated activities include national, and possibly international, fundraising as well as multinational execution strategies.
My question relates to incorporation law and practices. Are there better states than others to incorporate, given a global mission? I know the majority of these nonprofits are in either the New York City or the Washington, D.C. area. Is this mostly a cultural phenomenon, or are there specific financial and regulatory advantages to these practices? What are the risks, if any, of starting a global nonprofit in Michigan, as opposed to D.C., Virginia, New York, etc.?
The first place I'd start is with Appendix A of this Nolo Press book: "How to Form a Nonprofit Corporation" From what I read on other websites, there are state-to-state differences in non-profit regulation and costs. Appendix A contains a state-by-state listing of these rules.
I need info about bankruptcies, defaults, and restructurings among nonprofits, CDCS, CDFIs, etc...….
As a community development investment fund manager, I need info about bankruptcies, defaults, and restructurings among nonprofits, CDCS, CDFIs, etc....
Mark E. Reed, Founder and Principal, Contact Fund LLC, New York City, NY
I'm not an expert in your industry, so I'm likely to cover ground that you've already examined. Here are the results of a quick bit of research on market data:
There are resources such as the CDFI Data Project (CDP) that claim to have a large dataset on CDFIs. The CDP has datasets for the period FY2002 to FY 2004. The reports include industry trends, impact, and data breakdowns by industry sector:
- The CDP's FY 2004 Report is based on their FY 2004 survey of 517 CDFIs.
- The CDP's FY 2003 Report is based on their FY 2003 survey of 477 CDFIs.
- The CDP's FY 2002 Report is based on their FY 2002 survey of 442 CDFIs.
Perhaps you could piece together information on bankruptcies for CDFIs by looking across reports for three years to find changes in organizational status.
As for nonprofits, Stanford did a survey of 1,000 nonprofits in the San Francisco Bay Area-”the Stanford Project on the Evolution of Nonprofits. It may have some data that you would find helpful. In particular, there is data on the ages of nonprofits by size and activity. There may be a way to impute the rate of turnover of nonprofits from the data. Also, you could contact one of the authors to see if more detailed data on bankruptcies is available.
Why should nonprofits undertake market analysis when we don't compete with other organizations?
Why should nonprofits undertake market analysis when we don't compete with other organizations?
A few years ago, I worked on a pro bono consulting project for a local nonprofit gym. The gym was having trouble retaining lifeguards and thought that the problem was insufficient compensation. As part of the consulting work, the ACT team called up managers at similar but non-competitive organizations and asked about employee turnover rates and compensation plans. We found that our client was doing as well as other gyms in staff retention, and that paying more was unlikely to solve the problem. This was welcome news to the organization.
Why wouldn't higher salaries boost the staff retention rate?
Above, you mentioned a gym that was having trouble retaining staff. Because the market analysis results showed the gym was doing as well as other gyms in staff retention, you concluded that paying more was unlikely to solve its problem. But given that the gym had an average retention rate, wouldn't higher salaries boost its rate above the average?
Sarah Gustafson, Program Associate, Durfee Foundation, Santa Monica, CA
Thank you for your question. You're right that some other factor was making retention difficult. The client was a YMCA that offered swim classes in their pool. There was plenty of demand for classes, but not enough lifeguards to monitor the pool; the result was that classes were being cancelled for lack of staff. The client's hypothesis was that a pay raise would help recruit and retain lifeguards. Our ACT team investigated the experiences of other YMCA's facing similar situations. We found that other Y's paying higher wages in the same geographic area had the same problem. Further research revealed that the real problem was that the candidate pool of people certified to be lifeguards (or willing to go through lifeguard training) had shrunk substantially in recent years. My guess is that while plenty of kids swim competitively, few are willing to work for hourly wages at the YMCA when they could be training, studying, etc. Thus, our team informed the client that a few more dollars per hour was unlikely to make a big improvement in attracting applicants and retaining existing employees.
Why should we bother with market analysis before writing a strategic plan?
Why should we bother with market analysis before writing a strategic plan? Our nonprofit is a mission-driven, unique organization. There's no other nonprofit that is anything like us.
A 2005 survey of nonprofits in the San Francisco Bay Area found that close to half of the operating charities were less than 10 years old Doing a market analysis ensures that you use a systematic process to learn about recent changes in your organization's external environment. It's important for three reasons:
- Donors, potential volunteers, and clients see the entire range of nonprofit organizations, so it's important for you to understand that same perspective when you think about what makes your organization special. For example, if a funder suggests that your organization is just like "A", it's important that you be able to explain the similarities and differences between the two organizations.
- Finding peer organizations gives you an opportunity to expand your network of supporters and advisors.
- Market analysis gives you the information you need to support the strategic plan. For example, market analysis of the funding and earned income activities of your peer organizations will help support the assumptions you make in your own funding and earned income projections.