By several measures, growth in the nonprofit sector is outpacing growth in the rest of the economy. The U.S. gross domestic product increased by less than 37 percent from 1994 to 2004 (after inflation) when the three major financial measures of nonprofits (revenues, expenses and assets) increased by about 56 percent, according to the Nonprofit Almanac 2007.
This increased demand for services has not been matched with a commensurate investment in the talent required to support such growth. Instead, nonprofits have put their limited resources toward the capital required to fulfill their missions.
Such an underinvestment in learning and development has further complicated some of the people-related challenges nonprofits face in terms of staffing, leadership and succession planning, particularly with the impending talent shortage the baby boomers’ mass retirement is supposed to cause.
Today’s Environment Requires Learning
Between 2002 and 2004, the nonprofit (paid) workforce grew by 5.1 percent, compared with a 0.2 percent dip in the overall employment rate during the same time period, according to a 2006 study by the Johns Hopkins Center for Civil Society Studies.
Such growth puts an even greater emphasis on learning and leadership development, and it creates a strong business case for making learning an integral part of an organization’s annual budget — a level of commitment most nonprofits are still struggling to achieve. And it shows.
A recent study by Bridgespan on the leadership deficit in the U.S. nonprofit sector revealed nonprofits have to recruit external talent for leadership positions two-thirds of the time. The for-profit sector, by contrast, recruits from outside the company only one-third of the time. And once those leaders are onboard, it is estimated that up to 40 percent of new managers (in both nonprofits and for-profits) are replaced in the first 18 months of assuming their new roles because of leadership ineffectiveness.
The financial impact of such attrition is even more startling. A recent talent retention survey revealed that it cost organizations between $5,000 and $20,000 to replace a single employee. In addition, indirect costs resulting from the impact of turnover were reported to exceed $10,000 per employee.
These statistics illustrate the need for nonprofits to increase their leadership development capabilities and provide employees at all levels the learning they need to be successful in their jobs.
Because change is just as prevalent in the nonprofit sector as it is in the business world, nonprofits need to provide training and education as a means of equipping workers with the tools required to adapt to changing skill requirements, organizational shifts and an increasingly complex environment.
Similarities Unveil Learning Opportunities
Many say nonprofit and for-profit organizations are fundamentally different and therefore require separate approaches to management and training. Although it is true that a for-profit organization’s purpose is to build shareholder value and a nonprofit’s objective is to promote a cause or assist the needy, the key principles required to successfully run both types of organizations are more alike than they are different.
Both types of organizations should operate within their means and keep a keen eye on their finances to ensure their survival and long-term fiscal health. Additionally, they should use their resources (money, people and technology) to either maximize their profits or the delivery of much-needed care or services.
These similarities imply that nonprofits and for-profits can learn a lot from each other — nonprofits could increase efficiency and improve services if they focused more on businesslike operations and financial performance measures, and for-profits could decrease turnover and increase customer satisfaction if they focus more on increasing employee engagement. When it comes to development, though, nonprofits should take their cues from their for-profit counterparts:
- Blurred lines between for-profits and nonprofits call for more extensive training. Many of the old distinctions of what made nonprofits special have diminished, as competition has increased among organizations for grant money and donor contributions, which has required nonprofits to act more like for-profits. Therefore, it has become increasingly important for nonprofits to formally educate their employees on business issues, accounting practices and ethics to remain compliant with evolving legislation and tax codes.
- Tight budgets require organizations to identify and prioritize their greatest development needs. Nonprofits should offer only the training that will provide the most bang for their buck, as identified through structured and targeted needs analysis. Often, managers are so emotionally invested in the organization that spending money on learning takes a back seat to funding various projects that directly support the cause. Nonprofits that invest wisely in their organizations through the strategic development and training of their employees find they are stronger and better equipped to carry out their missions.
Although increased competition is requiring many nonprofits to think and act like for-profit organizations, there remains one characteristic that will always separate nonprofits: a passion for the cause. Despite the cynicism that often surfaces in government, business and the media, people still embrace a sense of idealism and want to make the world a better place. It’s this passion for making a difference that fuels results.
Here are six ways talent development differs at nonprofits, along with recommendations for increasing the effectiveness of such efforts:
1. Special training might be necessary to effectively provide nonprofit services. When creating a development plan, consider what roles and skills employees should have to create a “service-centered culture” and how specific training could bridge any gaps. Nonprofit workers typically have high exposure to external clients, so a nonprofit’s success often hinges on the level of comfort recipients feel in the environment and the interactions those individuals have with employees. Success is also based on the ease of receiving services. Each of these factors requires superior service, which service-level employees might not be equipped to provide. Learning that helps a nonprofit put the right employees, with the right skills, in the right roles to create a “service-centered culture” will not only support the future growth of the organization but also increase employee passion for the cause.
2. Roles need to be broader and more creatively defined. Nonprofits are typically flat organizations with limited opportunities for “moving up the ladder,” which means people need to develop new skills within their existing roles instead of through a promotion. Lateral moves, committees and special projects are just a few ways workers can stretch themselves and be exposed to new learning environments.
3. More leaders should be developed from within. A large percentage of leadership positions within nonprofits are reported to be filled by outside candidates, which indicates organizations have large skill gaps that prevent existing staff members from becoming managers or managers from becoming directors. Cultivate existing talent by providing development opportunities such as coaching, which will groom employees for higher-level positions. Coaching is a very effective way to unleash future leaders’ hidden or underdeveloped potential and equip them with the skills needed to successfully manage both people and operations. It also can facilitate changes that generate gains in performance, enhance relationships and increase overall leadership effectiveness.
4. Succession plans need to be created and openly discussed. The tenure of managers and directors at nonprofits is typically quite long, much longer than their business counterparts’ stay. As such, directors tend to avoid discussions about succession planning and what to do when they (or other key employees) leave the organization. Address this issue head-on and put the pieces in place to ensure as smooth of a transition as possible when key employees leave. Identify who will replace various leaders, evaluate those individuals’ skills and map out a plan for developing the competencies (leadership, management and technical) that will be required for these employees to successfully assume roles of greater responsibility.
5. Employees’ long tenures might require a fresh, external outlook on operations. Many nonprofit workers remain with their organizations for a long time. Thus, they can get very accustomed to operating in the same ways, even if they are no longer effective or efficient. Bringing in outside perspectives on how to do things better, smarter and faster can inject new life into the organization and help employees apply best practices to improve the effectiveness of processes, procedures and systems.
6. Passion for the cause can maximize learning effectiveness. The passion workers feel for a nonprofit’s cause often is fueled by seeing the impact their contributions are having on the recipients of their organization’s services, which is something for-profit organizations’ employees do not typically experience. As such, nonprofit workers tend to approach learning opportunities with a more optimistic attitude and a greater willingness to apply what they learn to improve their job performance, which can lead to a high return on investment.
Learning opportunities pop up all the time. The question is, does an organization and its employees recognize such opportunities when they happen? Nonprofits that support learning recognize it as an ongoing process, not an event.
With such an approach, nonprofits can continue to meet the challenges of growth and change occurring in their sector.
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