Managing ‘non-profits’ vs ‘for profits’: what’s the difference?

We often say, “Management is management!” But is it really the same across all three sectors – private, public and ‘nonprofit’? A question of real importance to me as I return from the nonprofit sector back to the private sector.

My family has been in the automobile dealership business for over fifty years and I grew up going to work with my dad when I was only two years old. All of my youth and college years were spent learning the family business, and at age 25, I opened my auto dealership and have been managing it for the last 35 years. Fifteen years ago, I joined my local hospital board and that decision, in addition to starting my Global Executive MBA, changed the course of my professional life.

Shortly after joining the hospital board I became chairman of the board and then CEO. While chairman, I returned to graduate school to earn a health sector management certificate in the USA, while attending Cambridge Judge Business School (CJBS) for a Master of Studies in Community Enterprise. At CJBS I applied all of my research to issues facing our hospital. My research interests included financial controls, organisational management, change management and stakeholder theory. While serving as CEO, I returned to graduate school again, to study and research organisational change and how to manage change as it occurs.

Same or different?

To begin the analysis of our question – is management across the three sectors the same- let’s look at the stakeholders. A stakeholder is any individual or group that affects or is affected by the organization achieving its objectives. Our hospital’s key stakeholder groups include the patients, physicians, staff, volunteers, board, county government, creditors, vendors, state and federal government, economic developers, local employers, surrounding larger hospitals and the nursing schools. However, these diverse stakeholder groups may often have divergent needs. Additionally, each unique stakeholder group influences the hospital in order to achieve its needs. These diverse groups and their influence could be the root of why we may have to manage differently across the sectors.

As I re-enter my private business, I am reminded of all the above. My dealership’s stakeholders are customers, the manufacturer, staff, creditors, vendors. While the local, state and federal government are still stakeholders of the dealership, they are much less so than at the hospital. The local community is impacted by our dealership, but not as much as it is by the hospital. Our dealership mission is different than the hospital mission – the hospital is there to serve all citizens regardless of their ability to pay. In the private sector, we go out of business if many customers do not pay! The payer mix of USA based hospitals have a high percentage of non- paying (uninsured) patients. They also experience an even higher percentage of patients with government (public) insurance, with the balance being private payer (private insurance.) The private insurance patient offers the profitable portion of a hospital’s payer mix.

In the dealership, my mission, purpose and focus is to manage towards offering the highest quality products and services at competitive prices – that is the value proposition. The hospital’s mission and purpose is much broader and more encompassing. Many more stakeholders have a voice and they are influencing how the hospital is managed. Since I left the dealership to manage the hospital, and have now returned to the dealership, I have a better knowledge of what is similar and what is different between the two.

Same yet different…

It should be obvious to us all that “management is management” in the sense that efficient and effective day to day operations are required of all organisations, if they are to succeed. Also, it’s very important for every business, regardless of the sector, to have a sound strategy. However, a key difference in managing across the sectors will lie in what is the mission and purpose of the organisation. Which stakeholder groups have the most power? Is their power derived from the organization’s formal structure or in the resources the group controls? The answers to these two questions begin to shape how an organisation’s leadership approaches management.

In the private sector does the leader manage towards the owner(s) interest? In the nonprofit sector does the leader manage towards the more powerful stakeholders’ interest? In the public sector, does the leader manage towards getting re-elected or re-appointed? Or, does a leader always manage towards the organisation’s best interest- to fulfil its mission and purpose? These questions present our dilemma and we are challenged to innovate new management models that mitigate some of the risk associated with managing towards stakeholder interest.

At the Cambridge Judge Business School’s new Center for Social Innovation, our challenge is to think entrepreneurially in order to find new solutions to old problems. We will have to develop new business models to implement our solutions. These business models may include having to manage across all three sectors – private, public and nonprofit – simultaneously.

So, “management is management”?