Gary W. Patterson
When Might Managing to the Numbers Ruin another Holiday?
As the new economy forces nonprofits to act more like the for-profit world, to what extent is your organization fooling itself by picking up one of the less desirable practices from the for-profit world?
Specifically, to what extent are you managing to a number? For example, are you chasing this year’s donor without recognizing that same prospect in time could be, with more patience, the source of a much larger gift to meet longer-term goals? Where else might short-term actions detract from the best decisions for long-term social missions?
To better apply this to the nonprofit world, let’s start with the more easily visible version of this issue in the for-profit world. You have heard how leaders of both public and private companies publicly set specific numerical targets for net income. Once stated, those targets often take on an air of obligation, of necessity. So why is this an issue for them, and you? Well, in their zeal to consistently reach numerical goals, for-profit organizations tend to fall for the temptation to stretch some quarters to reach targets and even to slow down—even hitting the brakes—rather than bringing in too much income above the target number in another quarter. The result: In their ever-increasing focus on attaining short-term numbers, leaders can lose focus on making the best long-term decisions to build value. They fail to be strategic.
Month end, quarter end, and fiscal year-end personal activities can become hostage to this teeter-totter process of getting just enough income—yet not too much income—in the current period. Sort of like Goldilocks tasting the three bears’ porridge! (Having been part of year-end deal-closing crunches, I can assure you that inordinate amounts of time, money, and focus are required to move heaven and earth to get deals closed in the desired period. And often those crunch times occur during holidays or when special family events had already been scheduled.)
Carried too far to cover shortfalls to reach that arbitrary number somehow, some way, companies then hold ‘fire sales’ to ensure getting the last few sales needed for those target revenues, which results in customers quickly learning to hold off on purchases until the regular desperate overture is made at period end—all to hit the sacred numerical targets. This ends up reducing margins as well as creating a spiraling impact as the company continues to try to make upcoming period results.
What kind of tone, from the top down, does this obsession with exactly hitting stated numerical results convey throughout the organization? Combine this corrosive environment with stress and pressure from the non-economic energies required to reach those targets. How much does that detract from corporate responsibility to shareholders to consistently build economic value for the enterprise within risk tolerances and resources available?
Are you starting to see parallels in your nonprofit world? At what point does this create a situation where the for-profit or nonprofit organization drinks its own Kool-Aid, losing track of real balance sheet and operating information needed to make the best decisions?
These three actions can help bring back the spirit of good cheer, and happier spouses, families, and significant others:
- Consider targeting a numerical range, not an exact amount. Why not have a number, plus or minus say 2 to 5 percent, sort of like a flex budget?
- Change or adapt incentive programs to emphasize consistently reaching longer-term goals and objectives. A balanced scorecard approach fits very well with tailored incentive plans, and what gets measured gets results.
- Change the tone from the top to emphasize doing things right, rather than managing income. A number of experts suggest doing things right does a better job of building long term equity or fund balance. And that tone fits better with the mission and vision for most nonprofits.
And, in return, Santa only asks that you truthfully reflect on the possibility that this short-term income-oriented behavior runs deeply enough in your socially concerned mission-driven nonprofit that you need a fresh set of eyes to see where you are. Then, as you begin to eliminate non-economic activities, maybe everyone can get to enjoy their holidays—no ‘reindeering’ on anyone’s parade!
The holiday you save may not just be the traditional “holiday” season, but can also include a fuller listing for Valentine’s Day, July 4th, Labor Day, Thanksgiving, etc.
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