Publications

A Diagnostic Model For Assessing Nonprofits And Their Organizational Effectiveness
by Tim Lannan, M.S.O.D.

The 21st century will be the century of the social sector organization.
—Peter Drucker

INTRODUCTION

As the nonprofit sector continues to grow in size, importance, and influence,
many individuals and groups are advocating for increased effectiveness
and improved performance. Political leaders, government officials,
corporations, educators, foundations, and the public at large know that nonprofit
organizations provide critical services in our rapidly changing world, but they
are also rightly concerned that nonprofits use limited resources effectively.
Unfortunately, all too often these legitimate concerns turn into misguided
attempts to impose private-sector standards on nonprofits.

There are many models for diagnosing organizational effectiveness, most of
which were designed with private sector, for-profit organizations in mind (for
example, Galbraith’s Star model, Nadler and Tushman’s Congruence model, or
the McKinsey 7-S model). Although aspects of these models can be applied to the
nonprofit sector, none adequately recognizes the unique characteristics of nonprofits.
In addition to the obvious (no distribution of profits), nonprofit organizations
differ from for-profit organizations in three significant areas: (1) their
mission or core reason for existing, (2) their dynamic, push-pull interactions with
the external environment, and (3) their accountability to multiple stakeholders
with diverse agendas. These differences must be acknowledged and addressed in
any diagnostic model designed to understand the behavior and actions of nonprofit
organizations and help them improve their effectiveness.

MODEL FOR ORGANIZATIONAL EFFECTIVENESS

My diagnostic model (see Figure 1) recognizes the importance of assessing the
extent to which a nonprofit is positioned to successfully interact with and change
its environment. In exploring the importance of and dynamic interaction among
1Tim Lannan can be reached at tim@timlannan.com 50 Support Center for Nonprofit Management seven key elements, this model can help a nonprofit determine how the various
components are aligned and working together to advance the mission. The seven
key elements are:

  • Purpose: mission, shared vision, core values, and strategies
  • Environment: the world in which the nonprofit works
  • People: those who do the work of the organization
  • 9 Structure: how the work is divided up and coordinated
  • Tasks and tools: how the work is done to bring about change
  • Systems: integrating mechanisms and processes that facilitate the work
  • Culture: norms and assumptions that determine how people work together

In applying this model, it is important to recognize that neither the organization
nor the environment is stable, both are constantly in motion. Nevertheless,
understanding these elements and the interrelationships among them at any point
in time provides a way to diagnose what is working and not working well. This, in
turn, creates a powerful platform for improving a nonprofit’s ability to advance its
mission and effect change.

Figure 1



PURPOSE

Purpose is at the core of every effective nonprofit organization. A nonprofit’s purpose is critical to holding the organization together, giving it focus, and making it
effective. Absent a common purpose “the system’s own politics may reduce the
capacity of those at the top to act” (Kanter, 1979/2001, 350). Common purpose
Support Center for Nonprofit Management 51 serves to bring diverse and sometimes conflicting individual and group expectations and agendas into alignment by providing clear direction and priorities. A nonprofit’s purpose should include:

  • A mission that defines why the organization exists and what distinct benefits,
    products, or services will be provided for whom (selected stakeholders).
  • A shared vision that defines not only what the organization wants to
    become, but also how the world will be different because of the nonprofit
    organization.
  • Core values that guide organizational decision-making and behaviors as it
    pursues the mission and vision.
  • Strategies that set a clear direction and priorities for advancing the mission
    and vision in the context of the core values.

A nonprofit’s mission and vision define how the organization understands and
interfaces with its environment. A nonprofit’s vision and related strategies must
recognize that the organization is not only affected by the environment, but is also
an integral player within the environment it seeks to change.

A nonprofit’s core values should play a dominant role in the daily life of the
organization. Values are guiding principles—generally three to five—for modeling
the change the nonprofit seeks to bring about. Ideally, values actively inform
how staff and volunteers interact with each other and with other stakeholders as
the organization pursues its mission, vision, and strategies.

To ensure that they remain responsive to and positioned to change their environment,
a nonprofit’s purpose should be a living, evolving thing. As the environment
changes, and as needs of stakeholders shift, the purpose must be open to
debate and periodic revision–both from the perspective of internal congruence


TABLE 1. DIAGNOSTIC CHECKLIST—PURPOSE

  • There is shared agreement and ownership of the nonprofit’s
    purpose among key stakeholders.
  • 3 The change the nonprofit seeks to bring about and the impact it
    seeks to have on its environment are clearly defined in the nonprofit’s mission and vision.
  • Core values actively inform organizational decision-making and
    behaviors.
  • Organizational strategies are responsive to changing stakeholder
    needs and the dynamic environment in which the nonprofit works.


and external relevance. In doing this, most nonprofits will find that values are more timeless than mission and vision, and that strategies become the focus of most discussions. In a volatile environment, change may occur so quickly that the organization needs to redefine at least part of its purpose to remain relevant and to ensure that it is effective in bringing about the desired change. A shared purpose helps bring diverse and sometimes conflicting individual and group expectations and agendas into alignment by providing a clear direction and priorities. With a strong, vibrant purpose at its core, a nonprofit will not only maintain equilibrium but also propel itself forward.

ENVIRONMENT

To be effective in advancing its purpose and changing the world, a nonprofit’s
interaction with the environment must be a two-way exchange. While the environment
may impose certain demands and constraints, nonprofits and their environments
are “engaged in a pattern of co-creation, where each produces the other” (Morgan, 1997, 64)—the push-pull concept that underlies this diagnostic model. The environment influences and affects the nonprofit, but the nonprofit by design must influence the environment to claim success. Understanding this intimate exchange with the environment can empower nonprofits to become more effective in creating the future: the challenge is to “change and transform themselves along with their environment, and to develop approaches to organization that can foster … open-ended evolution” (Morgan, 1997, 261).

Every once in a while, a nonprofit is so successful in changing its environment—
or changes in the environment make it appear successful—that it faces the
choice of whether to go out of business or fundamentally redefine its purpose.
The classic example of adapting to a changed environment remains the March of
Dimes, which redefined its purpose to be the elimination of birth defects after


TABLE 2. DIAGNOSTIC CHECKLIST—ENVIRONMENT

  • The organization has identified and understands the key environmental variables that affect the nonprofit and those it serves.
  • The organization keeps abreast of and adapts to developments
    in the external environment on an ongoing basis.
  • The nonprofit understands the impact it has on the external
    environment.
  • The nonprofit appropriately understands and balances the needs
    and interests of its diverse stakeholders.


the Salk vaccine accomplished its original mission of eradicating polio. A two-way
interaction with the external environment ensures that a nonprofit remains relevant
and effective even as it tries to change that environment.

PEOPLE

Ultimately, it is the people doing the work of the organization who are critical to
its success and bringing about change. Therefore, an effective nonprofit needs
people who bring a commitment to its mission and values and connections to the
environment in which the organization works as well as the competencies needed
to get the work done.

The mission-driven nature of nonprofits makes it essential that the individuals
who work for them—staff, board members, and volunteers—endorse and are
motivated by its purpose and aspirations. This is a much higher standard than
good organizational fit, which simply requires that people have the skills, knowledge,
and experience required to do the work (Nadler & Tushman, 1997). From a
nonprofit perspective, augmenting this list to include congruence with the mission,
vision, and values focuses and energizes the organization and increases the
likelihood that it will succeed in advancing its purpose.

People also play a key role in helping a nonprofit connect with its environment.
The principle of requisite variety, originally formulated by the English cybernetician
W. Ross Ashby, suggests that the internal diversity of an organization should
match the variety and complexity of its environment if it is to respond appropriately
to the challenges in the environment (Morgan, 1997).While nonprofits may
not be able to achieve requisite variety structurally, they can make sure their people—
staff, board, and volunteers—are appropriately diverse and reflect the environment
in which the nonprofit works. This diversity is essential if an organization is to understand and adapt to changes in its environment. People provide an


TABLE 3. DIAGNOSTIC CHECKLIST—PEOPLE
  • Board, staff, and volunteers demonstrate a shared commitment
    to the nonprofit’s purpose.
  • Individual and organizational goals are congruent.
  • Staff and volunteers have the skills, knowledge, and experience
    needed to do the work of the organization.
  • Diversity among its people reflects the environment in which the
    nonprofit works and helps it understand and respond appropriately
    to the challenges in that environment.


essential two-way link that enables a nonprofit to understand and stay connected with its environment.

In trying to assess the people aspect of a nonprofit, it is important to consider
not only the skills and knowledge they bring, but also whether they are aligned
with the nonprofit’s purpose and appropriately representative of the dynamic
environment in which the organization works.

STRUCTURE

To accomplish its purpose, an organization needs to organize itself effectively: it
needs a structure that enables it to coordinate and divide up the work to focus
organizational resources and energy on bringing about desired change (Nohria,
1995). Structure is more than an organizational chart. It is everything that affects
how the different components of the organization will interact and work together—
the informal systems, networks, and relationships that affect how work gets
done as well as the formal roles and assigned accountability for decision-making.
Structure also clarifies internal and external boundaries and the interfaces between
the organization and the environment in which it works.An effective organizational
structure will hold people accountable, ensure efficient use of resources and
time, and help the organization not only adapt to but change its environment.

Because each organization will have a different purpose, different tasks, different
culture, and different challenges, what is true for for-profits is equally true for
nonprofits: there is no one best organizational structure (Burns & Stalker,
1961/2001). While there are three basic ways to organize—around activities or
functions, around output or customer/user, or around a matrix or network—
there are many variables to consider.

While many nonprofits have traditional functional structures, such structures
are not especially well suited for highly unstable environments—which may
become even more unstable if nonprofits are successful in changing them. In
addition, most nonprofits are unable to enjoy the benefits of specialization and
depth of expertise that a functional structure can provide because limited
resources not only mean that the most talented individuals cannot be hired, but
even if they are on staff they are stretched so thin that the organization cannot
benefit from their talents. On the other hand, unstable environments and the
demands of multiple constituencies suggest a high need for—or at least a high
expectation of—coordination, which is a hallmark of matrix or network structures.
But assuming that this is the best solution could be wrong because excessive
coordination can be wasteful and inefficient (Nohria, 1995).

In searching for the right structure, it is important to consider the unique
needs and circumstances of each individual nonprofit, remembering that every
structural solution has its drawbacks as well as its benefits. For example, a national advocacy organization could create a matrix structure that is organized primarily
around local grassroots networks each of which have direct linkages and
shared reporting relationships to centralized support functions, such as lobbying,
advertising, and recruitment. Organizing in this way might be more in keeping
with strategy but could duplicate functions and require more resources.
Organizing primarily around functional areas, on the other hand, might make
better use of limited resources but could complicate integration and coordination.
In evaluating what will work best in specific situations, people and the dynamics
among them must also be considered because structure can be driven by people
as well as by strategy as individuals adapt to changes.

Dividing up the work and setting boundaries inevitably complicates and intensifies
the political and power dynamics within an organization, which reinforces
as well as complicates the need for role definition and boundary management. For
example, consider the challenge in defining the top of the organization—the
board of directors (or trustees) or the head of the organization. It is not uncommon
for the bylaws of a nonprofit corporation to specify that the board is responsible
for managing the affairs of the corporation and in some cases assign the
board the role of supervising staff to ensure that their duties are performed properly.
Yet, in most organizations, nonprofit or for-profit, the organization’s CEO
has ultimate responsibility for management and supervision.

While such bylaws provisions may be artifacts from a nonprofit’s initial stages
(many begin as small volunteer-run organizations that,when funding permits, hire
an executive director to manage the day-to-day aspects under close supervision of
the board, and eventually, if successful, grow into multifunctional organizations


TABLE 4. DIAGNOSTIC CHECKLIST—STRUCTURE
  • Organizational structure—formal and informal—serves organizational strategy, maximizes available resources, and facilitates effective integration and coordination.
  • The formal structure clarifies internal and external boundaries
    and defines roles, relationships, and accountability in a way that
    facilitates decision-making and getting the nonprofit’s work done
    effectively and efficiently.
  • The informal organization complements and enhances the formal
    organization and provides effective ways to deal with what falls
    between or outside of the boxes (the boundaries of the formal
    organization).


with professional staff), they have the inevitable and unfortunate consequence of
confusing the lines between board and staff responsibilities—between governance
and management (Carver, 1990). In extreme cases, the hands on involvement of
board members gets baked into the culture of the organization.

Because organizations are social systems with complex patterns of power and
influence, it is especially important to pay attention to setting and managing
boundaries. Tensions and conflicts generally arise across boundaries when people
find themselves having to work outside or between the boxes (Marshak, 2001). In
a culturally diverse organization, which many nonprofits strive to be, this can
become further complicated because the way power is distributed and shared can
contribute to majority-minority group conflict (Cox, 1993/1996).

The ultimate test for an effective structure, both formal and informal, becomes
whether it helps or hinders getting the work done that advances the organization’s
purpose.

TASKS AND TOOLS

How the work will be done to bring about change–the tasks and the tools used to
get the tasks done–is also a key aspect of this push-pull diagnostic model. A nonprofit’s
tasks should have a direct link with its purpose, which means that the dayto-
day work of the organization should be derived from and designed to advance
its mission, vision, and strategies in ways that are consistent with core values and
that will have the intended impact on the environment. Similarly, the tools used
to do the work can have a profound impact on the organization and the ability of
people to perform the tasks; the tools used will inevitably affect the complexity of
work processes, work relationships, and the knowledge and materials needed to
get the job done.


TABLE 5. DIAGNOSTIC CHECKLIST—TASKS AND TOOLS
  • The tasks performed by staff, board members, and volunteers
    are designed to advance the nonprofit’s mission, vision, and
    strategies in ways that are consistent with core values.
  • Tools and technology are appropriate for the task, the environment
    in which the nonprofit works, and the stakeholders it serves.
  • Staff and volunteers have the competency to effectively use the
    tools and technology employed to perform the tasks.


Ensuring that tasks and tools produce the desired impact is not simple, especially
given competing individual and group interests and cultural assumptions
that can become attached to specific tasks and technologies. For example, one
educational organization continues to support a physical library and publish a
quarterly printed newsletter, even though usage of both has declined dramatically
since this information was added to the organization’s website. Despite the cost
effectiveness and wider readership of the Internet-based sources, the library and
the newsletter are seen as inviolate: they are cultural artifacts created by the organization’s
founder and have become—for the board and staff at least, if not for
those served–symbols of the organization’s identity.

Once tasks are clear, the organization needs to consider the knowledge, skills, and
other competencies that people need to do the work; the need for integration as well
as specialization; the tools needed to get the work done–technology, materials, etc.;
and how the organization connects with its environment in getting the work done.
Both tasks and tools should inform the organizational structure and the selection
and development of the people who will do the work (Morgan, 1997; Nadler &
Tushman, 1997; Thompson, 1967/2001; Walker & Lorsch, 1968/2001). Differences
in these dimensions call for differences in organizations. For example, while staff
must perform core tasks, outsourcing may be attractive if the organization requires
very specialized skills for a temporary period or needs to reduce costs significantly.
Yet, outsourcing must also advance the organization’s mission and support its core
values. If, for instance, a nonprofit contracted with a specialized vendor that does
not support the organization’s diversity goals, the nonprofit could find itself getting
work done efficiently at the expense of its reputation among stakeholders.

While effectiveness and efficiency of operations are indicators of how well the
task is being performed and the appropriateness of the tools used, ultimately all
work needs to be evaluated based on how it advances the organization’s purpose
and brings about desired changes in the environment—outcomes, not output, are
what is important.

SYSTEMS

Systems are the integrating mechanisms, policies, practices, and processes that
enable people and groups to perform the work and bring about change. Good systems
enable individuals and groups to get the work done and facilitate integration
within and across groups, inside and outside the organization. Systems can
address decision-making, problem solving, technology, fundraising, communication,
information management, financial management and control, planning,
strategic management, workflow, training, compensation, incentives and rewards,
and evaluation. Good monitoring systems can provide ways for a nonprofit to stay in touch with and gauge changes in the environment, the impact it is having, and the pulse of its stakeholders.

Systems are critical in positioning the organization to be responsive to its environment,
maximizing limited resources, supporting or changing culture, helping
people do their work, and motivating them to do their best (Morgan, 1997;
Thompson, 1967/2001; Senge, 1990/2001;Walker & Lorsch, 1968/2001). In determining
whether an organization’s systems are working well, it is important to
assess not only whether the systems are serving the ends for which they were
designed, but also how they are supporting the organization’s purpose, structure,
people, tasks, and culture.

Of special importance to nonprofits is the role systems can play in informing
and supporting values. Unless the systems are aligned with the organization’s
espoused values, the values-in-practice (the values that are demonstrated in dayto-
day behavior among staff and in how clients and other key stakeholders are
treated) will dominate and prevent movement toward the values-in-theory (the
stated values) as defined by Argyris (1957). For example, an organization committed
to eradicating homelessness might have stated values of economic justice and
self-sufficiency. But if this same organization pays some employees less than a living
wage or has rigid working hours that make it difficult to care for young children,
it sends conflicting signals about what its real values are. Looking at systems
in the larger organizational context will help identify those that need to be
changed, either because they have run amuck or because they no longer serve the
organization’s stated purpose.


TABLE 6. DIAGNOSTIC CHECKLIST—SYSTEMS
  • Organizational systems (e.g., communications, information management, problem-solving, financial management and control, planning, workflow, training, compensation, incentives and rewards,
    and evaluation) support the nonprofit’s purpose and tasks.
  • Organizational systems facilitate integration within and across
    groups.
  • 3 Opportunities for professional and personal growth motivate people who work for the organization—whether paid or as volunteers.
  • Decisions are made and implemented in an appropriate, timely,
    and well-informed fashion.


CULTURE

Organizational culture is largely “composed of many intangible phenomena, such
as values, beliefs, assumptions, perceptions, behavioral norms, artifacts, and patterns
of behavior” (Shafritz & Ott, 2001, 361) that determine how the organization
understands the world and how people will work together. Culture may be
virtually invisible, but it exerts a profound influence; culture can significantly support
or hinder a nonprofit’s ability to affect change because the “pattern of shared
basic assumptions” can easily become ingrained as “the correct way to perceive,
think, and feel” (Schein, 1993/2001, 374-374).

Ideally, a nonprofit’s culture supports and is tightly connected with its purpose.
Of special significance to nonprofits, culture implicitly serves as a litmus test for
assessing the fit between individuals and the organization and provides a way to
assess whether people are true believers. Culture serves as a filter through which a
nonprofit understands its external environment and can provide a strong competitive
advantage when it highlights the nonprofit’s uniqueness and helps it stand
out in a crowded field. But, cultural blinders can also prevent an organization
from seeing or developing an appropriate response to changes in its environment.

Awareness of a nonprofit’s culture may be especially important for boards of
directors. Because board members provide leadership in setting direction and
ensuring progress toward the mission, they need to not only understand, interpret,
and balance the diverse needs of multiple stakeholders, but also serve as a
bridge between the organization and its stakeholders. Without a good shared
understanding of the organization’s culture, it may be difficult to interpret the
nonprofit to its diverse stakeholders or to see how the culture may need to change
to better serve their needs. Because culture informs how people perceive, think,


TABLE 7. DIAGNOSTIC CHECKLIST—CULTURE
  • Organizational culture supports and is connected with the nonprofit’s purpose.
  • What people say matches what they do: the values demonstrated
    by day-to-day behavior (values in practice) are consistent with
    stated core values (values in theory).
  • Underlying assumptions, unwritten norms, and organizational traditions support getting the work done.
  • Organizational culture provides a competitive advantage and
    helps the nonprofit understand and relate to its environment.


and act in certain situations, unspoken but shared beliefs all too frequently
dictate a course of action, even though an unbiased review of the facts might
dictate otherwise (Marshak, 1996). For example, the health care reform
debate presented an opportunity for one national women’s health organization
to ensure that all women could have access to the full range of reproductive health care services, regardless of ability to pay. Yet, because the local health centers providing these
services had become such an important part of this organization’s identity, lobbying
efforts focused on ensuring funding for these health centers rather than guaranteeing
universal access to these services.

For nonprofits, an analysis of organizational culture provides a way to assess
whether the values that are articulated as part of the organization’s purpose–the
values in theory—are in sync with the values in practice. Discord here would indicate
a need to reinforce the stated values to ensure that they are evident in the
daily life of the organization, or to revise the stated values to reflect reality.While
culture can hold an organization back or send it in the wrong direction, it can also
hold it together and provide the energy and impetus to move people to act. A
deeper understanding of the culture will provide a way to better understand what
goes on in the organization and how it perceives and relates to its environment,
and it may also help unearth priorities for change.

CONCLUSION

A clear and inspirational purpose—mission, vision, values, and strategies—is necessarily
at the core of every nonprofit organization. But that purpose does not exist
independently of the environment that the nonprofit is trying to change.And change
cannot happen unless the organizational culture, systems, tasks and tools, structure,
and people support and are aligned with the nonprofit’s purpose and each other.
Looking at the alignment among these seven key aspects of a nonprofit organization
will help make sense of its behavior and actions. Looking at the dynamic relationships
and interactions among them will provide a way to assess what’s working
well, what’s not working, and what might need to happen to increase a nonprofit’s
effectiveness, ensure its continued relevance, and enable it to change the world.

REFERENCES

Argyris, C. (1957). The individual and organization: Some problems of mutual
adjustment. Administrative Science Quarterly, 2(1), 1-24, June.

Burns, T. & Stalker, G. M. (2001).Mechanistic and organic systems. In J. M.
Shafritz & J. S. Ott (Eds.), Classics of organization theory (5th ed., pp. 201-205).
Fort Worth, TX: Harcourt College Publishers. (Original work published 1961)

Carver, J. (1990). Boards that make a difference: A new design for leadership in
nonprofit and public organizations
. San Francisco: Jossey-Bass.

Cox, T. H. (1996). Intergroup conflict. In J. M. Shafritz & J. S. Ott (Eds.), Classics
of organization theory
(4th ed., pp. 192-202). Fort Worth, TX: Harcourt
College Publishers. (Original work published 1993)

Drucker Foundation for Nonprofit Management. 1999. 1999 in Review. New
York: Author.

Galbraith, J. R. (1995). Designing organizations: An executive briefing on strategy,
structure, and process
. San Francisco: Jossey-Bass

Kanter, R. M. (2001). Power failure in management circuits. In J. M. Shafritz & J.
S. Ott (Eds.), Classics of organization theory (5th ed., pp. 343-352). Fort
Worth, TX: Harcourt College Publishers. (Original work published 1979)

Marshak, R. J. (1996).Metaphors, metaphoric fields and organizational change.
In D. Grant & C. Oswick (Eds.), Metaphor and organizations. London: Sage
Publications.

Marshak, R. J. (2001). Marshak laws of organization. (Available from American
University/National Training Lab MSOD Program, 4200 Wisconsin Ave NW,
Suite 302,Washington, DC 20016)

Morgan, G. (1997). Images of organization (2nd ed.). London: Sage Publications.

Nadler, D. A. & Tushman, M. L. (1997). Competing by design: the power of organizational
architecture
. New York: Oxford University Press.

Nohria, N. (1995). Note on organization structure (revised). Boston: Harvard
Business School Publishing.

Schein, E. H. (2001). Defining organizational culture. In J. M. Shafritz & J. S. Ott
(Eds.), Classics of organization theory (5th ed., pp. 336-376). Fort Worth, TX:
Harcourt College Publishers. (Original work published 1993)

Senge, P. M. (2001). The fifth discipline: A shift of mind. In J. M. Shafritz & J. S.
Ott (Eds.), Classics of organization theory (5th ed., pp. 451-459). Fort Worth,
TX: Harcourt College Publishers. (Original work published 1990)

Shafritz J. M. & Ott, J. S. (Eds.). (2001). Classics of organization theory (5th ed.).
Fort Worth, TX: Harcourt College Publishers.

Thompson, J. D. (2001). Organizations in action. In J. M. Shafritz & J. S. Ott
(Eds.), Classics of organization theory (5th ed., pp. 268-281). Fort Worth, TX:
Harcourt College Publishers. (Original work published 1967)

Walker, A. H. & Lorsch, J.W. (2001). Organizational choice: Product versus
function. In J. M. Shafritz & J. S. Ott (Eds.), Classics of organization theory
(5th ed., pp. 211-221). Fort Worth, TX: Harcourt College Publishers.
(Original work published 1968)


Journal for Nonprofit Management 2004
Volume 8, Number 1

Published by Support Center for Nonprofit Management
New York, NY

© 2004
Reprinted with permission