DIFFERENCES AND SIMILARITIES BETWEEN NOT-FOR-PROFITS AND FOR-PROFITS IN THE ADIZES LIFECYCLE MODEL
By Dr. Ichak Adizes
Not-for-profits that must raise money in order to survive and serve the community have the same lifecycle as for-profit organizations. (See I. Adizes: Corporate Lifecycles, Adizes Institute Publications.) As they grow, they also have the same potential pitfalls as for-profit companies, including the founder’s trap or the family trap, which in some non-profits, is more akin to an elite trap. Not-for-profits can also experience premature aging.
Not-for-profits experience a founder’s trap when the organization is held back by a founder’s dominant vision that prevents change. Typically, a love/hate relationship exists between the founder and the organization when the founder’s trap is experienced. One example is Greenpeace, where the founder, although greatly admired for his vision, was asked to resign because his management style presented an obstacle the organization could not overcome.
Family Trap & Elite Trap
The family trap is a similar situation. Here, the donorship passes from father to son to grandson or to people the family recruits from their private, inner circle. The organization, dominated by a single viewpoint, grows stale for lack of diversity. This was especially prevalent in the last century among artistic foundations, such as symphonies and opera houses. These organizations existed for the benefit of the city’s elite social class and became their exclusive domain. We refer to this as an elite trap, although it is virtually identical to a founder’s trap.
Overcoming the elite trap is just as difficult for a non-profit organization. The platform on which the organization is based and gets its support must be widened, a difficult process. If it is not widened, organizational aging will occur, just as in a for-profit organization. That’s because the (E)ntrepreneurial spirit necessary for change is lost, either because of risk aversion or by holding onto the allure of the past. This is common with artistic organizations, especially orchestras, who play the same musical warhorses over and over, afraid that if they innovate, they will lose their regular audience.
In large, well-funded not-for-profits, where job security is taken for granted and the primary function is to disperse money, the (E)ntrepreneurial role is usually very weak, causing the organization to go into rapid premature aging. With no reason to adapt, change or think creatively, and with no pressure to raise funds for survival, these not-for-profits can become bureaucratized virtually overnight. Similarly, the for-profit organization with a monopoly, secure in its environment, will behave like a bureaucracy too, at least in the short run.
Sometimes it’s difficult to change a foundation. Such was the case with the Boston Symphony. When founded, it played only Mozart because that’s what its biggest donor wanted to hear. The Symphony continued to play Mozart exclusively until the major donor died. In a for-profit organization, this situation is more easily rectified; if the product isn’t profitable, the organization eliminates it. This option is missing in not-for- profits because they lack the profit metric to eliminate stale visions.
Focus on the Client
A strong, profound client analysis might enable you to prevent a single individual or board from becoming self-serving. When I worked at the Los Angeles County Department of Children’s Services, it was composed of 3,500 social workers charged with looking after children who were sexually, physically, economically, or socially abused, including foster care and adoptions. In a meeting, I asked the department’s top management to list their clients. It was interesting to note that they had confused clients with stakeholders. They mentioned newspaper reporters, state government, federal government, and the judiciary system making decisions regarding children’s adoptions and foster care. These were not clients! These were the people and institutions to whose music the department danced, the people who made decisions regarding fund appropriations, but these were not their clients. Way down at the bottom of the list, I finally saw the name of their true clients……”abused children.”
Not-for-profit executive directors frequently confuse clients with stakeholders; they forget whom they are supposed to be serving. In order to survive, they are forced to play so many political games they start to believe that handling the stakeholders is the major reason for their existence, rather than satisfying the clients for whom they exist.
Not-for-profits differ from for-profit organizations in that their funding source is not the client, and it’s only natural for an organization to give first priority to the source of funds on which they depend for survival. A for-profit organization is constantly reminded by its clients that its existence is contingent upon satisfying client needs. That’s not the case with not-for-profits, where stakeholders provide the money but are not necessarily the beneficiaries, or clients. Thus, not-for-profits can easily become distracted, paying more attention to stakeholders than to clients. As a result, client needs are ignored.
One way to avoid organizational aging, i.e., bureaucratization, is to periodically ask, “Who are our clients and what are their changing needs?” This properly aligns the sequence of serving client needs first, identifying donors second. If the decision-making sequence is reversed, and donor demands dictate which services clients will receive, the organization can easily become a wealthy donor playground that pays lip service to the real needs of its clients.
To avoid aging, not-for-profits must do the same thing as for-profit organizations – spin off. For-profit organizations spin off divisions with different product lines targeting different markets, freeing them to be driven by their own market needs rather than being “colonized” by the needs of the parent organization. The emancipation creates a portfolio of new market or product divisions, with the parent company titled the “XYZ Group of Companies,” or something similar.
A Prime organization is one containing a group of divisions or companies, each at a different stage of the lifecycle. The division that serves an established, reliable market is the organization’s cash cow, and it supports the babies that are growing. A Prime organization thus does not age because it has a permanent nursery with new products and new markets constantly in development.
The same can and should be done in not-for-profit organizations. For example, the Boston Symphony created the Boston Pops for the summer crowd, and also spawned a chamber quartet. There are multiple groups dedicated to different markets, each at a different stage of the lifecycle. The Los Angeles Music Center has the Mark Taper Forum, an innovative theater for new writers; it also maintains the Ahmanson Theater for established works. Both groups — innovation and warhorses — work under the same roof. The same can be done with opera: on one hand, smaller, innovative, less expensive productions to develop an audience, and on the other, the grand opera performance for the established audience.
These are just a few examples of the similarities between for-profit and not-for-profit organizations. It is wrong to assume that the two are totally different and have nothing to learn from one another.