Chapter 3: Theories of the Nonprofit Sector and Nonprofit Organizations

1. Chapter 3: Theories of the Nonprofit Sector and Nonprofit Organizations

2. Nonprofit Functions vs. Government • Accommodate diversity – Since government’s obligation is to treat all citizens equally, nonprofits provide a voice and services in areas that are not addressed by government. • Undertake experimentation – Nonprofits have greater freedom to begin new programs on a smaller scale than government is allowed to using public funds. • Provide freedom from bureaucracy – Government moves slowly by virtue of its bureaucracy while nonprofits can respond to social needs more quickly and efficiently. • Attention to minority needs – Government priorities must match those of the majority of voters while nonprofits fill the gaps.

3. Theories Explaining the Nonprofit Sector • Discipline-centered explanations • Historical -- distrust of government, voluntary associations, religion, First Amendment rights, population diversity, income tax and tax deductions, shifts in public policy • Social -- socialization, reinforcing norms and values, social capital, nonprofits as mediating structures • Political -- accommodating diversity, experimentation, freedom from bureaucracy, attention to minority needs • Economic -- private versus public goods, externalities, market and government failures, nonprofits as gap fillers, supply-side theories • Motivation theories (altruism versus self-interest) • Theory of the Commons

5. Common Characteristics of Nonprofit Organizations • Organized Entities – chartered as formal organizations; most incorporated under state law • Private – not agencies of the government but may receive some funding from the government • Non-Profit Distributing – excess revenues are reinvested in the organization; no dividends to individuals or investors • Self-Governing – control lies with a board of directors or board of trustees responsible for the overall welfare of the nonprofit • Voluntary – board of directors and some service providers are volunteers • Of Public Benefit – exists to serve a social purpose deemed to be of public benefit

6. Theories Explaining the Nonprofit Sector • Failure Theory • Market and Government Failure • Gap Fillers • Supply-Side Theories • Altruism and Giving

7. Theory of Commons Public Good versus Common Good? Question on Social Return on Investment. Dual bottom line. Do we need our own theory?

8. External Environment • Open systems -- nonprofits are dependent on and interact frequently with their external environments • Shift away from emphasizing the internal mechanics of an organization’s operation (e.g., bureaucracy) • Focus on the relationship between an organization and its external environment (e.g., social context)

9. External Environment (cont’d.) • Resource dependency -- nonprofits are dependent on external constituencies for revenue, information, and other resources • Goal displacement, performance measurement, internal impact, adaptation and management

10. External Environment (cont’d.) • Isomorphism -- nonprofits in the same field tend to become more like each other as a result of facing similar influences from their environments

11. Internal Structures and Organizational Culture • Attempt to explain why some organizations are relatively bureaucratic and centralized, while others are more entrepreneurial and flexible • Task environment -- internal structure as a reflection of the day-to-day transactions that make up an nonprofit organization’s work • Organizational culture – the unwritten rules that prescribe dress, manner of doing business, social mores in the office • In Search of Excellence (Peters and Waterman, 1982) • Built to Last: Successful Habits of Visionary Companies(Collins and Porras, 1994 )