To What Extent Management in the Voluntary Sector Differs from That in Conventional Firms - Essay Example

Managing Voluntary Sector Organisations Introduction This essay is a discussion on the following topic: "To what extent is management in the voluntary sector different from management in "conventional" commercial concerns" The essay has three parts. The first part defines what the voluntary sector is, its key characteristics, and its similarities with commercial, or business, concerns. The second part is on the practice of management and the differences in the way it is practiced in the voluntary sector and in commercial organisations, with special focus on a successful UK-based international development charity. The third part summarises the key points in answer to the topic question. Understanding Voluntary Sector and Commercial Organisations Any discussion of the management of organisations must begin with an understanding of the nature of human organisations and why they exist. Like the humans that establish them, each organisation exists for a purpose, a set of goals or objectives that have to be achieved or may only be achieved, if people group together and organise themselves (the word "organisation" comes from the Greek meaning 'tool') (Niemark & Tinker, 1986). An organisation therefore has many purposes such as to give a decent return on investment as in the case of most private sector organisations by selling a product or service. Public organisations such as the National Health Service exist to deliver a public service or promote a social cause in behalf of the government. Organisations may be classified according to their purpose, and following this convention, Duncan (1983) distinguished six types: (1) private-sector; (2) public-sector; (3) not-for-profit; (4) institutional; (5) voluntary sector, and (6) mixed organisations. Table 1 gives a summary of each of these organisational types, their specific purposes, and examples of each. Table 1: Types, Descriptions, and Examples of Organisations Organisational Type Purpose Examples Private-sector Profit-seeking. Profits are partly retained by the firm and partly distributed to the owners. Vodafone plc Tesco plc Public-sector Government organisations that provide public services at the local, regional, and national levels. Most government ministries NHS DfT Not-for-profit Private organisations that provide public services and funded from private or public donations. British Red Cross Society Soroptimist International U.K. Charities such as VSO U.K. Institutional Provides public services but have a long history and tradition. Universities Churches Hospitals Voluntary Association Temporary or special purpose groups that provide services to its members. Boy Scouts Greenpeace Mixed Combined private- and public-sector organisation that combine public service with business objectives. U.K. National Trust British Chambers of Commerce Some U.K. Universities Source: Duncan (1983) Thus, a voluntary sector organisation according to this definition is a temporary or special purpose group that provides services to its members. However, Drucker (1985, p. 105-106) and Kotler et al. (1987, p. 5) classified under what they termed the Third Sector, Not-for-Profits (NFP), or Non-Governmental (NGO) all those organisations that are neither private-for-profit nor not-for-profit public and that exist to serve a social need. There has been a growing trend in recent years amongst private for-profit businesses to be more conscious about finding ways to address and provide more lasting solutions to social problems like universal health care, global poverty, disease eradication, and hunger. In fact, former Prime Minister Blair recently commented on the growing value of the 'third sector' and hinted that businesses do not limit themselves as "romantic paeans to charitable activism" by getting more involved in dispensing social justice (Bagehot, 2006). The last four organisational types based on Duncan's typology - not-for-profit, institutional, voluntary, and mixed - could therefore be included in what could be defined as a voluntary sector organisation (VSO) because they share several characteristics, without confusing these with for-profit businesses that continue to imbue its charitable activism with a profit motive. What these VSOs have in common are the following: First, these organisation types have a clear social purpose, and it is not to generate profits. Second, these organisations are established by people who believe in and are committed to the achievement of a set of social objectives. Third, majority of the funds utilised and the services of the people who work in the organisation are solicited voluntarily and in varying degrees and amounts from those who share the organisation's purpose and for which the objectives are established. Fourth, regardless of the type, an organisation can be said to be successful if it meets the purpose(s) for which it is established, and with success comes its continued growth and existence. Otherwise, it would be better for an organisation that does not meet its purpose for existing to close down. Fifth, these organisations have similar sets of stakeholders, defined by Freeman (1984, p. 48) as "groups and individuals who can affect the organisation" and that managers must respond to because not doing so would have negative effects on the business. Included amongst these stakeholders are donors (that are the source of funds used to achieve the organisation's purpose), service providers, volunteers, government regulators, clients and constituents, and even competitors that are after the same fund sources or that want to serve the same social group, e.g., the hungry and the poor. These five characteristics can be found in large VSOs like Greenpeace, the Boy Scouts, and Oxfam and in many other smaller, unpublicised ones such as Henshaws Society for Blind People or a town's Youth Choir. Aside from sharing the three basic similarities of (1) being created artificially and legally and operated and managed by people, (2) having a purpose for their existence, and (3) being judged on the basis of performance, all organisations whether private-for-profit, public, or voluntary need good quality management for its growth and sustainability (Kunz & Pfaff, 2002). Management and Organisations Whittington (2001) pointed out the link between an organisation's purpose, mission, and vision and the way it plans and makes decisions. Organisational behaviour, after all, reflects the principles of the people who work in and manage these organisations. What may differ is the degree to which these principles affect the organisation's actions. Using America as an example, Drucker (1992, p. 203) observed VSOs as the nation's largest employer, considering that every other adult (estimated at the time at 80 million-plus people) works as a volunteer, giving an average of nearly five hours each week to one or several non-profit organisations. This is equivalent to 10 million full-time jobs, and if these volunteers were paid, their wages even at a minimum rate would amount to 5 percent of America's GNP. In the last fifteen years since Drucker made these observations, the value and image of VSO work has appreciated worldwide, as VSOs made their presence felt in the light of the global and local crises that have taken place, and continue to do so, to this day. After the collapse of the Cold War, the accelerated wave of globalisation resulted in the growth of global trade and improved economic conditions, but alongside winners were increasing numbers of losers, victims of severe displacements, misery, and poverty. The causes are varied: wars of ethnic cleansing, trafficking and abuses of women and children, incurable diseases, illiteracy, illegal refugees, environmental degradation, and victims of social injustice brought about by different reasons. It is ironic that whilst great wealth continues to be created by those who have taken advantage of global business opportunities arising from China to Latin America and from Russia to India, there continue to be pockets of poverty and misery in America, Europe, and Asia. Each of these social conditions demand solutions that governments, whether due to inefficiencies or corruption, have not been able to adequately address. This is where VSOs come in as more good-hearted people realise their capability to do something without expecting anything material in return, save for the sense of fulfilment that comes with volunteerism. In contrast, for-profit organisations and those who work in them are mainly driven by wealth, as declared by Friedman (1962, p. 27): "There is one social responsibility of businessto use its resources and engage in activities designed to increase profits so long as it stays within the rules and engages in open and free competition without deception or fraud." According to Friedman, the primary obligation of a business is to increase profits and maximise the return for shareholders and to do so without breaking the law and that it is the political authority or government whose job it is to take care of society. This mode of thinking inspired businesses to shift production to low labour cost countries where it was not illegal to damage the environment, deplete natural resources, provide poor working conditions, condone employment abuses, and pay low wages. Thus, for a conventional for-profit business, earning profits is acceptable provided the business follows the law, regardless of whether doing so would result in the perpetuation of long-term misery and poverty. Such an organisation would be doing good and acting socially responsible. This seemingly contradictory interpretation of the purpose of organisations and the definition of what is good and socially responsible is perhaps the main difference between the management of a VSO and that of a conventional commercial concern. Another difference is that whilst conventional businesses are owned by investors, people who put in financial or material assets in the hope of earning an acceptable return, VSOs do not have like-minded investors who put in resources with similar strings attached. Those who establish VSOs are after the attainment of the goal of addressing an identified social need, and so-called "investors" put in their time, expertise, and resources to deliver the organisation's service. The return on their investment would be in the form of personal fulfilment and the positive sense of accomplishment, whether derived from sharing what they have or seeing the comfort they are giving to those who avail of the VSOs services. Volunteers continue getting involved in these organisations because the return on their efforts continues to give them happiness. The same is true for donors who give financial resources for the VSO's use. Thus, donors and volunteers are considered by the VSO as important stakeholders and form part of their clients, aside from the direct beneficiaries who avail of their services. This is one other key difference between conventional commercial businesses and VSOs that affect the way they are managed. Unlike for-profit businesses whose clients or what are called "markets" could be simply classified as potential consumers of the product or service that is sold by the business, a VSO has to sell itself - the institution, the people behind it and those who are managing it, its services and accomplishments - to a wider range of "markets" which could be radically different from each other. In the VSOs case, it has to attract: (1) donors who are willing to provide funds and resources; (2) volunteers who are willing to deliver the organisation's services at compensation levels that are below market rates (they are not paid an amount commensurate to the work they do), and (3) the primary clients or customers like the poor, hungry, uneducated, etc. who avail of the organisation's services. Each of these "markets" needs to be managed by the VSO in different ways. A case in point is the Voluntary Service Overseas or VSO, an international UK-based development charity founded in 1958. From hereon, the term VSO in this paper would refer to the specific, and not the generic, organisation. Management at VSO (Voluntary Service Overseas of UK) VSO was established in 1958 by Alec and Mora Dickson of Portsmouth and attracted eight young 18-year old male volunteers who gave a year's voluntary service working with locals in need in Ghana, Nigeria, Zambia, and Sarawak. Since then, over 30,000 volunteers have served in over 70 countries (VSO, 2007a). The organisation currently has 1,500 volunteers in 34 countries and acts as the lead organisation in a federation of member voluntary organisations (MVOs) from Canada (VSO Canada), Kenya (Jitolee), Netherlands (VSO Netherlands), and the Philippines (Bahaginan), each with its own governing board. These MVOs contribute resources, volunteers, and funds to help the federation maximise its contribution to tackling poverty, which is its main goal. Externally, VSO is managed like a conventional business. It has an annual budget (40.2 million in 2006-2007), a strategic plan called Focus for Change drafted in 2004, and a Senior Management Team consisting of seven people headed by CEO Mark Goldring, with the support of 298 full-time employees in the UK and 428 overseas. Aside from the volunteers that it has deployed in several projects overseas, VSO has 75 trained but unpaid selectors who recruit volunteers and a small number of voluntary workers who assist in raising funds and implementing projects. VSO functions like a multinational business corporation that sources 70% of its funds from the UK government and 30% from private donors consisting of business firms and individuals. They "employ" a global workforce and serve a global market of beneficiaries in the five continents. Figure 1 shows VSO's partnerships (2007a). Like commercial organisations, VSO's 2004 strategic plan called for ongoing analysis and longer-term thinking, and a deeper, more dynamic relationship with partner organisations defined by shared agendas and learning, rather than individual volunteer placements. The aim of the strategic plan is to build the capabilities and capacity of its partner organisations to be self-sufficient so they could operate without VSO support (VSO, 2007b). Looking at these characteristics of VSO allows a summary in Table 2 of the ways in which it is different from public and private sector organisations. Table 2: Comparison of Private and Public Sector Organisations Criteria Private Sector Voluntary Sector Public Sector Organising principles Pursuit of profit, stability, or growth of revenues Perform a social service inside or outside the country Enactment of public policies Organisational structures Firms of many sizes with options for new entrants Complex alliances of a few full-time and several part-time managers and staff Complex system of organisations with various, at times conflicting, tasks Performance Metrics Return on investment; now: social responsibility, environment, ethics Stakeholder satisfaction and service delivery Multiple performance indicators and targets Management issues Considerable autonomy, restrained by shareholders, governance codes, financial constraints, rewards successful managers generously Subjected by donors to strict governance standards but paid less or almost nothing for good performance Managers under high level of public and political scrutiny. Successful managers receive less rewards and benefits. Relations with end-users Consumer or industrial markets, firms vary in intimacy of links with end-users, extensive market feedback Locals or foreigners in need of social service; volunteers in operations and management General public as end-users, traditionally seen as citizens Supply chains Most firms part of one or more supply chains, with larger firms organising these chains Highly donor-dependent because service is enjoyed by those who could not afford to pay Typically dependent on private suppliers and is a very important market for many firms Employees Varied nature, fractious relations with management, low in loyalty, customer-centric approach, mainly motivated by financial gain Highly-motivated by the cause or social issue, dedicated, loyal, customer-centric, idealist, productive, and low-cost Highly unionised, concerned with status and salary, mostly idealistic and service-orientated Time Horizon Short-term for most, long-term for utilities and infrastructure services Long-term: willing to sacrifice time and effort for the social cause Short-term: policy initiated and implemented within election periods Source: Halvorsen, T., Hauknes, J., Miles, I. & Roste, R. (2004); Popper & Wilson (2003) The characteristics indicated by the distinguishing criteria puts into clearer perspective the differences in management systems amongst the VSO and the two types of organisations. The organising principles of VSO require that it render a clear service, which could be inside or outside the country where the organisation has its headquarters. The management has to be more sensitive to the needs of its beneficiaries, whether these are in Africa, Asia, Latin America, or Eastern Europe, and aware of cultural differences that may affect not only those who avail of its services but, likewise, of the local volunteers who work with and in it. VSO has to be more aware of the multiple meanings of social service, personal fulfilment, the identification of social needs and how to address them, which all differ across cultures, presenting greater challenges for managers to be effective. Figure 2 shows the area of operations of VSO (2007c). A concrete case in point is the way the VSO is addressing poverty and disease alleviation. It wants to push for artificial birth control in countries that are sensitive to these issues like in the Philippines where the poor people think that poverty is caused by government corruption and inefficiency, and where the beneficiaries practice a religion that is not in support of these preventative measures. Another management challenge, also cited by VSO (2007b, p. 23), is that several of their partner organisations are staffed by so-called activist volunteers who do not want to work in a formal and professional manner and are satisfied with doing what they think is right for the local culture. In other words, these volunteers just want VSO to disburse the funds or materials that they would distribute the way they want. This creates a dual problem for organisations like VSO which are being demanded to be more accountable by its local and global donors for ensuring that its services are properly and efficiently delivered, but at the same time they need to work closely with local partners to improve such efficiencies. Since most of these partner organisations are volunteers, VSO is left with no other choice but to either give in or to cut their ties, either of which results in project implementation setbacks. Unlike for-profit businesses where the managers are accountable to shareholders who invested funds and who are represented by a Board of Directors that are limited in number, VSO reports to a top-heavy Board of Trustees headed by HRH Princess Royal working with 45 other people: 1 Honorary President, 5 Honorary Vice Presidents, 14 International Trustees, and 25 Council members. The Board oversees the disbursement of 28 million in government funds and 12 million in private funds. Contrast this with Tesco plc, a listed firm with annual sales of 43 billion and profits of 2.2 billion in 2006, which has a 15-member Board of Directors and over 270,000 employees worldwide (Tesco, 2007, p. 47), which points towards a huge difference between VSO's budget of 20,000 per "worker" and Tesco's 156,000 per "employee". This difference does not necessarily mean Tesco's workers are more productive or qualified than VSO's workers, but that the services of VSO are not being paid market rates. It is therefore more difficult for organisations like VSO to measure its productivity and impact given its limited resources, because on the basis of financial measurements its annual reports are not able to quantify its performance as precisely as Tesco does. Whilst Tesco measures sales and profits, VSO does not put a number on the value of lives saved or the long-term economic impact of its poverty alleviation measures. This has an impact on its volunteers who may not perceive their accomplishments clearly beyond rendering hours of service or amounts of funds raised and disbursed. This difficulty demands that VSO's managers exercise higher quality leadership and different standards of motivation because, oftentimes, volunteer work is really a thankless job. Such affects VSO both ways, making it difficult to convince donors that their funds are being spent properly and also difficult to show its full- and part-time staff and volunteers that the funds are being used efficiently. With the lack of clear performance standards beyond the amounts of funds raised and disbursed, the number of volunteers deployed globally, and the quantity and quality of partners with which VSO is cooperating, management must come up with more creative ways to show results. Managers need more political skills, similar to public sector managers, to convince funders to continue giving and volunteers to continue working, not exactly an easy task even for the most expert professionals. This is perhaps the reason why several organisations like VSO are headed and led by politicians who are good at motivating despite the absence of clear results. Given the mismatch between funds needed and availability that is highly dependent on donor generosity and the needs of end-users who could not afford to pay for the services they enjoy, managers of VSO need to be more creative and professionally qualified to make both ends meet so that services are delivered where they are needed and in the most efficient manner. This requires managers to be more flexible and innovative, knowing how to work within the structure and culture of the organisation to squeeze the most impact from volunteers who are working and giving themselves on the basis of idealistic fervour. Unlike in business where the worker's accomplishments are rewarded in quantified form through bonuses, a volunteer's compensation may be, at best, a good night's sleep and a peaceful conscience. In the case of the VSO, the small turnover in volunteers (30,000 in 50 years) explains how far such forms of compensation can go, but for this to have happened, VSO was perhaps fortunate to have highly competent managers and access to a pool of volunteers whose average age is 38 (VSO, 2007a). In both cases, managers and volunteers need to know how to balance flexibility and openness to change with singleness of purpose and loyalty to the social cause that the organisation represents, not easy in a world that is becoming materialistic and cynical. Employees in VSO are highly motivated, idealistic, and low-cost; in other words, they provide value for money, but they could be easily disillusioned if management is not any good; for example, if the top managers do not practice good governance or act against the highest ethical standards. Volunteers naturally want their managers to be as dedicated and sacrificing as they are, which would mean that managers and trustees subject themselves to higher moral and ethical standards and behavioural norms compared to managers in private firms. Conclusions: A Management Challenge Managing volunteer service organisations is therefore more challenging because there are several mismatches that managers need to address. First, resources are limited, dependent on human generosity and the ability of managers to motivate the organisation's stakeholders: donors, governments, private business firms, stakeholders, suppliers, partners, local beneficiaries and foreign ones whose cultures may differ radically from that of the host country of the organisation. Second, despite the resource limitations and goals and objectives that are difficult, if not almost impossible, to measure, managers in these organisations have to deal with demanding and idealistic workers, employees, volunteers, and partners who want to see in these managers the high ethical and moral ideals that the organisation is supposed to uphold. Third, managers need to be more flexible and innovative to be effective, possessing the ability to deal with the whole spectrum of society: donors from the public and private sectors, resource rich people and the poorest of the poor beneficiaries, idealistic and intellectual volunteers, and a public that is demanding accountability in the use of public funds where this applies. The manager has to know the needs of each stakeholder and adapt his or her behaviour to get what is needed for the organisation to achieve its social goals. Thus, short of suggesting that volunteer sector organisations need genetically-engineered managers, what would be most effective and useful in this sector are persons who could best combine the qualities of a highly-skilled politician, technocrat, academic intellectual, pragmatic professional, spiritual minister, psychologist, socially-concerned activist, parent, student, volunteer, martyr, hero, and a hungry beggar. As the examples of several organisations like the VSO of UK have shown, such leaders are available and willing to render service for the higher good, knowing that the reward for such a highly challenging task is truly out of this world. Bibliography Bagehot (2006) "The fight over a big idea." The Economist, 22 July. Drucker, P.F. (1985) The changing world of the executive. New York: Times Books. Drucker, P.F. (1992) Managing for the future. New York: Truman Talley/Dutton. Duncan, W.J. (1983) Management. New York: Random House. Freeman, R. E. (1984) Strategic management: A stakeholder approach. Boston: Pitman. Friedman, M. (1962) Capitalism and freedom. Chicago: University of Chicago Press. Halvorsen, T., Hauknes, J., Miles, I. & Roste, R. (2004) On the differences between public and private sector innovation. Brussels: Publin Report D9 - EU Fifth Framework Programme Project on Innovation in the Public Sector. Kotler, P., Ferrell, O.C. & Lamb, C. eds. (1987) Strategic marketing for non-profit organizations: Cases and readings, 3rd ed. Englewood Cliffs, NJ: Prentice-Hall. Kunz, A. H. & Pfaff, D. (2002) Agency theory, performance evaluation, and the hypothetical construct of intrinsic motivation." Accounting, Organizations, and Society, 27, pp. 275-295. Neimark, M & Tinker, T. (1986) The social construction of management control of systems. Accounting, Organizations and Society, 11 (4/5), pp. 369-395. Popper, C. and Wilson, D. (2003). The use and usefulness of performance measures in the public sector. Oxford Review of Economic Policy, 19 (2), pp. 250-267. Tesco (2007) Annual review and summary financial statements 2006. Hertfordshire: Tesco plc. Voluntary Service Overseas (2007a) Homepage. Retrieved 19 November 2007, from: . Voluntary Service Overseas (2007b) Annual report and financial statements for the year ended 31 March 2007. London: VSO. Voluntary Service Overseas (2007c) Annual review 2006/2007. London: VSO. Voluntary Service Overseas (2007d) Annual programme report 2006/2007. London: VSO. Whittington, R. (2001) What is strategy - and does it matter 2nd ed. London: Thomson. Figure 1: Voluntary Service Overseas Partners 2006-2007 (Source: VSO, 2007d, p.7) Figure 2: Area of Operations of Voluntary Service Overseas (Source: VSO, 2007c, p. 19) Read More