A Theory for Breaking Through Nonprofit Sector Constraints

It seems that, without even knowing it, we’re all working together to limit nonprofit innovation.

In the nonprofit sector, risk (an important element in innovation) is stifled due to nonprofits’ need for multiple stakeholder acceptance in order to survive. This makes large-scale change difficult, if not impossible, and the only way that we will solve this is if we put our minds together to think about it.

Let’s take the hot topic of increasing salaries for nonprofit leaders (though we could pick any topic that challenges perceived sector constraints). A nonprofit might seriously consider higher salaries in order to attract high-quality leaders, establish itself professionally, or ensure that competition for the position allows the organization to choose– or continue to motivate– the best candidate for the job.  This could be a great idea. It could work wonders. But questioning sector constraints at all is often much like trying to give a big hug to a hand grenade. Here’s why:

  1. The board and staff will need to approve this risk. In the case of increasing employee salaries, they will consider that every extra dollar given to a staff member is a dollar that could be spent on programming. These immediate stakeholders must believe in the potential of the idea.
  2. Then the nonprofit will have to face the multiple foundations that may no longer award the nonprofit otherwise-much-deserved grants because their administrative costs exceed (or come close to) a percentage set by the foundation in advance.
  3. You have to face the people who don’t understand why you made this change (regardless of its nobility), and the media may tear you apart. Even worse, other nonprofit leaders at The Chronicle of Philanthropy may even give you bad press for trying to take a risk to aid in sector evolution.
  4. Your amount of in-kind donations over the year may suffer because of the bad press– which defeats your whole attempt at innovation because you can no longer afford to pay a higher-than-before salary to your employees… so you are back where you started– but with fewer funds, a lot of bad press, alienated foundation connections, and unhappy employees.

In the private sector, innovation breeds new business practices and monetary success. The system is quite simple: a firm must gather capital to take a risk, take that risk, and if the company makes a profit, they are onto something. Other companies catch onto the company’s new tactic and next thing we know, every company has to be doing that innovative thing in order to continue to stay in the game. The same is true for nonprofit organizations except, in the nonprofit sector, raising capital may mean raising social capital.


Please click on the image to enlarge

So what can be done to alter sector constraints in order to allow nonprofit professionals to be innovative in organizational management?

First, double loop learning must take place. Double loop learning occurs when leaders question their own basic assumptions about the world. Single loop learning, by comparison, is the tried-and-tested routine that we fall into when we do everyday things like write grants and conduct meetings– but we also use single loop learning when we devise wages (continuing with the case of nonprofit salaries as our example). We have an idea of what works and we stick to it. Double loop learning, on the other hand, makes us ask ourselves, “Why do we do X? Maybe I should be doing Y.” When we ask this question, possibilities are born.

Second, the nonprofit must be transparent about their new idea and share it among networks. The nonprofit could ask for input via social media networks, get dialogues going with staff members; make everyone (stakeholders especially) aware of the possible benefit of taking this risk. This includes spreading word about the importance of innovation among stakeholders, the public, and other nonprofit groups. Technology is a great mechanism for information-share, and getting brain juices flowing. Who knows? A few other nonprofits may consider the idea and try it out alongside you.

Through this, social capital is created. Spreading the message creates connections. Asking people for their input (even if it’s negative) creates connections. Connections build social capital. Social capital increases overall support of the new practice because friends and community partners can share your idea with their own networks, and become part of idea formation and collaboration.

Then intellectual capital is built as stakeholders become educated on the issue. The more people hear about the issue, the more educated they will become on the need for innovation, or rather, the more accepting they will be when you actually follow through in challenging sector constraints. Lets go back to the example of a nonprofit taking on higher administration costs to motivate employees. If we learn that there’s a nonprofit leadership deficit on the way, then we may be more likely to outwardly encourage and support (or at least understand) nonprofits that are raising employee salaries.

And finally, the innovation is accepted. This does not mean that people will agree with your new (hopefully) innovative practice– but, because of your transparency, they will fully understand why you have challenged sector constraints, and also that you have the best interests of the community you serve at heart. And whether they agree with the idea or not, folks may be more inclined to respect the idea. Foundations may still award grants to the organization, and donors may stick around for at least another year. Who knows? Maybe your active desire to contribute to the sector and your fresh views of management will earn you a few more donors.

This theory is just that: a theory. I do not know how to encourage nonprofits to take responsible risks and challenge constraints that hold them back in serving their mission. I do know that, if the sector means to evolve, nonprofit leaders must begin to think about blazing new trails— and we should think about ways to allow them to do so.

Posted on by Colleen Dilenschneider in Sector Evolution, Trends 8 Comments

About the author

Colleen Dilenschneider

MPA. Chief Market Engagement Officer at IMPACTS Research & Development. Nonprofit marketer, Generation Y museum, zoo & aquarium writer/speaker, web engagement geek, data nerd, marathoner, nomad, herbivore

8 Responses to A Theory for Breaking Through Nonprofit Sector Constraints

  1. Joe Brown

    Colleen, I think your post and theory are fantastic. A cogent and honest approach that I feel holds potential for helping us rethink and reshape the sector. The topic you chose as your example, compensation, is near and dear to me in my work as a human resources and organization management consultant. Even more specifically, the BGCA executive compensation “scandal” that you cite the media and others’ response to is something I’ve also written about (http://www.sloperesources.com/2010/03/executive-compensation-at-the-boys-girls-clubs-of-america-a-closer-look/).

    As I read, I couldn’t help thinking about how your theory might incorporate relationships between and collaboration amongst organizations, as opposed to what I read as a focus on individual organizations. You do mention, in addressing transparency, the idea of spreading the word among other organizations and the possibility that they might follow the lead, but I am also thinking about the value of incorporating the experience of others and embarking with others in double loop learning, as well as moving through the other stages of the theory in substantive partnership with other organizations.

    I’m interested in your thoughts about the role that relationships and collaboration might play and how they might be incorporated in the theory, and in keeping an eye on your theory as it is discussed and developed. Thanks for the compelling post.

  2. colleendilen

    Hi Joe,

    I think you are absolutely right; collaboration is a key word that many elements of this idea are pointing toward (transparency, social capital), but the word is missing. Collaboration certainly would play a tremendous role in this kind of process!

    Certainly, it would be much easier for an innovative idea to reach the final step of stakeholder acceptance if multiple nonprofits were practicing or advocating the idea. In fact, it may be unlikely that a single organization could spread large enough awareness of its idea solely on its own.

    Perhaps most importantly, I think that nonprofit leaders must collaborate to help folks who are outside of the sector to understand that we must be allowing of innovation in the sector. If we know that we, as a society, have a habit of shooting down new ideas in the nonprofit sector before they even get off the ground, then double loop learning can happen in stakeholders as they say to themselves, “I understand that the nonprofit sector needs room to be innovative. Why am I shooting down this idea?” It could allow innovation to come in through the other side of the equation.

    Thank you so much for including the link to your article! It is eloquently written and provides an extremely helpful analysis of the BGCA situation. Moreover, I’m excited to have found an excellent resource in Slope Resources and am delighted to be keeping tabs on new posts!

    Thanks for your great comment!

  3. Corina M. Paraschiv

    I think your posts are fascinating — I come from a business background and I have been working with non-for-profits for six years now (by working I mean volunteering) and one thing I’m really impressed by is how a lot of issues I came across either through volunteering or running my own social entrepreneurship start-up ended up being… the very same things you mentioned!!

    One interesting point is the third point you raise at the very start: I think the whole risk factor also ties in a lot with credibility. How does a non-for-profit (or social entrepreneur venture) go incurring high expenses – either for salaries for museum staff like you mentioned, or for equipment you may need or things like that. It’s very hard to fight indeed with the public opinion and I think especially when something “bad” might happen the press is always quicker to criticize it (the way the New York Times did with the article in the newspaper about Brook’s attempt to use social media to increase attendance — http://www.nytimes.com/2010/06/15/arts/design/15museum.html?_r=1) and yet when something good does happen… no one really covers it!

    I think the risk is partly greater because of that – when you do something right no one really notices and when you screw up (as a non-for-profit/social entrepreneur) everyone lashes at you!!

    Talk about “encouraging innovations”!!

    • colleendilen

      Thanks for your thoughtful comment, Corina. I think it’s a valuable contribution to the post itself.

      I think you’re right, and you said it very well; risk plays a very big role in this system and the idea of having a greater loss than possible reward for nonprofits that go out on a limb is particularly discouraging and certainly does do the opposite of “encouraging innovations”! I wonder what the solution is here… celebrating calculated risks is certainly an option though it will take a lot of stakeholder buy-in to change the way people think about nonprofits and risk.

      Educating stakeholders about the need for nonprofits to have some business leeway would help allow nonprofits to make big decisions that create greater organizational efficiency and social reward (not just reward for the nonprofit itself)!

      Thanks again for your comment!

      • Corina M. Paraschiv

        I have a few ideas but I don’t know if they’re feasible for museums.

        In our case we found the concept of “growing organically” worked best. This basically means that we only invest money when we get it. The only issue then is how do you get your very very first investment to be able to start it all — so I guess you need a very generous donor who will accept to give it to you “no strings attached”. After that, the ancillary revenues (museum’s coffee shops, etc.) and the donations could help – but I suppose being an industry heavily funded by governments and private donors you can’t just do that “organic growth” thing…. so yes I guess educating stakeholders is the next best option!

        (do you have a business background btw? it’s amazing how you can conceptualize everyday experiences/trends you see at such an abstract level)

        I think as a side-note that you can bank on “image” as an added tool. Like instead of “how do I convince stakeholders to take risk?” you could reframe the question to “how do I create a positive (attractive) image and mitigate risk for investors?”. If the risk is about public image then it’s a PR issue. But not PR in the traditional sense. I was kind of stuck in a similar loop (my start-up is developing software to help patients in hospitals fight mental health and so you can see how asking for money to develop that in Canada where hospitals are free and government is a bit the same situation as asking for money for arts which are often government funded). And so I investigated a bit and found that it’s actually manageable.

        I don’t know if it *can* be translated to the museum world again but just in case : http://tbridge.ca/start-ups-honesty-the-best-policy/ My conclusion after reading lots of blogs by social entrepreneurs who were seen badly by the public for seeking funds…

        I know it’s not *exactly* the same thing but I think there’s parallels that could be drawn…

  4. Corina M. Paraschiv

    sorry Brooklyn museum not Brooks.
    –> I need more coffee :p

  5. Ashley Hughes,MPA

    Hi! Your post are great. I am currently working on my dissertation and I want to use this innovation theory model above ( A Theory for Acceptance of Innovation Practice in NP Sector) Would you be able to tell me who this theory originated from?

    • colleendilen

      Hi Ashley. I originated this theory and created the model.


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