TABLE OF CONTENTS

1.0 Introduction.....................................................................1

1.1 Overview...................................................................................1

1.2 Problem Statement...................................................................3

1.3 Definition of Terms...................................................................5

2.0 Literature Review on Strategic Management for

Organizations...................................................................8

2.1 The Importance of Strategic Management...............................8

2.2 Competitiveness of Non-Profit Organizations.........................12

2.3 Strategic Management for Competitive Advantages in NPOs.16

3.0 Discussion and Recommendations...................................20

4.0 Conclusion......................................................................23

References...........................................................................24

1.0 Introduction

1.1 Overview

Non-profit organizations exist solely to provide programs

and services that are of self-benefit. These programs,

services and policies supports and complement

government’s effort to provide for the public in a specific

country. Non-profit organizations are able to earn a profit

which is more accurately called a surplus, referring to

earnings that must be retained by the organization for its

self-preservation, expansion and future plans. These

earnings do not benefit individuals or stake holders

(Grobman, 2008). Although non-profit organizations (NPO)

may employ unpaid volunteers and even executives may

work for no compensation, there are substantial funds

managed by NPO to hire and reward their internal corporate

leadership, middle management personnel and workers.

The existence of NPOs in developed countries as well

as in developing and undeveloped countries has been

shown to benefit the overall development of the nations.

Thus, since the late 1980s, there has been a growing

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consensus that NPOs also should ensure that they are able

to achieve their corporate targets more effectively by using

the same methods employed by for-profit organizations.

These include effective internal management, ensuring

accountability for results, and monitoring the performance

of different divisions or projects in order to better benefit

from their capital and workers (Drucker, 1989).

The basis for such measures is strategic management.

Strategic management is the conduct of drafting,

implementing and evaluating cross-functional decisions that

will enable an organization to achieve its long-term

objectives (David, 1989). This is the process of specifying

the organization’s mission, vision and objectives,

developing policies and plans, often in terms of projects and

programs, which are designed to achieve these objectives

and then allocating resources to implement the policies,

and plans, projects and programs.

Strategic management provides overall direction to the

enterprise. According to Arieu (2007), "there is strategic

consistency when the actions of an organization are

consistent with the expectations of management, and these

in turn are with the market and the context."

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1.2 Problem Statement

Strategic planning is crucial to ensure effective and efficient

operations of the NPOs but most importantly for its

sustainability and continued viability (Jerratt, 2009).

However, a lot of NPOs are incorporated to address current

issues and when those issues are resolved, they lose their

corporate objectives which may result in its natural deaths.

Others are formed but do not have head or tails of the

direction that it should follows, how to run the organization

and gradually become non-existent.

Furthermore, there are more and more entrepreneurial

and concerned people who incorporate NPOs and use this

avenue as a lifelong career. Thus, NPOs are also facing

growth whereby there exist numerous NPOs created for the

same or similar cause. For example, in Malaysia there are

plenty of NPOs posing as charitable bodies such as MAKNA,

Malaysian Menopause Society, Malaysian Cancer Society,

and many more. There are also many organizations fighting

for the cause of a greener environment. These organizations

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exist due to government grants, charity and other revenue

source, which is limited in terms of amount and variety.

Thus, competition is also faced by NPOs; their existence is

continually being challenged by community acceptance and

their capability to sustain their activities financially.

Nevertheless, it has never been a compulsory need for

NPOs to create their business plan or strategic management

development programs. However, the dynamics of today’s

global environment imply that a strategic management

program might be important and even critical for the

continuous existence of NPOs.

This paper highlights the issue of whether strategic

management is necessary for NPOs. This issue is discussed

based on personal opinion and reviewed literatures.

In my opinion, I very much agree that strategic

management is a core activity of any organization

regardless of type – for-profit organizations, NPOs or non-

government organizations, government organizations. I

believe that with the present competitive global

environment which is felt locally as well as in the

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international level request a critical need for strategic

management in NPOs.

1.3 Definition of Terms

In presenting this paper, there are two main terms which

are widely use in this paper: strategic management and

non-profit organizations (NPOs). Thus, these terms are

explicitly explained as follows:

1.3.1Strategic Management

According to Lamb (1984), “Strategic management is

an ongoing process that evaluates and controls the

business and the industries in which the company is

involved; assesses its competitors and sets goals and

strategies to meet all existing and potential

competitors; and then reassesses each strategy

annually or quarterly [i.e. regularly] to determine how

it has been implemented and whether it has

succeeded or needs replacement by a new strategy to

meet changed circumstances, new technology, new

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competitors, a new economic environment., or a new

social, financial, or political environment.”

Dan (2010) defined strategic management as

“the groundwork for a company’s vision and allows a

company to be ready to capitalize on opportunities.

Strategic management is a process of evaluating a

company’s mission, establishing the company’s

design, developing the company’s organization and

relationships, and guiding the company’s plan to

execution to ensure that the management is

consistent with the company’s strategy.”

1.3.2Non-Profit Organizations

According to Salamon et al. (1996), non-profit

organizations are defined based on five conditions: (1)

formal organizations, (2) private (separated from

government), (3) not for profit distributing (4) self-

governing and (5) voluntary.

They further explained that the conditions of (1),

(2), and (4) indicate that NPOs should be independent

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formal organizations. This set of conditions effectively

implies that the essence of NPOs is that they are

restricted by non-profit distribution condition and they

are at least partially supported by volunteer activities

and donations.

Non-profit organization is also defined as “An

incorporated organization which exists for educational

or charitable reasons, and from which its shareholders

or trustees do not benefit financially. Any money

earned must be retained by the organization, and

used for its own expenses, operations, and programs.

Many non-profit organizations also seek tax exempt

status and may also be exempted from local tax

including sales taxes and property taxes”

(www.investorwords.com).

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2.0 Literature Review on Strategic Management for

Organizations

2.1 The Importance of Strategic Management

Strategic management starts with strategic planning. In the

strategic planning process, there are five general steps:

goal/objective setting, situation analysis, alternative

consideration, implementation and evaluation (Crittenden

and Crittenden, 2000).

The traditional process for developing strategy consists

of analyzing the internal and external environments of the

company to arrive at organizational strengths, weaknesses,

opportunities, and threats (SWOT). The results from this

“situation analysis,” as this process is sometimes called, are

the basis for developing missions, goals, and strategies. In

general, an organization should select strategies that take

advantage of organizational strengths and environmental

opportunities or neutralize or overcome organizational

weaknesses and environmental threats. After strategies are

formulated, plans for implementing them are established

and carried out (Thompson and Strickland, 1996). Figure 1

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below shows the strategic management process in the

organization.

Figure 1: The Strategic Management Process (Thompson and Strickland, 1996)

Non-profit organizations are limited in terms of

resources, thus necessitating the need for situational

analysis. As shown in Figure 1 above, strategic

management is responsible not only to set the direction of

the organization through its vision, mission and values

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statements but also to ensure strategic controls of

resources, building relationships, design structures, and

develop control system measure and evaluate performance.

Non-performing organizations are not viable in a

competitive environment.

Thus, through strategic management, an organization

ensures the direction of the organization and there is a clear

guidance on how to reach the goals of the organization.

Stokely (2005) argues that the world is a fast changing

place. In recent decades, organizations including NPOs have

also undergone changes. According to Stokes, change

makes success formulas obsolete. It is important for the

organization to be proactive in doing what is necessary to

anticipate and respond to change. Thus, strategic

management ensures that these changes are addressed

from time to time. Otherwise, the alternative is

obsolescence of the organization.

According to Porter (1996), the core purpose of

strategy is to create a unique and valuable position that

leads to sustainable competitive advantage. The challenges

are to realign the organization’s activities based on the

market position and to carefully position the organization to

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achieve the corporate vision. A successful positioning

strategy or “value proposition” must differentiate the

organization’s services from those of the competition.

Porter (1996) also added that marketing is the process

of getting and retaining customers. For non-profit

organizations, customers come in the form of those who

benefits from the services provided by the NPOs. Thus, even

though the NPOs are not profit-oriented, they are still

obliged to meet their corporate vision, missions and goals

and ensure customer satisfaction. In addition, NPOs are also

facing competition from similar service providers. These

organizations are fighting for grants, government aids and

funds from various sources. In order to qualify and obtain

these funds, the organization must be competitive and

shows its ability to meet the corporate objectives.

Kenneth Andrews (1971) stated that there are four

integral elements of strategy: (i) market opportunity; (ii)

corporate competence and resources; (iii) personal values

and aspirations; and (iv) acknowledge obligations to

segments of society other than stockholders (p. 19). Thus,

this implies that a strategy must define what could be done

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(opportunities), what can be done (resources), what one

considers worth doing (goals) and what should be done

(responsibilities).

2.2 Competitiveness of Non-Profit Organizations

Non-profit organizations in today’s environment are not free

from competition, risks and uncertainties. Moore (1996)

stated that the adoption of strategic management is now

widespread in all types of organizations as the executives

try to control their environment and reduce uncertainty.

Strategy becomes the art of bringing values and resources

together to influence and shape the future.

One of the critical resources of NPOs is funds. NPOs are

dependent on grants and funds provided by several bodies

as well as through revenue from its services provision.

However, most NPOs have limited funds and thus budgeting

becomes important. Blumentritt (2006) stated that strategic

management and budgeting are different but they have

inter-related activities. When properly applied, both

processes improve the organization’s ability to create and

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sustain superior performance. With superior performance, it

would be easier for the NPO concerned to apply for

extension of grants or request for new and larger amount of

funds.

For any organizations, strategic performance indicates

two aspects of the organization – its operational goals which

include introducing new services, getting more customers,

or improving efficiencies. Another aspect is financial

performance which considers money-based outcomes such

as revenue growth, margins and return on investments

(Blumentritt, 2006).

In NPOs, it is also critical to have excellent financial

performance because surplus (profit) from its services

provision can ensure continuing providing the services to

stakeholders as well as to provide efficient service delivery

through good management system, adoption of new

technology, training and development for executives and

staffs and so on.

Blumentritt (2006) explained that strategic

management is designed to set a firm’s courses of action,

identifying the strategies it will use to compete in the

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marketplace and how it will organize its internal activities.

Budgeting, on the other hand, is used to efficiently allocate

the firm’s available financial resources and to monitor the

performance of managers and staffs.

Besides fund, NPOs also face some challenges in

manpower issues. NPOs might not be able to engage

workers with the best human capital assets due to

competiveness in the job market. These human assets

contain skills, competence, commitment, motivation and

loyalty of employees. Some of the key components include:

know-how, technical expertise and problem solving

capability, creativity, education, attitude and

entrepreneurial spirit (Marr, 2005).

People might opt for a career with more viable options

and potentials for growth and development in the long-

term. Thus, not only do NPOs faced with recruitment but

might also be challenged with problem of staff turnover and

commitment. According to Allen and Meyer (1990),

organizational commitment is defined as “…the employee’s

feelings of obligation to stay with the organization: feelings

resulting from the internalization of normative pressures

exerted on an individual prior to entry or following entry.”

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To elaborate further, Allen and Meyer describes three

types of commitment:

(1) Affective commitment: an employee identifies with,

is involved in, and has emotional attachment to the

organization;

(2) Normative commitment: based on a sense of

obligation – an employee feels that they ought to

stay, as things may change, for example; and

(3) Continuous commitment: an employee recognizes

the cost associated with leaving the organization,

and therefore, they feel that they have no choice but

to stay

Strategic management helps to define what and how

the organization can find and retain quality staffs by

ensuring these three types of commitment are achieved

through some relational efforts concocted by strategic

planning.

La Piana (1999) brought a crucial issue in current and

tomorrow’s non-profit organizations. He stated that the non-

profit sector is highly inter-dependent. This is because;

NPOs normally have coalition and work together with NPOs,

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for-profit organizations and government organizations in

conducting their programs. La Piana stated that no no-profit

organization can long survive and succeed in advancing its

mission while living independent of other non-profits and

various other types of organizations. For instance, St. John’s

Ambulance, a non-profit organization works closely with the

health and medical institutions, educational institutions as

well as other similar NPOs such as the Red Cross, JPA3 and

so on to carry out first aid courses for the public.

These organizations gain information, political power,

and personal and professional support from and in concert

with other non-profits as well as other types of

organizations. Thus, close working relationships,

partnerships and even joint ventures between non-profit

organizations are fairly natural occurrence.

Therefore, strategic management must be enforced to

determine what and how these relationships can help to

strengthen the identity, image and reputation of the non-

profit organization.

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2.3 Strategic Management for Competitive Advantages in

NPOs

There are many non-profit organizations which used the

strategic management process in their organizations such

as the Girl Scouts and Boy Scouts, the Red Cross, the

Salvation Army, chambers of commerce, educational

institutions, medical institutions, public Utilities, libraries,

government agencies, and religious organizations.

Killen, Walker and Hunt (2005) explained that “strategy

concepts” are sets of enabling strategies and strategic

initiatives that are coherent and mutually supportive.

Organizations are faced with multitude of solutions, ideas

and suggestions which should be considered. These could

include improvements in the use of existing resources to

innovative new technologies. Strategies are developed by

considering each outcome opportunity and identify the

possible solutions that address the key opportunities.

Strategies are important to NPOs because in most

cases, these organizations function as a monopoly, produce

services that offer little or no measurability of performance,

and are totally dependent on outside financing. These

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organizations should use strategic management as it

provides an excellent vehicle for developing and justifying

requests for needed financial support (Nicolae, 2008).

Although strategic management has been accorded as

critical in determining organizational performance and

continued existence, Moore (1995) cautioned that strategy

should be seen, rather, as laying out the general path but

not as the exact steps by which an organization intends to

create value. Moore explained that strategic management is

a question of interpreting, and continuously reinterpreting,

the possibilities presented by shifting circumstances for

advancing an organization's objectives. This implies that

strategist should think simultaneously about desired

objectives, the best approach for achieving them, and the

resources implied by the chosen approach. It requires a

frame of mind that admits of no boundary between means

and ends.

Elcock (1996) stated that the process of developing

organizational strategy must be iterative. Means are as

likely to determine ends as ends are to determine means

(Lindblom, 1959). Thus, Elcock (1996) explained that

strategic process means toggling back and forth between

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questions about objectives, implementation planning and

resources. An earlier idea about corporate objectives may

have to be revised and changed if there is no feasible

implementation plan that will meet with a sufficient level of

acceptance among the full range of stakeholders, or

because the necessary resources are not available, or both.

Strategic management provides a sense of direction

which is important to steer the organization but Elcock

cautions that this can also stifle creativity, especially if the

strategies enforcement is rigid. Leaders in NPOs must be

aware that this is an uncertain and ambiguous world where

fluidity is more important than rigidity when it comes to

strategy. Elcock mentions a phenomena called ‘marketing

myopia’ resulting from a rigid adherence to planned

strategy. When strategy becomes internalized into a

corporate culture, it can lead to group think can causes the

organization to define itself too narrowly. For example, an

organization initially formed to cater to the needs of

education among rural women might rigidly adhere to such

cause and unable to deviate its course when in actual fact,

addressing the low education level among women might not

solve the big issue of poverty. The organization might have

to address other issues such as providing economic

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empowerment to these women or working collaboratively

with other organizations in order to address multiple issues.

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3.0 Discussion and Recommendations

The presentation of factual information above implies the

importance of strategic management for all organizations

including non-profit organizations. However, it also cautions that

too much of a strategy can lessen the creativity and innovation of

a particular organization. Strategic management is a continuous

process of determining and evaluating the direction of the

organization.

However, in the world of technology, just strategic

management is not applicable. A better approach lies in strategic

quality management which according to Juran and Gryna (1993) is

about the process of establishing long-range quality goals and

defining the approach to meeting these goals. This implies the

merger of corporate strategy and total quality management

wherein incremental quality plans are replaced by bold initiatives

such as cycle-time reduction and business process reengineering.

Thus, it is suggested that strategic quality management

should be implemented by non-profit organizations to ensure that

their corporate mission, vision and goals are based on high quality

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performance. Low and Sze (2005) explained that there are seven

key principles of SQM which are:

(a) Total commitment: it is important that leaders of NPOs

emphasize the need for commitment from all staff

members. Resources in the organization have to be

allocated to cater for commitment development among

staffs (Riggs, 1994). Total commitment should also be

reflected in the organization’s mission statement, goals and

objectives.

(b) Customer-driven service: Riggs (1994) explained that the

essence of “customer driven service” is satisfying clients by

“doing the right thing the first time”. Thus, it is important

that all employees see the customer as the focus of their

activity, regardless on the type of activity. It is also

important that employees solicit feedback from customers

on the organization’s services (Hill and Jones, 1998).

(c) Eliminate rework: NPOs should optimize use of resources

and thus, ensure to simplify, standardize, and get the work

done right the first time (Riggs, 1994).

(d) Teamwork: As with other organizations, teams and not

individuals are the organizational units that are accountable

for performance. Everyone in the organization should share

responsibilities and benefit from “team learning” (Riggs,

1994).

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(e) Training: Even in NPOs, training is imperative as strategic

quality management will fail because however well designed

the service on which it is offered, the organization will not

be able to provide a quality service or product if its

employees are not fully trained to do the job (Stebbing and

Pengelly, 1994). Training can create the framework to help

guide the organization towards quality improvement (Riggs,

1994).

(f) Empowering and respecting people: NPOs have critical

issues with human resources. There is a need to ensure that

requires decisions to be delegated to the lowest level.

Delegating also makes sense when it results in decisions

being made by those who must implement them.

(g) Ongoing process: Strategic quality management is a

continuous process and that it is part of the organization in

the long term (Riggs, 1994).

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4.0 Conclusion

It is concluded that strategic management is important and

critical to any types of organizations. For NPOs, strategic

management is important in both aspects – to determine

operational goals as well as financial goals. Although NPOs are not

profit-oriented, it is equally important that NPOs generate income

to sustain its activity, thus requiring efficient and effective

operational and financial processes in the organization.

This paper has presented a strong argument to support the

notion that strategic management is important to non-profit

organizations. As the world is facing issues from political,

economical and social activities, either locally or globally, non-

profit organizations’ roles as watchdog, collaborator, supporter

and networker have become more pertinent in current and future

situations.

Therefore, NPOs cannot exist merely for the sake of existing.

It has a big responsibility to carry and thus, necessitates the

intervention of strategic management so that these NPOs are able

to perform outstandingly and provide quality services to its

clients.

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25

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