Reforming an NFP Service Provider: It Starts with the Board

Remember the halcyon days of government outsourcing, before the introduction of individualised, contract funding for social services? This was a time when the not-for-profit service provider could maintain ‘business as usual’ in the satisfying knowledge that the next government grant was due, in advance, for defined services, to a specific client cohort.

Back then, governance and accountability were within the ability of community committees. There was little need for unitary costing, transaction cost economics, growth strategies and grand marketing plans. What’s more, there were few incentives to innovate and sophisticate business practices.

The ‘good’ times were not so long ago. The introduction of government-funded social services like the National Disability Insurance Scheme (NDIS) that tied funding directly to the individual consumer, in conjunction with governments’ demand for greater efficiencies from providers, has moved many not-for-profit service organisations away from their community-oriented focus and towards a ‘business model’.

Commercial professionalism and business acumen are now required to drive strategic growth, develop competitive advantage, understand risk analysis, maintain quality performance, drive efficiency and provide increased administrative and public accountability.

For the not-for-profit, organisational reform must start with the board.

This is not just a hypothetical argument, but a lived one as well. It draws from my experience as the Chair of The Junction Works Ltd., which was amongst the first wave of not-for-profit organisations to transition from government block funding of its disability service to the NDIS in 2016.

The NDIS is proving to be a great disrupter of established not-for-profit disability services, shaking out organisations that have been unable to adapt to the new commercial environment and encouraging the merging of others. It has reset and reshaped the board’s thinking and approach to our business model, governance risks and required director skill sets.

The Junction Works not only managed to survive the disruption; it has taken advantage of opportunities. In 2018 for instance, it took over the failing Share Care Disability Services. Within less than 12 months’ this development increased The Junction Works’ revenue by 34 per cent and brought Share Care back to surplus.

There are many lessons learned from the organisational reform that occurred across The Junction Works as we developed new business models, invested in IT infrastructure, strategically developed staff capabilities and culture, and importantly, built Board capacity, engagement and skills.

For not-for-profit service providers, boards need to:

• Be able to articulate the organisation’s mission, and be clear as to the framework and parameters within which the mission operates. This is particularly important to ensure the autonomy of organisations that derive income primarily from government contracts.
• Spend more time exploring, discussing and defining what the future of the organisation looks like – the opportunities and risks, how can we achieve this, and remain client focused – this means continually refining and adapting our strategy.
• Ensure they really understand the client’s needs and options in a market environment. This has grown the client base and created a number of new services.
• Create a comprehensive board skill matrix that looks beyond the horizon while getting people with the right mix of skills and experience who are aligned to their culture. Board renewal entails recruiting to missing skills sets. Utilising specialist recruitment organisations is money well spent.
• Develop and live board performance measures, including impact indicators “Drivers of Change”, activity indicators progress toward goals, capacity indicators “Things are getting done”. They should also ensure operational indicators are aligned, feeding into and deepening the board’s knowledge of progress.

None of the above is possible without an open, committed and engaged board strongly supported by a proactive and aligned CEO and management team.

For not-for-profits with a social service purpose, the pressure is on to balance the commercial practices required of contemporary businesses while maintaining the features of purpose and passions that distinguish the not-for-profits from both the (bureaucratic) public sector and the (profit chasing) private sector.

Greg Smith was a speaker at the Better Boards Conference 2019, held in Brisbane on 1-4 August.