Kevin P. Kearns is associate professor and director of the Master of Public Administration program at the Graduate
School of Public and International Affairs (GSPIA), University of Pittsburgh. He is also the author of Managing
for Accountability: Preserving the Public Trust in Public and Nonprofit Organizations (Jossey-Bass, 1996).
Sample Chapter
Today, perhaps more than ever before, public and nonprofit organizations are using strategic management methods
to help them survive in a volatile and competitive environment. Nonprofit organizations of all types have launched
entrepreneurial commercial ventures and are aggressively using fees for service to augment charitable donations
and government grants (Skloot, 1988; Weisbrod, 1998). Municipal governments have used sophisticated marketing campaigns
to attract tourists and businesses, and they too have turned to entrepreneurial enterprises to supplement stagnant
or shrinking tax revenues (Osborne and Gaebler, 1992). Government agencies at all levels, federal, state, and local,
have divested parts of their service portfolios to the private sector, focusing their finite resources on their
core mission rather than trying to be all things to all people. Nonprofit hospitals and other health care organizations
are using strategies of horizontal and vertical integration in order to gain greater control and stability in their
turbulent industry.
If you work in a government or nonprofit organization, you may be using a vocabulary today that was once heard
only in the executive suites of private corporations. Perhaps you are looking for market niches that capitalize
on your organization's comparative advantages. Maybe you are worried about competitive threats in the marketplace
and how to provide your customers with value-added products and services. You may be using management techniques
like portfolio analysis or break-even analysis and tracking financial indicators like profit margins and liquidity
ratios. Perhaps your organization is designing a sophisticated marketing and promotional campaign or contemplating
creative ways to measure and report its return on investment to key constituencies.
Until recently these business concepts were not part of the management lexicon in public and nonprofit organizations.
Today they are standard practice in some municipalities, some federal and state government agencies, and many nonprofit
organizations.
Yet government and nonprofit organizations are not businesses and cannot be managed as such. Unlike your counterparts
in the business world, you cannot think of clients and taxpayers merely as customers or consumers of goods and
services. Unfettered commercialism in public and nonprofit organizations can disenfranchise marginal members of
our communities who rely on government and charitable organizations to meet their needs (Hasenfeld, 1996). Not
all of your clients are customers who are exercising free choice in the purchase and consumption of public services.
Some of them simply have no choice or are incapable of exercising or unwilling to exercise whatever choices they
do have. They depend on you to keep their best interests at the forefront of all that you do. In addition, the
competitive paradigm that is one of the drivers of the business world is not totally applicable in the public sector.
Instead, you look for opportunities to collaborate with other organizations (even with your competitors) in finding
lasting solutions to public problems. A purely competitive mind-set in public sector organizations can waste precious
public resources and blind these institutions to their true missions. Finally, you cannot worry only about financial
indicators and ratios because these measures represent only part of your organization's total performance. Critical
decisions regarding people in need cannot be made on the basis of your organization's balance sheet or cash flow
statements (Rosenman, 1998).
What the public sector needs therefore is an approach to strategic management that borrows concepts from the
business sector when those concepts are relevant and helpful but that is tempered by an understanding of the distinctive
missions, contexts, and constituencies of public and nonprofit organizations.
Purpose and Audience
Private Sector Strategies for Social Sector Success is a practical guide for busy decision makers in the public
and nonprofit sectors who need to chart a course for their organizations. It is targeted primarily to professionals
in government and nonprofit organizations of all types. The objective is to help you improve the ways you accomplish
the following tasks:
Understand the environment in which your organization exists. Strategic management demands that you identify
and interpret the important trends that affect your organization and your portfolio of programs and services. Businesses
use environmental scanning (also known as industry analysis) to help them identify and interpret important trends.
With the caveats and the modifications to concepts and terminology that I discuss, government and nonprofit organizations
too can use some of the principles of industry analysis.
Understand your organization's distinctive competencies and your comparative advantages. Any organization will
fail when it strays too far from its core competencies into programs or markets in which it has little experience.
Most of the techniques presented in this book require a candid assessment of your organization's strengths and
comparative advantages. Your organization's portfolio of programs and services should embody its strengths. To
cling to weak programs and services, especially when other organizations can better serve the same needs, is a
waste of scarce community resources.
Identify and select organizational strategies that advance the mission and goals of your organization and are
consistent with your strategic environment. At the broadest level of organizational strategy, all organizations
have essentially three choices-growth, retrenchment, and stability-and each choice also has several subcategories
(Wheelen and Hunger, 1992). Business firms use this paradigm to plot their overall vision and direction (see also
Andrews, 1980; Chaffee, 1985). With some caveats, this paradigm has value for public and nonprofit organizations
as well, and therefore I discuss these three strategies extensively.
Explore opportunities for collaboration with other organizations. Public and nonprofit organizations have been
urged to explore collaborative relationships to reduce redundancy and enhance effectiveness. Collaboration can
be a method for pursuing many types of business strategies under the general categories of growth, retrenchment,
or stability while making the best use of finite public resources.
Encourage a culture of strategic thinking and strategic action throughout the organization. There are many executives
who are brilliant strategists but totally incompetent planners. Some of the most celebrated executives and even
prominent management scholars actually seem to have contempt for strategic planning. This book is designed to stimulate
strategic thinking rather than to promote a particular approach to strategic planning.
Here are some of the important issues this book can help you address in your organization:
Why is growth such a seductive strategy?
How can you evaluate growth strategies objectively?
When does retrenchment make sense as an organizational strategy?
If you decide to cut back, how can you do so without endangering the core mission and purpose of the organization?
How do you turn around a troubled organization?
Under what conditions should you seriously consider liquidation?
Should your organization try to compete against other public and nonprofit organizations? If so, what are your
comparative advantages?
When does it make sense to collaborate with other organizations rather than compete against them?
What factors should you consider when you try to implement your strategy?
What role does politics play in the formulation and implementation of organizational strategy?
Not only executives, policymakers, and top-level managers in government agencies and nonprofit organizations
will benefit from the ideas and applications discussed here. This book is also appropriate for students in schools
of public management and social work. It will be useful as a primary or supplemental text in courses on strategic
management or strategic planning at the graduate level and in some instances the advanced undergraduate level.
And it will be particularly useful in academic programs designed to meet the specific needs of midcareer students
who have some professional experience.
Some Assumptions
The approach I take in this book assumes that the environment of public and nonprofit management is often collaborative
but also sometimes intensely competitive. It is a good bet that your organization is competing directly or indirectly
with similar organizations for finite resources. Municipal and state governments compete for tax -- paying residents
and businesses. Universities compete for students. Hospitals compete for patients and for doctors. Opera companies
compete for singers and patrons. Social service agencies compete for government contracts and grants. To the extent
that your organization "wins" a certain amount of resources in this game, another organization probably
"loses." Perhaps this is not the type of cutthroat, winner -- take -- all competition that we see so
often in the business world. But the supply of resources cannot accommodate all needs, and therefore some organizations
are more successful than others in garnering resources, attracting clients, serving community needs, and gaining
legitimacy in the political environment.
Consequently, this book assumes that some of the concepts and methods of strategic management developed for
use in the private sector can be adapted for use in the public sector. This is a controversial assumption because
over the past few years there has been backlash, primarily among scholars, against the business -- oriented philosophy
espoused by David Osborne and Ted Gaebler in their best -- selling book, Reinventing Government (1992).
Critics of the reinvention movement remind us, quite appropriately, that government agencies and nonprofit organizations
are not businesses and should not be operated as such. Moreover, we see examples every day that prove private businesses
are hardly paragons of effective management. We do not need to look very far in the business world for shocking
examples of mismanagement, strategic blunders, and ethical lapses that rival even the most famous management gaffs
in the public and nonprofit sectors.
Still, even though they are not a panacea, some of the concepts and tools developed for use in the private sector
have transferable value for government and nonprofit organizations.
Approach
I borrow from the business management literature in the presentation of techniques like market environmental
scanning, portfolio analysis, and strategy design, and the reader will notice frequent references to the work of
business scholars like Michael Porter, Henry Mintzberg, David Hambrick, James Thompson, Thomas Wheelen, David Hunger,
and many others.
Only in the last fifteen years have we seen attempts, primarily in scholarly journals, to apply the concept
of competitive strategy to public and nonprofit organizations (MacMillan, 1983; Young, 1988; Osborne and Gaebler,
1992; Kearns, 1992a; Stone and Crittenden, 1994; Roller, 1996). This book tries to synthesize and expand these
various approaches, illustrating their application to the strategic choices facing public and nonprofit organizations.
It should be said at the outset that some readers may find the business terminology I use occasionally to be
controversial or even inappropriate in its application to public and nonprofit organizations. Can we really conceptualize
social programs and services as portfolios? Do strategies like divestment and liquidation make any sense in government,
where agencies rarely go out of business? This book is evidence that I believe these concepts do have value in
public service organizations. But I also recognize that these concepts must be qualified, carefully illustrated,
and often modified to be meaningful and helpful for public sector managers.
Overview of the Contents
Chapter One of Private Sector Strategies for Social Sector Success lays a foundation for the remaining
chapters by describing some of the forces affecting the ways government and nonprofit executives do their jobs.
In what respects is your organization behaving more like a business? What lessons can you learn from business about
effective management in public and nonprofit organizations? Conversely, what are the limits on what you can learn
from business? What types of skills will be needed by public and nonprofit executives as we enter the twenty --
first century?
Chapter Two provides a brief overview of three approaches to strategy formulation. Sometimes strategy is derived
rationally, through analytical techniques designed to assess the fit between an organization and its strategic
environment. At other times strategy seems simply to evolve, through political bargaining and power plays, through
informal experimentation, or through the gestaltlike insights of a visionary leader. Moreover, strategies do not
always require dramatic shifts in direction intended to optimize performance. Sometimes strategies are nothing
more than efforts to survive, even temporarily, to fight another day. They can even be incremental efforts to meet
suboptimal objectives. I believe that strategy development can be usefully informed by the techniques presented
here, but strict adherence to these strategic management methodologies should not supplant your own insights, imagination,
and creativity.
Chapter Three presents concepts and techniques for conducting an environmental scan. The environmental scan
provides crucial information on important environmental trends affecting your organization and others like it.
What business are you in? In what markets do you compete? What are the distinctive features of these markets? Are
these markets growing, shrinking, or remaining stable? Do you have competitors? A systematic review of these and
other questions can help you identify opportunities and challenges in your strategic environment.
Chapter Four presents the concept of product and service portfolios and explores how portfolio management can
help your programs and services work together to achieve the organization's goals. Portfolio analysis used in conjunction
with environmental scanning is a powerful tool for deciding whether you want to grow, retrench, or simply stabilize
your organization.
Chapter Five presents the various types of growth strategies and explains the pros and cons of each. Growth
strategies are always appealing because they signify vitality and success. But they have pitfalls as well that
need to be avoided.
Chapter Six looks at retrenchment as an organizational strategy. Retrenchment is never easy because most of
us have been conditioned to think of retrenchment as a sign of failure or even impending demise. But when used
wisely, retrenchment strategies can help your organization live to fight another day.
Chapter Seven explores strategies designed to stabilize your organization in a turbulent environment when neither
growth nor retrenchment is appropriate. Much of Chapter Seven focuses on how to turn around a troubled organization.
Chapter Eight discusses collaborative strategies, which are appropriate when you want to partner with another
organization to achieve common objectives. Collaboration is a valued ideal, especially for public and nonprofit
organizations, but it is not easy to develop and sustain meaningful collaborative programs with other organizations.
There are important issues to consider as you select and implement opportunities for collaboration.
Chapter Nine addresses important issues of strategy implementation. As you think about implementation, you will
likely need to consider whether your organizational structure will facilitate or hinder your strategic objectives.
You will also need to consider the impact of your strategy on staffing, information, and control systems. Lastly,
you must consider how you will evaluate and, if necessary, modify your strategy.
Finally, the Conclusion examines the politics of strategy development and implementation. Political considerations
are presented throughout the book; however, this section highlights some specific concerns and political management
strategies.
Throughout I offer illustrations and examples from public and nonprofit organizations that are applying the
concepts discussed. Also, I conclude each chapter with a series of questions that you might ponder on your own
or discuss with your colleagues as one way of getting started on applying some of the ideas in your organization.
March 2000
Kevin P. Kearns
Pittsburgh, Pennsylvania
Review
"Kevin Kearns provides a well-structured overview of fundamental strategic options that leaders need to
consider in shaping the destiny of their organizations and of individual programs and services. He offers busy
nonprofit executives a practical, readable, and useful framework for strategic thinking."
--Margaret Tyndall, chief executive officer, YWCA of Greater Pittsburgh
"Kearns has demystified strategic planning in the private sector and made its best attributes useful to
public and nonprofit organizations. Private Sector Strategies for Social Sector Success will help public and nonprofit
officials better serve citizens and clients in the increasingly competitive marketplace."
--William Dodge, executive director, National Association of Regional Councils, and author of Regional Excellence
"This is a first-rate book, a truly useful guide. Kearns presents a comprehensive, highly readable, and
practical approach to thinking and acting strategically about critical issues facing public and nonprofit organizations."
--Thomas J. Pavlak, associate director, Carl Vinson Institute of Government, University of Georgia
Submitted by Publishers, July, 2001
Summary
Today, perhaps more than ever before, public and nonprofit organizations are using strategic management methods
to ensure their survival in a volatile and competitive environment. In addition to being committed to mission and
values, they are paying greater attention to customers, portfolio analysis, profit margins, and return on investment.
Until recently, business concepts were not part of the public and nonprofit vocabulary. Now, they have become standard
practices for many public agencies and nonprofit organizations.
This practical guide offers a realistic approach to strategic management, while borrowing from the most helpful
and relevant business ideas, allows the public or nonprofit organization to achieve success without compromising
its unique mission or constituency. Executives, managers, and policymakers will find key principles for everyday
application, including how to:
Identify trends that will most affect programs and services
Assess the organization's core strengths and competencies
Select strategies that advance the mission while building operational success
Explore opportunities for collaborations with other organizations
Encourage a culture of strategic thought and action
Throughout this innovative guide, there are numerous illustrations and examples of how to apply the most appropriate
technique to a particular need or goal. At last, public and nonprofit organizations have a real-world guide to
finding lasting success.
Table of Contents
Part One: Preparing for Strategic Planning
1. Embracing New Challenges and Opportunities: Strategic Management in Government and Nonprofit Organizations
2. Understanding Three Models of Strategy Formulation
3. Using Environmental Scanning to Track Trends and Prospects
