Not-for-profit reform: Essential market disciplines

We have previously written about the tendency of governments to expose not-for-profit, human service providers to increased competition.

Since we published that article, we have been separately engaged by key disability, aged care and community health service peak bodies to run reform-adaptation seminars for their members. As we delivered these seminars at various capital city and regional forums, we were consistently asked; what are the top priorities for not-for-profits seeking to adapt to increased competition? Our advice is that not-for-profit organisations should copy the best aspects of commercial businesses in the areas of:

• Culture building
• Systems management and
• Marketing.

This is not an exhaustive list and we don’t mean to imply that other issues are unimportant. For example, in both disability and aged care, costing and pricing disciplines have been identified as key provider capability gaps. Our assessment is that these are known gaps, and much work is underway to close them. However, there is far less visibility of the “big three” listed above, and far less is being done to address them.

Culture

Not-for-profits will need to become more entrepreneurial. They will need to become nimbler, more attuned to identifying commercial opportunities and better at assessing and taking commercial risks.

Increasingly, not for profits are also seeking to strengthen other key cultural elements, including stronger customer service cultures, innovation cultures, and cultures characterised by more effective, self-directed leadership.

Diagnosing organisational culture is notoriously difficult, but the tools to do this do exist. We find that many not-for-profits do not formally audit their cultures, define their desired cultures or strategically manage to build them.

Competition will increase the demand for talent. Not-for-profits need to focus on strategic culture building to attract the best people and to help them become more entrepreneurial and competitively resilient.

Systems management

The prices offered in competitive human services markets imply that providers will become more efficient. The increased use of more sophisticated systems, particularly information and communications technologies (ICT), is key to realising those efficiencies. For example, “co-design“ and “co-production“ of services, under which consumers use technology platforms to package, order and engage with services, will need to become more common to efficiently satisfy consumers’ desire for choice and control.

Not-for-profits need more commercially-disciplined approaches to ICT lifecycle management, in particular, better project management disciplines within standard IT service management frameworks, to deliver the benefits promised by technology.

Marketing

In block funded human services, demand almost always exceeds supply. Under-funding human services has the effect of creating a “big funnel” of demand for services, the results of which are that providers do not need to compete to attract and retain customers. The National Disability Insurance Scheme (NDIS) and consumer directed aged care (CDC) mean that providers need to develop business-like marketing skills such as:

1.  Market segmentation – grouping customers by shared characteristics and targeting service offerings to those segments
2.  Customer experience design – creating emotionally engaging, efficient and effective pathways for customers through providers’ service systems
3.  Product design and packaging – presenting services as product units or packages so customers can compare them and purchase them separately, as bundles or as complete, end-to-end services as they choose
4.  Advertising, promotion and communication – promoting service benefits, uniqueness and superiority through appropriate channels, with sufficient penetration, and
5.  Branding – aligning the total organisation, including its communications material and methods, service ethos and behaviours, culture and leadership to consistently create the organisation’s desired impression.

Increasing competition will make leading and managing a really great not-for-profit organisation harder. Not-for-profits will still be expected to have a greater focus on the most disadvantaged in society than for-profits will. They will continue to face the challenge of meeting the expectations of a wider set of stakeholders than for-profits do. By focussing on ‘first things first’, proactive not-for-profits can also leverage many of their inherent advantages and grab the opportunities that will emerge from growing human service markets.

Saward Dawson has provided strategic readiness assessment, strategic planning and enterprise transformation advice to some of Australia’s foremost not-for-profits as they prepare for increased human services competition. If these services are of interest, call us on 03 9894 2500 for an obligation free discussion today!