Causes of Organizational Stagnation and Decline:

·    Leaders retire or reduce activity levels

·    Organization grows beyond the management capabilities of current leaders

·    Loss of leaders due to illness, death, or job change

·    Leadership’s unwillingness or inability to delegate due to lack of confidence in subordinates

To avoid stagnation or decline: Find and develop capable leaders and staff who can grow the organization

·    An organization’s ability to produce results comes only from investing in leadership and staff—its sole productive asset.

·     The better our employees are, and the more of them we have, the more output the organization can generate.

Warning signs that Organizational Growth has Stalled.

How does your organization’s performance measure up to the following?

1.       Charitable giving grew 3.14% annually 1996 to 2002

2.      Annual inflation rate since 1994 was 2.5%—organizational revenue had to equal this, or it was shrinking

3.      Paychecks grew 3.9% annually 1991 to 2001—your organization’s payroll growth had to exceed this rate, or you were growing smaller and less capable

4.      Visits to the Cato Institute Websites grew 260% from 2000 to 2004

5.      The Heritage Foundation’s revenue grew by ≈5% annually from 1994 to 2003

What Constitutes a “Good” Employee? Variations in Employee Output:

·     Good employees are 50% more productive than average employees.

·     Top employees are at least 2¼ times more productive than average.

·     The standard deviation is ≈ 50%.

Hunter, Schmidt, & Judiesch, 1990, Journal of Applied Psychology

Compensation:

Salary for an individual generally increases over time as they learn and gain experience. How far and how fast is a function of general mental ability and conscientiousness.

    Two Determinants of Output:

    1.   General Mental Ability (intelligence)

Determines both career level attained (including earnings), and job performance (due primarily to the ability to learn faster)

      2.  Conscientiousness (includes integrity): The only personality trait related to career success

Natural Selection of the unfit

·    If compensation is limited at the top end, potential employees who are both excellent and experienced are too expensive for the organization to hire

·    The excellent employees you do have will leave to earn a better living once they gain experience

·    Below-average employees stay because they have nowhere better to go L

The Missionary Discount

Some employees accept less pay to work for a nonprofit, but:

·     Lower paying organizations will lose good employees to better paying ones

·     Many charitable and educational groups pay higher salaries than think tanks

·     As the employee’s financial needs and the salary discrepancy (with for-profit pay levels) increase, the employee’s willingness to work for less may vanish (followed soon after by the employee)

Investing in Current Employees

1. Direct Financial Options:

·     Bonus opportunities: use a “balanced scorecard” system with payouts monthly, quarterly, & annually [see: Kaplan, Robert S.: Strategic performance measurements and management in nonprofit organizations; Nonprofit Management and Leadership, 11(3):353-370, Spring 2001; and The Balanced Scorecard and Nonprofit Organizations; Balanced Scorecard Report, December 2002, pp 1-4.]

·     Tuition reimbursement: pay for MBA or business classes

·     Increase salary potential: don’t lose excellent employees who “top out” the salary scale; tie compensation to employee output

2. Leadership Development:

·  Structured mentoring

1)      Management skills are learned through practice and experience

2)     Set measurable goals, provide resources, and then get lost. Mentoring develops skills; micro-management does not

·  External education options

1)      Leadership and skills training programs

2)     University classes

3)     Business training programs

See Google Directory at: Business > Management > Education and Training

Investing in New Employees

Organizational Evolution:

·  Low-output employees should be let go

·  Replace them with higher quality, higher paid employees

·  Payroll expenses will increase; output and revenue will increase even more

Organizational Revolution:

·  Hire excellent managers

·  Pay them well

·  Develop their leadership and business skills through training

·  The organization will grow in size, revenue, and efficiency, resulting in increased influence on public policy

Show Me the Money—How to finance investments in leadership and staff

·  Future returns come from investments made today

·  This investment can be financed by:

1)   Borrowing: donors may be willing to lend money to the organization for hiring—especially to hire a fundraiser

2)  Increasing revenue: donors and foundations may provide a “leadership development” grant that will cover the increased cost of hiring a well-qualified leader

3)  Spending less on current programs: cutting some of your least essential programs will free up cash for investment in leadership. These programs can be restored as revenue growth and improved efficiency come about. This option requires that the organization do a cost/benefit analysis for each program (something you should do in any case). Programs whose benefit is less significant (due to lack of success, limited future potential, or misalignment with mission) than the survival of the organization are candidates for reduction or elimination.

Other concerns

Founder flounder: Organization founders sometimes find it difficult to let go.

Option: the Board creates new positions and specifies exact job responsibilities:

·     Founder becomes President with a fundraising, PR, or research role, but no direct reports

·     An Executive Director is hired to run organization

Alternate titles: CEO, V.P. Operations, or General Manager

·    Compensating the founder in a new role:

1)      Quantify the value of the founder’s contribution (aka: marginal contribution) by estimating what would be lost if the founder left; include the present value of future contributions

2)     Place a dollar figure on this contribution, or estimate the cost to replace the founder

3)      Compensation should be no more than the marginal contribution; here is the formula: compensation <= marginal contribution