Distinguishing Organizations from Multinationals to Nonprofits

Some organizations Opens in new window are large, multinational corporations, such as General Electric Opens in new window, Google, and American Express; others are small, family-owned businesses; and still others are nonprofit organizations or governmental agencies.

  • Some manufacture products such as jet engines, flat-panel televisions, or smartphones,
  • whereas others provide services such as legal representation, Internet and telecommunications services, mental health resources, or car repair.

An important distinction in the literature is between for-profit businesses and nonprofit organizations. The discussion in this text apply to nonprofit organizations such as United Way, Opens in new window the Nature Conservancy, Opens in new window Habitat for Humanity, Opens in new window and St. Jude Children’s Research Hospital, Opens in new window just as they do to businesses such as General Electric, Opens in new window Uber, Opens in new window Netflix, Opens in new window and Taco Bell Opens in new window. However, there are some important distinctions to keep in mind.

The primary difference is that managers in businesses direct their activities toward earning money for the company and its owners, whereas managers in nonprofits direct much of their effort toward generating some kind of social impact.

The unique characteristics and needs of nonprofit organizations present unique challenges for organizational leaders. Financial resources for government and charity nonprofits typically come from government appropriations, grants, and donations, rather than from the sale of products or services to customers.

  • In businesses, managers focus on improving the organization’s products and services to increase sales revenues.
  • In nonprofits, however, services are typically provided to nonpaying clients, and a major problem for many organizations is securing a steady stream of funds to continue operating.

Nonprofit managers, committed to serving clients with limited funds, must focus on keeping organizational costs as low as possible and demonstrating a highly efficient use of resources. Moreover, for-profit firms often compete with nonprofits for limited donations through their own philanthropic fundraising efforts.

New forms of social welfare organizations, called hybrid or dual-purpose organizations, are designed to earn a profit and be self-sufficient rather than raise funds.

Moreover, many nonprofit organizations, such as hospitals and private universities, do have “bottom line” in the sense of having to generate enough revenues to cover expenses, buy new equipment, upgrade technology, and so forth, so managers often struggle with the question of what constitutes organizational effectiveness.

It is easy to measure dollars and cents, but the metrics of success in dual-purpose and nonprofits are much more ambiguous. Managers have to measure intangible goals such as “improve public health,” “make a difference in the lives of the disenfranchised,” or “enhance appreciation of the arts.”

Managers in nonprofit organizations also deal with many diverse stakeholders and must market their services to attract not only clients (customers) but also volunteers and donors.

This can sometimes create conflict and power struggles among organizations, as illustrated by the Make-A-Wish Foundation, Opens in new window which has found itself at odds with smaller, local wish-granting groups as it expands to cities across the United States.

The more kids a group can count as helping, the easier it is to raise funds. Local groups don’t want Make-A-Wish invading their turf, particularly at a time when charitable donations in general have declined. “We should not have to compete for children and money,” says the director of the Indiana Children’s Wish Fund. “They [Make-A-Wish] use all their muscle and money to get what they want.”

Thus, organization design concepts Opens in new window such as dealing with issues of power and conflict, setting goals and measuring effectiveness, coping with environmental uncertainty, implementing effective control mechanisms, and satisfying multiple stakeholders, apply to nonprofit organizations such as the Indiana Children’s Wish Fund Opens in new window just as they do to businesses such as General Electric. Opens in new window

Importance of Organizations

It may seem hard to believe today, but organizations re relatively recent in the history of humankind.

Even in the late nineteenth century there were few organizations of any size or importance—no labor unions, no trade associations, and few large businesses, nonprofit organizations, or governmental agencies.

What a change has occurred since then! The development of large organizations transformed all of society, and, indeed, the modern corporation may be the most significant innovation of the past 150 years.

Organizations are all around us and shape our lives in many wasy. But what contributions do organizations make? Why are they important?

Figure X-2 indicates seven reasons organizations are important to you and to society.

components showing the importance of organization Figure X-2. Credit — Slideplayer Opens in new window

First, recall that an organization Opens in new window is a means to an end. Organizations bring together resources to accomplish specific goals. A good example is Northrup Grumman, which builds nuclear-powered, Nimitz-class aircraft carriers.

Putting together an aircraft carrier is an incredibly complex job involving 47,000 tons of precision-welded steel, more than 1 million distinct parts, 900 miles of wire and cable, and more than seven years of hard work by 17,800 employees.

How could such a job be accomplished without an organization to acquire and coordinate these varied resources?

Organizations also produce goods and services that customers want at competitive prices. Companies look for innovative ways to produce and distribute desirable goods and services more efficiently.

Many manufacturing companies, for example, have redesigned their production processes, applying artificial intelligence Opens in new window, 3-D printing, advanced robotics Opens in new window, and other emerging technologies, to provide products more efficiently and at a lower cost.

Redesigning organizational structures Opens in new window and management practices can also contribute to increased efficiency. Organizations create a drive for innovation rather than a reliance on standard products and outmoded approaches to management and organization design.

Organizations adapt to and influence a rapidly changing environment. Motorcycle maker Harley-Davidson Opens in new window, in business for well over a century, has been struggling for several years to adapt to a shifting environment.

Motorcycle sales overall are declining, and Harley’s customer base is made up largely of aging baby-boomers. Although Harley has improved efficiency at many of its plants and come out with new models to attract younger riders, the company is still under pressure.

In early 2019, Harley announced that its profit for the fourth quarter of 2018 was effectively zero. One company that illustrates how organizations adapt to a changing environment is the fast fashion company Zara.

Zara as Practical Example
Zara opened its first clothing retail store in 1975. During the 1980s, Zara initiated “instant fashions” via a new design, manufacturing, and distribution process that dramatically reduced lead times for new trends. The new process made greater use of information technology and designers worked in teams rather than as individuals.

Zara grew rapidly. The company started expanding throughout Europe in the 1980s and toe the United States in 1989. In 2014, Zara adopted a chip technology that allows the company to quickly take inventory via radio signals. The stockroom is notified when an item is sold so the item can be immediately replaced. Zara has nearly perfected a fast-response operation. Just four weeks are needed to design a new product and get finished goods into stores, compared with up to six months for other clothing retailers. It launches about 12,000 new designs each year. Shortening the product cycle means greater success responding to changing customer tastes.

Zara also responds quickly to concerns from customers and others in the environment. Zara received criticism for selling a small child’s T-shirt that a customer said closely resembled uniforms worn by concentration camp inmates. Zara immediately removed the shirt and apologized. Greenpeace started a dialogue with Zara about toxic chemicals from clothing production. Zara committed to eradicating hazardous chemicals from its supply chain, becoming the largest retailer to raise awareness for the Greenpeace Detox Campaign and switching to toxic-free production.

Zara and many other organizations have entire departments charged with monitoring the external environment and finding ways to adapt to or influence that environment.

Through all of these activities, organizations create value for their owners, customers, and employees. Managers analyze which parts of the operation create value and which parts do not; a company can be profitable only when the value it creates is greater than the cost of resources.

Finally, organizations must cope with and accommodate today’s challenges of work-force diversity and growing concerns over sustainability and ethics, as well as find effective ways to motivate employees to work together to accomplish organizational goals.

Remember This!
  • Organizations are open systems that obtain inputs from the external environment, add value through a transformation process, and discharge products and services back to the environment.
  • Many types of organizations exist. One important distinction is between for-profit businesses, in which managers direct their activities toward earning money for the company, and nonprofit organizations, in which managers direct their efforts toward generating some kind of social impact. A newer kind of organization, the hybrid, does both at the same time.
  • Organizations are highly important, and managers are responsible for shaping organizations to perform well and meet the needs of society.
    Research data for this work have been adapted from the manual:
  1. Organization Theory & Design By Richard L. Daft