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April 17, 2009

The Nonprofit MBA

The nonprofit sector is always hit particularly hard during recessions. That, Ray Horton says, gives MBAs and today’s nonprofits more to offer each other than ever.


Nonprofits are hit especially hard whenever the economy turns south. Grants and donations tend to contract just at the moment the social-services core of the nonprofit sector faces increased demands from clients. How can nonprofits protect the people they are supposed to serve in a time of declining resources?

One answer may be, hire an MBA. Before you do, though, don’t assume that the role of an MBA stepping into a nonprofit is going to be to clean house. The misconception that businesses are always better-managed than nonprofits because they have the profit motive is a tired one that needs reconsideration. Many of those so-called well-managed businesses are now bankrupt (some, as we’ve seen, in more ways than one). An inventory of organizations in the United States, from the most well managed to the most poorly managed, would find many nonprofits that are better managed than most businesses and many businesses that are more poorly managed than most nonprofits.

It shouldn’t come as a surprise that nonprofits and private-sector organizations are fundamentally more alike than they are different, yet we still find this hard to understand. It’s pretty simple:

  • Businesses and nonprofits have to compete to raise money from external sources. Nonprofits have to attract grant income, but increasingly they raise money by adding earned-income components, selling select goods and services that are related to their missions, or by some combination of both.
  • However businesses and nonprofits acquire their resources, they have to spend resources — there are all sorts of allocation decisions that are fundamentally the same.
  • Businesses and nonprofits have to organize their production processes similarly to figure out the most rational way to produce a product or provide a service.
  • Businesses and nonprofits have to contend with governance issues, they have boards of directors, they may face going out of business and they may face similar challenges when they’ve grown beyond the vision of their founders.
  • Increasingly, businesses and nonprofits finance themselves the same ways: selling bonds, entering capital markets and competing for capital funds.

Of course, there also are differences; I’m simply arguing that we shouldn’t be trapped into thinking about nonprofits as so fundamentally different that they are somehow beyond the purview of MBAs.

What is the role of an MBA in a nonprofit? It’s very much the same as the role of an MBA in a leadership role at any firm: to lead, to manage and to use available resources to deliver results. With proper attention to the nuances of the nonprofit world, most of what MBAs learn in business school can quite readily be applied in a nonprofit or public-service career. MBAs can bring hard skills in financial management and analysis at a time when nonprofits and their funders are increasingly using assessment tools — both quantitative and qualitative — to measure their success. MBAs may also smooth the path between nonprofits and their corporate supporters, bridging gaps in communication and culture.

Don’t forget, too, that there are other nexuses between MBAs and the public and nonprofit sectors, and other ways for MBAs to contribute to the broadening social sector that remain important to address. We’ve invested in the Nonprofit Board Leadership Program here at the School because we recognize that board leadership is a path that MBAs can take to put their expertise to use in service to a nonprofit. Board leadership can give a big bang without requiring a wholesale career switch. We’ve also put resources toward our strategic-philanthropy program because we know that not many students are going to run nonprofit or public agencies, at least not out of the gate.

It’s a fault of the social sciences in the United States that they promote the idea that there is a private sector and a nonprivate sector. Thinking that politics and economics are two distinct things is befuddling rather than clarifying, and one reason I teach my Modern Political Economy course is to help students see that if they want to understand and adapt to and change the world they are moving into, they must be able to think clearly. We can’t afford to think of the world around us as if economics operates separately from politics — and that becomes really clear during times like these.

Happily, many of those silos are dropping away, especially with the rise of behavioral economics. The emergence of social enterprise as an umbrella under which a range of private, nonprofit and public enterprises prosper has helped MBAs — hundreds of Columbia MBAs included — see through artificial divisions that once precluded nonprofits from revenue-generating endeavors, and public companies from adding social value to their financial bottom line. Market and nonmarket and nonprofit situations are reconcilable.

The resource constraints that nonprofits face mean that nonprofit managers must often be, by sheer force of will and power of ingenuity, more efficient with their dollars than their counterparts in the private sector. These limitations require nonprofit managers to take leaps of creativity and solve difficult problems under some pretty daunting circumstances — and especially while the recession persists, could surely use some help doing so. That’s the kind of entrepreneurial challenge that MBAs should relish the opportunity to take on.

Raymond Horton is the Frank R. Lautenberg Professor of Ethics and Corporate Governance in the Management Division, a Bernstein Faculty Leader with the Sanford C. Bernstein & Co. Center for Leadership and Ethics and director of the Social Enterprise Program at Columbia Business School.

In 2009, Horton will step down as director of the Social Enterprise Program. He will continue to teach and will also head programs in Social Enterprise at Columbia Executive Education and the New York Connections initiative, which will capitalize on the School’s MBA students and alumni to provide business leadership in New York City’s public sector.

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