Mission and Strategy Revisited
When I mentioned to an arts funder that I was reading a book called Integrating Mission and Strategy for Nonprofit Organizations she sighed and said we needed to stop using words like strategy. I asked why and she said, "Funders got arts organizations to start using these business words years ago, but nothing has changed. They are not in better shape." The author of the book, James A. Phills, Jr., might suggest the problem was not so much the concept of strategy, but rather a general misunderstanding and misuse of the word itself.
I first encountered Phills and the concepts in his book when I attended the Executive Program for Nonprofit Leaders-Arts (EPNL-Arts) at Stanford University, a joint-program of National Arts Strategies and Stanford's Graduate School of Business. The program was exceptional, and the units Phills taught have proven particularly useful in my roles as a managing director of an arts organization and an arts funder.
Phills' book is a lifeline for those caught in the riptide of art and business. He is a compatriot of nonprofits (running one himself — the Center for Social Innovation at Stanford) with the ability to unpack, demystify, and adapt complex business concepts so they can be employed by nonprofit managers (and their funders). His book provides a path to understanding and, more importantly, execution. After reading the book I interviewed Phills and Russell Willis Taylor, president of National Arts Strategies, about ideas in the book and questions they raised for me.
Phills starts with mission, which he defines as an organization's “psychological and emotional logic,” and which he says needs to motivate staff, volunteers, and donors to contribute time, energy, and money to the organization. To those squawking, “Nonprofits don't need help understanding mission from a business school professor,” I say, “Read this chapter.” I mentioned to Phills that I found his chapter on mission more inspiring than 90 percent of the mission statements I had ever read. He responded, “That's because there is a great deal of confusion between mission and strategy,” and many arts organizations publish statements of scope (what we do for whom) rather than statements of mission (why we do what we do). Scope is a function of strategy, not mission.
Phills defines strategy as an organization's “economic logic,” and explains that the primary function of strategy is to help an organization secure sufficient financial resources to fulfill its mission. He says that organizations must have a powerful mission and a sound strategy, and cautions that they must never conflate the two. (Phills would wag a finger at those who encourage nonprofits to add phrases like “fiscal responsibility” and “balanced budget” to their mission statements). That said, having sufficient resources to operate is critical, and Phills takes it a step further saying, “ultimately an organization that lacks prosperity has considerably less control over its destiny.” He makes the case that a desperation for resources makes an organization more likely to pursue funding opportunities that are inconsistent with its mission, the inevitable result of which pursuits is mission creep — “the blurring of the organization's mission over time as it seeks to take on activities outside the scope of its core competencies.”
Phills' book further demonstrates that when organizations launch new programs that are not within their core competencies (often in response to the lure of project support from funders) they will build infrastructure (add staff, space, and assets that increase their overhead), which they may ultimately be unable to sustain. I asked Taylor and Phills to elaborate on factors that contribute to unsustainable growth in nonprofit organizations. Taylor said, “Nonprofits have suffered from having only one definition of growth, that is, commercial (becoming financially larger). As a result many have found themselves in a position where they have ratcheted up fixed costs, and they now don't have the nimbleness to adapt and survive.” Phills said, “In the business world there are mechanisms to correct for businesses that get too big but don't create value (actually destroy value). With nonprofits we are less clear on how to judge the impact of the decision to grow or expand.” He added that without a clear measure of performance, funders and donors will often rush in to save an organization when it doesn't have the income to meet expenses, removing the necessity to contract or correct the problem. “Thus,” he said, “growth tends to be driven by a bias towards being bigger, or by the egos of board members, funders, managers, and artists — rather than strategy.”
I asked Phills what he thought about the opposition of my funder friend to the word strategy. He said there were many reasons for “not getting much traction from strategy, the first being great variability in the way that even those who are supposed to know what it is (academics) write about it.” The second problem is that “business people on nonprofit boards who throw the word strategy around are often not using it as precisely as they should.” Many confuse strategy with goals, policies, or slogans (e.g., “Our strategy is to be the best symphony orchestra in the region”). The third problem is that nonprofits are not executing the strategies they articulate. To this point, the book hammers on the fact that mission and strategy are meaningful only insofar as they are executed through the choices an organization makes. The final reason is that, in many cases, when making decisions the capital market for nonprofits (the funders) are responding not to the effectiveness of an organization's strategy, but rather to “relationships or idiosyncratic preferences.” The result: even when a nonprofit has an effective strategy it has less impact than it should.
What does Phills hope funders will learn from his book? First, he says, “they need to understand the distinction between mission and strategy.” Second, he hopes understanding this distinction will lead funders to engage in a dialogue with organizations in which they push back on missions that don't articulate a clear social value, and on strategies that are not really strategies. Finally, he says that he wants funders to understand industry structure (e.g., the Seattle theater industry or U.S. opera industry) so they can avoid undermining a healthy organization or industry, something his book demonstrates funders can inadvertently do.
I asked Taylor what she thought about Phills' last comment and she remarked, “I agree. Funders say things like ‘we want to see your long-term strategy for developing younger audiences through arts in education.' That statement assumes a strategy around arts in education that may not be appropriate for that particular organization or even its industry. Because most foundations do not need to operate with a competitive strategy to survive, they do not always have an intuitive understanding of strategy in the organizations they fund.”
Taylor said she agreed that a common understanding of strategy was needed, as well as a commitment by funders and grantees to communicate about the particular strategy an organization is striving to execute. She said this would require “a lot more candor on both sides.” She added, “Both sides need to be clear about their expectations: grantees need to be able to answer ‘Why are you here?' and ‘What is your business strategy?' And funders need to be clear about why they are giving the money.”
Chapter 3, which introduces a framework for analyzing an organization's competitive environment, is particularly useful given the exponential growth in the number of nonprofit arts organizations in the U.S. and the increased competition for audiences and resources. To those who bristle at the word competition because they perceive nonprofits as collaborative, not competitive, Phills is quick to point out that “competition is not an attitude or stance; it is a function of scarcity of resources,” and that “to the extent that a nonprofit does not have all of the resources that it needs or wants to pursue its mission, it is then in competition with other organizations.” This chapter provides a modified version of Michael Porter's Five Forces framework (competitors, buyers, suppliers, substitutes, and barriers to entry), and a guide for applying the framework to the nonprofit sector.
In subsequent chapters Phills covers execution of mission and strategy; corporate strategies, alliances, and collective action; leadership; and strategic change, including a meta-framework that identifies three types of knowledge necessary for leading the process of intelligent strategic adaptation. His final chapter outlines some real-world pitfalls and provides sound advice on how to avoid them. Phills ends his book with a poignant metaphor for the nonprofit world that reminded me of a comment made by an arts leader at a leadership retreat I attended. This leader said, “I feel like I'm the Captain of the Titanic, and there's an iceberg ahead, but rather than being on top steering the ship I'm in the bowels shoveling coal in the furnace. I'm afraid if I stop shoveling coal we'll run out of steam, but I know that if I don't start steering the ship we're going to hit an iceberg.”
I mentioned this metaphor to Phills and asked him what advice he had for nonprofit leaders. He said, “To begin, there is an important role for industry associations in creating better industry structure.” Next, he said he was sympathetic and that “one of the biggest challenges for the entire sector is burnout,” and that leaders need to “rejuvenate and build support networks.” (He added that this was one of the goals of the joint Stanford-NAS executive program, EPNL-Arts.) To that end, he said, “there is a need for more distributed leadership and capability.” He explained there are two challenges to this for arts organizations. One is the myth of the charismatic leader, which results in “funders and others glorifying and creating an over-reliance on one individual.” The second is that “in an environment of overstretching, building capacity in someone else is really difficult.” Referencing Collins and Porras in Built to Last, Phills said, “to build an organization that lasts you need to transcend individuals to create organizations that are great. If you are an executive director that means you need to develop a senior management team that can help you shovel coal for a little while, and steer the ship for a little while, so you can free yourself to look at the stars and figure out how to power the ship without coal.”
Finally, I asked Phills what he would say to a world-class symphony orchestra whose audiences were declining and whose deficit was growing. He said, “If you are an orthodox orchestra, the reason that you are losing audience members (from your viewpoint) could be that the world is not good enough for you. But art really exists only in relation to audiences and their experience, particularly the performing arts. So if a symphony is seeing declining audiences, then the questions are: Would you sooner close your doors than change what you do? What is it that's important to you and why? You cannot, however, answer these questions without considering your need for audiences and/or enough people willing to subsidize you. And the fact is the number of people willing to subsidize something that is narrowly enjoyed may diminish over time. At which point you will need to be prepared to go out of business.” He says, however, that there is another option: “Some orchestras are now redefining what they do in relation to people, which gives them the freedom to do things that bring back audiences without violating mission.”
Along a parallel but more disturbing line, towards the end of my conversation with her, Taylor said she had been “wondering lately whether the fact that we can't easily explain why we matter to people may be one of the biggest issues facing the arts.” In thinking about Taylor's comment later I realized that figuring out ‘why we matter to people' is not a question of strategy. That is a question of mission, the half of the mission-strategy equation that most of us in the nonprofit sector probably thought we had a handle on.
I highly recommend revisiting both the M-word and the S-word in Integrating Mission and Strategy for Nonprofit Organizations and am pleased to note that, at the end of our lunch, my funder friend said she intended to buy and read Phills' book.
Diane E. Ragsdale is senior program associate, Performing Arts Program, the Andrew W. Mellon Foundation.
Integrating Mission and Strategy for Nonprofit Organizations
James A. Phills, Jr., 2005, 256 pages. Oxford University Press, Oxford University Press, Inc., 198 Madison Avenue, New York, NY 10016 www.oup.com