Strategy Dynamics Briefing 31: Resource attributes in non-commercial cases

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Resource attributes pose challenges for managers of non-commercial organizations, just as they do for business executives — clients, beneficiaries and other demand-side resources bring with them the service demands they place on the organization, staff bring skills and experience, and so on.
What issue causes concern for many not-for-profit organizations?

A particular issue for many not-for-profit organizations concerns the raising of funds, often from the giving of individual donors.In the figure below, a charitable organization wishes to increase the income it receives from the regular giving of individuals. The total giving (at bottom right) is an attribute of the donors who support the organization. As for customer sales in commercial cases, there are three separate levers to improve this outcome — win more donors, keep more of those that we have, and get those donors to give more. Winning new donors is achieved by focusing the efforts of fundraisers on calling prospective donors. At the same time, however, existing donors must be called, both to ensure they continue supporting the organization and to increase the amount they give each quarter. This poses a difficult question about how best to allocate the efforts of those fundraisers (at top left).The amount each donor gives each quarter is likely to be less than the maximum amount they could give, if sufficiently motivated by the good outcomes of the organization’s work. Each donor thus brings a potential for giving (see briefing 30), and a part of fundraisers’ efforts in calling existing donors is to win more of this potential. The organization therefore has a second issue on which to choose (middle left) —whether to seek new donors who may not be able to give much money but who are numerous and easily won, or seek richer individuals who can potentially give more money but who are few in number and harder to win.In practice, some charitable groups, such as aid agencies, have a deliberate strategy of targeting even the smallest donations from very large numbers of donors. Others choose an almost exclusive strategy, targeting only very small numbers of the richest people – some charities supporting the arts choose this option, for example. We should add, of course, that there is much more activity around fundraising than this simple question of making calls, including advertizing, mail campaigns and public relations efforts.

Diagram: donation income

The scenario in this figure plays out the organization’s fundraising strategy over five years, or 20 quarters. There are initially 80 000 donors, each giving $20/quarter, but with the potential to give $50. Total giving amounts to $1.6m/quarter, but could be $4m if those donors could be persuaded to give the maximum amount possible.

  • For the first year, fundraisers’ time is split equally between calling potential new donors and calling existing donors, both to make sure of their continued support and to capture more of their potential giving. The winning of new donors and the capture of more giving from existing donors slightly exceeds the loss of giving from donors who leave, so total giving slowly increases.
  • For the first year, fundraisers’ time is split equally between calling potential new donors and calling existing donors, both to make sure of their continued support and to capture more of their potential giving. The winning of new donors and the capture of more giving from existing donors slightly exceeds the loss of giving from donors who leave, so total giving slowly increases.
  • In the third year, the organization moves its focus onto wealthier potential donors, targeting those who could potentially give $200/quarter. The success rate of these calls is much lower than when lower-value donors were being pursued, so fewer new donors are won each month. However, each person won brings with them more immediate giving, plus greater potential for more giving in future. Nevertheless, this rate of new giving is not sufficient to counter the loss of neglected donors. This situation continues through year four, with total donors declining, little change in actual giving, but strong growth in the potential giving that could be won from the new, more wealthy donors.

Note that this strategy could not be sustained indefinitely, since a point would arise at which most of each donor’s potential giving had been captured. Effort would then need to switch back onto acquiring new donors. A further general point to note from this example is that the organization’s choice regarding which category of new donors to pursue is closely analogous to the question commercial organizations face regarding “where to compete.” It may also be worthwhile to examine the “quality curve” of donors, stacking up the giving of each individual to see whether it is highly skewed towards a few large donors or more uniform. As in commercial cases, it is advisable to be conscious of this profile and to make deliberate choices about where on the curve to focus fundraising efforts.

Until next time…

 

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Public service cases

Public services and government agencies also have reason be concerned about resource attributes and take the trouble to measure, model and manage them. In health-care and other services, for example, there is a ‘quality curve’ behind the demand on those services (see briefing 29). A small number of very sick people have very high demands for health-care, whilst others make virtually none. Indeed, a different kind of curve can be drawn showing how that demand varies through life, with an initial peak for new-borns, another small peak for women when children arrive, then very little demand until old age, when the demand rate escalates very sharply. Strategic Management Dynamics book coverHealth policy clearly focuses on holding down or deferring this escalation in later life, but powerful forces are working in the opposite direction. Every year that an aging person can stay fit and active not only sustains their quality of life, but also keeps down the total cost of health provision.The quality-curve also features in policing, where it is known that a small number of the most active criminals (equivalent to the ‘hottest water’ in the bath-tub, or to customers with the strongest demand for a product) drive the most crimes. Taking those few offenders out of the system has a disproportionate impact on the total crime-rate. In principle, this should make it possible to release police officers to focus on the next-worse group, and the next-worse and so on – although it is disappointing that such progress is generally eliminated by the emergence of new criminals.Both cases, though, illustrate the benefits of ‘segmenting‘ policy to fit the challenges posed by distinct groups on the quality curve, in just the same way as it makes sense for business to choose distinct policies for different segments of customers.

This briefing summarises material from chapter 5 of Strategic Management Dynamics, pages 286-288.

Read more about the book on our website

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