The current global economic crisis is having a significant impact on the nonprofit sector. While mission-driven organizations have seen an increase in demand for their services and predict that the demand will continue to increase, they are also extremely concerned about the philanthropic environment and worry about how they will be able to support an increase in services with an expected decrease in charitable contributions.
How can organizations deal with the strain presented by the current economic situation? Of course, they need to ensure that the organization can remain financially viable during the economic downturn, but they also need to ensure that the organization remains strong and healthy, which means focusing on its people.
Money Matters: Strategies for Financial Viability
There are a number of strategies that an organization can explore to ensure its financial viability. Because any balanced budget relies on both inputs (revenue) and outputs (costs), it is important to address both areas while also making budget adjustments based on realistic projections.
First and foremost, an organization should explore any and all possible funding streams. Perhaps you have not yet gotten funding from government sources; this is the perfect time to explore that option. Particularly with a new administration in Washington focusing on economic recovery, there may be multiple opportunities to apply for federal monies. Depending on your mission area, it might also be a great time to explore corporate partnerships. These days, corporations that are doing well want to make sure that their contribution to the social good is evident, and those who are trying to improve their reputation may be looking for strong nonprofit partners.
Cost-cutting is the next area to address. Look at every single line item in your budget and ask yourself the following questions: How does this number compare to past expenses? What is our most realistic projection for how much we NEED to spend in this area? Are there ways that we can save money on this line item? (E.g., bringing outsourced services back in house, or deciding to outsource services at a lower rate than you can do them in house; consolidating debt payments; negotiating better contract rates for vendors and employee benefits; cutting back on travel and conference costs). Of course, remember that it is important to balance the need to cut costs with the need to keep your staff happy and ensure that they feel valued and have the resources they need to be successful in their jobs.
Unfortunately, for most nonprofits, the majority of their cost structure is staff compensation. The first step in cutting staff costs is to consider a hiring freeze; is your organization able to manage for the next six months, for example, with only the staff you have on board now? Can you commit to not making any additional hires, even if you experience resignations? A hiring freeze (barring resignations) will obviously not decrease your staff costs, but it will ensure that you are not incurring additional costs in this area.
Another option to consider is part-time or flexible work arrangements. Are there people on staff who would prefer to work part-time, either on a temporary or permanent basis? Or is there anyone who is interested in taking an unpaid leave for any reason with whom you could work out an arrangement whereby they take that leave in exchange for a guarantee of their job within a certain period? It will also help with your budgeting if you can find out sooner rather than later if people are planning to leave for any reason, such as graduate school or relocation. This can be a difficult question to ask, as you don’t want to give the impression that you are pushing people out the door, but the information can affect the need to make more severe staffing decisions.
Finally, you may need to consider layoffs. Layoffs can be used either as a preventative measure or as a last resort. If you go this route, it is important to determine the purpose for the layoffs; different reasons for cutting staff often require different messaging, both internally and externally. For example, if you are conducting layoffs as a last resort, you can share that information with the persons being terminated and express that this decision is your only option. If you are conducting layoffs as a preventative measure, the message can become more challenging and more likely will be associated with performance.
It is important to think through the effects of every termination decision—on the organization as a whole, on the work flow of the affected departments, on external constituents, and on staff morale. Remember that any former staff member becomes an ambassador for your organization and no matter how challenging the situation, trying to ensure loyalty even among those who are terminated can have a tremendous impact on your organization’s reputation.
Being prepared can help you weather this challenging period with grace. For example, make sure that you have strategic reasons to be making termination decisions and ensure that you are not opening yourself up to discrimination charges. Recognize that there will be push back; people will question every decision and will want answers. Determine in advance how much you are willing and able to share about each decision, and make sure that all leaders are sharing the same message. Ensure that all of the details of the severance package and separation logistics are worked out in advance so that negotiation and awkward conversations are minimized.
People Matter: Strengthening the Organization
Now that some tough decisions have been made, it is time to pay attention to building your organization up and ensuring its continued success; you want to come out of this time as strong as possible. That means keeping your top performers on board by keeping them happy, challenged, and valued. Key strategies in this regard include clear communication to inform and instill confidence, providing leadership opportunities, and looking to your key employees for innovation in order to streamline work and maximize impact.
In terms of communication, keep key employees informed about the ongoing situation and how the organization is faring. You want to be realistic but positive so that employees do not fear that they will be next on the chopping block. It is also critically important that your key employees know how much you value their contributions and that you will do everything possible to keep them; you want to prevent your top performers from even considering looking for other opportunities.
There are two ways that employees can view downsizing: as a burden that means they have to do more work, or as an opportunity to take on more responsibility and have a greater impact. It is management’s role to ensure that top performers take the latter approach and view this as an opportunity to develop their skills and ensure that their role within the organization is indispensable. For example, laying off your Information Technology director may provide an opportunity for someone in a different department who has always been interested in IT projects. Giving this person the chance to learn, grow, and lead in a new area can increase his or her commitment to your organization.
Another way to ensure that top performers are highly engaged in your organization is to look to them for creativity and innovation around how your services or processes can be improved, streamlined, or further developed in order to continue to support your constituents while weathering the storm. Some of the most creative ideas come from the people who are closest to the work at hand; they can simultaneously benefit the organization and increase the employees' engagement.
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