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The Third Force: Indispensable to Society, Nonprofits Should Redirect Oversight Efforts The Third Force: Indispensable to Society, Nonprofits Should Redirect Oversight Efforts
An expert in health care and nonprofit management control, Herzlinger made the case that nonprofits fulfill five critical roles in society by raising unpopular social issues, enabling spirituality, redistributing wealth to the needy, supporting cultural activities, and effectively and efficiently providing long-term solutions for social needs.
Businesses, she added, “will sponsor social issues only if it serves their corporate purposes. They can provide effective and efficient services, but they have a short-term focus and, appropriately, go where the money is. After all, that is their obligation to their stockholders.” Herzlinger noted that, unlike business and government, nonprofit organizations can be socially entrepreneurial because they have a long-term focus to serve long-term social problems. “We owe a lot to nonprofit organizations,” she said. “The Sierra Club, for example, has been an effective voice for the environmental movement, and the International Rescue Committee is an extraordinary advocate for immigrants and refugees. In effect, nonprofit organizations act as a check and balance on government and on business.” Valuable as they are, Herzlinger asserted that nonprofits need to overcome the Achilles’ heel — ineffective oversight — that diminishes their potential to have a positive impact on society. “I’m a great believer in nonprofits,” Herzlinger said, “but sometimes they don’t achieve their mission. Nonprofit managers more than agree with me. Many grade their own performances as poor.” Herzlinger ticked off a few examples: declining membership in spiritual associations, inadequate efforts by cultural organizations to serve lower-income individuals, and hospitals’ reluctance to help the uninsured. Even the foundations that benefited from huge monetary increases in the booming economy have given less to charitable causes in recent years. Furthermore, contemporary foundations maintain risk-reducing “portfolios” of causes instead of focusing on one. In contrast, she noted, “at one time, the Rockefeller Foundation helped revolutionize university education, the Ford Foundation helped create the Public Broadcasting System, and the Carnegie Foundation spurred public libraries. But presently, it is very difficult to point to a foundation and say that it has uniquely accomplished a similarly important goal.” Herzlinger blamed these problems on the absence of a framework for full analysis of performance and poor disclosure of information to constituencies. To combat this, she proposed a basic self-assessment tool that nonprofit board members can use. Calling it the “Four by Four Report,” Herzlinger suggested that nonprofits ask themselves four specific questions and address the answers to their four constituencies: clients, donors, staff, and society (or, as she said, “how it would play if reported in the New York Times”). The questions, as enumerated by Herzlinger, are substantial. “Do we as a nonprofit have insufficient or excessive resources to accomplish our mission? Are we being fair to future and past generations, and are we being fair across sectors of society? Do we have long-term resources to achieve long-term goals, or are we fantasizing about our ability to achieve them? Do we have sufficient diversification of resources so that we are sustainable?” Herzlinger conceded that these are tough questions to answer, but they can help a nonprofit board to begin to track its effectiveness and set benchmarks for improvement. “Nonprofits are so important in our society,” she said. “They fulfill essential purposes. But they lack the market mechanisms of corporations where, if a board falls asleep at the switch, sooner or later they’re going to have their lunch handed to them. Because such mechanisms are much less prevalent in the nonprofit sector, the role of boards is so much more important. The Four by Four Report can help them fulfill that role.” — Margie Kelley The Four by Four Report will be published by Jossey-Bass later this year. RETURN TO THE TOP OF THE PAGE
Evolve! Succeeding in the Digital Culture of Tomorrow
by Rosabeth Moss Kanter
In her new book Evolve!: Succeeding in the Digital Culture of Tomorrow, HBS professor Rosabeth Moss Kanter declares that soon there may be only three principal types of companies in the world: dot-coms, dot-com enablers (technology and service providers), and “wannadots” (established companies seeking to incorporate the Internet into their activities). These organizations must find ways to thrive in a digital age that Kanter believes is defined as much by new networks of relationships as by the innovative technology that makes them possible. Companies must learn to build and foster these relationship networks because they engender speedy and seamless interaction, encourage creativity and collaboration, and release the energy and brainpower that, according to Kanter, constitute the very “soul” of e-business in a rapidly emerging e-culture. E-culture, she writes, “involves better ways of leading, organizing, working, and thinking.” It is an environment in which individuals must evolve if they are to become leaders who can execute quick, effective decisions in an uncertain world. Kanter believes that attaining this higher level requires “deep systemic change ...and a deeper emphasis on human skills that build meaningful community out of mere connections.” Based on a landmark project with rare on-site access, over 300 interviews, and a 785-company global survey, Evolve! provides a hands-on blueprint for adopting the core principles of e-culture: treat strategy as improvisational theater; nurture networks of partners; reconstruct organizations as online and offline “communities”; and attract and retain top talent. Kanter illuminates the differences between older, more conservative companies and aggressive, born-digital dot-coms, highlighting best practices from e-culture pacesetters as well as cautionary lessons from Internet laggards. The book defines the skills that leaders need to master change in the e-environment — soon to become the environment for all business — whether they are leaders of Internet savvy companies or “wannadots” that seek to become more Web-enabled. While acknowledging the Internet’s import and impact, Kanter also argues that “cyberspace is full of reinvented wheels.” “Yes,” she writes, “the technology is revolutionary, network economics are different, and all the wheels must turn a lot faster, but the problems of leadership, organization, and change are similar to those we have experienced for decades. So even as this book breaks new ground in examining a set of big new challenges, it also rests on a foundation of enduring truths about people and organizations — a foundation that serves as a springboard for an evolutionary leap into a new, networked age.” RETURN TO THE TOP OF THE PAGECan Japan Compete?
by Michael E. Porter, Hirotaka Takeuchi, and Mariko Sakakibara
Until recently, Japan’s postwar rise was envied by the world as an economic miracle driven by better approaches to management and a seemingly superior form of capitalism. As HBS professor Michael Porter and his coauthors Hirotaka Takeuchi and Mariko Sakakibara state in their new book, “Just ten years ago, it would have been unthinkable to write a book with the title Can Japan Compete?” It was some nine years ago, at a time when Japan’s economic success was overwhelmingly credited to its government’s involvement with industry, that Porter and his team began an in-depth study of the Japanese economy. This research was motivated by a previously overlooked question: If Japanese government policies and practices accounted for the nation’s extraordinary competitiveness, then why wasn’t Japan competitive in many of the industries where those policies had been prominently implemented? The authors’ research showed that in the industries where Japan was most competitive internationally — such as cars, video products, and robotics — government played a relatively minor role. By contrast, the country was least competitive in industries such as chemicals, aircraft, and software where there was significant government involvement. While upsetting the West’s conventional wisdom about the reasons for Japan’s success, Porter and his coauthors emphasize that Japanese practices such as total quality and continuous improvement were valuable additions to U.S. industry. But, as they point out, if improvement of best practice is the driving force within an industry, its outcome is competitive convergence and eventually decreased profitability. The authors conclude that for Japan to succeed, “the missing link is strategy. Strategy rests on choosing a unique position by offering a different mix of value than competitors.” If Japan’s economy is reenergized by strategic thinking and new competitive approaches, the United States will be forced to reexamine some of its own weaknesses, such as a poor education system, adversarial approaches to problem solving, a declining commitment to basic research, and short time horizons in both business and government. Japan, which is strong in all those areas, could once again be a formidable U.S. competitor. And that, say the authors, would ultimately be good for the United States. RETURN TO THE TOP OF THE PAGE
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omelessness. Entrepreneurial services for the poor. The arts. Spirituality. Who
— or what — in our society can best address these issues? Here’s a
hint: It’s not business, and it’s most definitely not government.
“Nonprofits are the most effective organizations in providing these
things,” HBS professor 
Government and business, she said, cannot always be relied upon to stay the course
with social issues. Further, the voting cycle truncates long-term progress.
“Government is an interest-group groupie,” she said. “Who speaks for
the less fortunate? The homeless, for example, are not a powerful interest
group.”
In Good Company: How Social Capital Makes Organizations Work, by Don Cohen and
Laurence Prusak, is the first book to examine and explain the role that social
capital — the value inherent in human connections, including trust, personal
networks, and a sense of community — plays in the successful running of
organizations. Knowledge management experts Cohen and Prusak identify the social
elements that contribute to knowledge sharing, innovation, and high productivity and
show how nearly every managerial action can enhance or diminish an
organization’s social capital.
Profit from the Core: Growth Strategy in an Era of Turbulence, by Chris Zook,
with James Allen, argues that a timeless strategic principle — building market
power in a well-defined core business — remains the key source of competitive
advantage and the most viable platform for successful expansion. Based on a ten-year,
Bain & Company study of two thousand companies, the book identifies three factors
that differentiate growth strategies that succeed from those that fail.
In Unchained Value: The New Logic of Digital Business, Internet expert Mary
Cronin argues that corporations will fail at e-business as long as they continue to
use the traditional value chain as the strategic model for the enterprise. She
introduces a radically new model for organizations she calls the digital value system
— based not on static, internally focused “chains” but on dynamic,
external webs of relationships that take full advantage of the power, flexibility,
and opportunity of the digital arena.
Radical Innovation: How Mature Companies Can Outsmart Upstarts, by Richard
Leifer, Christopher M. McDermott, Gina Colarelli O’Connor, Lois S. Peters, Mark
Rice, and Robert W. Veryzer, is a groundbreaking book that identifies the new
managerial competencies firms will need in order to outsmart upstart challengers.
Based on a study of twelve radical innovation projects, the book reveals the patterns
through which game-changing innovation occurs in established companies —
including General Electric and IBM — and outlines a paradigm for long-term
success.