Academic journal article Business Renaissance Quarterly

Creating Not-for-Profit Organizational Legitimacy during Periods of Economic Constraints and Diminishing Donor Resources

Academic journal article Business Renaissance Quarterly

Creating Not-for-Profit Organizational Legitimacy during Periods of Economic Constraints and Diminishing Donor Resources

Article excerpt


Escalating economic and social instability is a validation that the present domestic and global financial environments have created a significant strategic challenge for existing organizational models to compete optimally. Resultant of these discontinuities, and a requisite for organizational success, is the imperative that Not-For-Profit organizations provide current and future stakeholders with a sense of assurance in both its strategic leadership as well as its organizational legitimacy. Management's failure to discern the profound affects that donor resources have on an organizations success, and a failure to act judiciously to support donor endorsements, could lead to deleterious organizational performance from diminished donor resources. Therefore, it is the principal intent of this paper to elucidate for management the formulation, implementation, integration, and strategic value of a robust legitimization system. Such a system not only provides management with the acumen for identification of effective managerial capabilities and vibrant knowledge management technique necessary to satisfy stakeholders, but additionally, creates a competitive advantage.


The discontinuous shifts on Wall Street have affected both the not-for-profit organizations as well as the for-profit firms with equal intensity resulting in diminished charitable support. This curtailment in charitable giving is directly correlated to the economy and the for-profit firms adaptive financial repositioning to survive. Consequently, not-for-profit organizations, which inherently lack proper budgeting protocol and economic foresight, are financially besieged with as much as a 50% reduction from previous annual budgets. The Chronicle of Philanthropy (2009), confirms this shift in a recent article which stated; of 73 foundations surveyed in December regarding their 2009 grant giving plans, 39 percent expect to decrease the amount they contribute to charities this year.

In addition to diminishing financial resources, donors now require not-f or- profits to provide financial accountability, transparency, managerial efficiency, and an appearance of strategic aggressiveness similar to their counterparts in the for-profit industry. These additional legitimacy 'rules of the game' are morphing the historical inefficient not-for-profit firm into one that is increasingly entrepreneurial, a trait which until recently was attributed solely to the for-profit firms.

The intent of this paper is to provide senior managers with a pragmatic application into the formulation and implementation essential to couple a robust knowledge management system and NFPs managerial capabilities necessary for creation of organizational legitimacy.

NFP Archetype

Historically, firms were seen distinctly either as 'for-profit' (FP) or 'not-for-profit' (NFP); the for-profit firms were viewed as internally efficient, externally entrepreneurial and aggressive, and having a singlemindedness of maximizing corporate profit. Conversely, not-for-profit organizations were viewed as internally bureaucratic, economically inefficient, and lacking inspiration; whose sole purpose was to provide some nebulous form of 'public service' with no intent of maximizing profit or drive to increase effectiveness.

The not-for-profit organizations principle mandate is to 'create social value' for the benefit of society as a whole. This is achieved by providing an intangible, altruistic service such as 'aiding the homeless' or 'animal rights protection'. Although NFPs appear to be an antithesis to the overall goals and objectives of the forprofit firms (Lettieri, Borga and Savoldelli, 2004) NFPs are affected and share the same performance criteria as the for-profits. Consequently, the impasse NFPs face is the task of compelling support from those potential stakeholders (donors) whose personal values align with the values provided by their cause. …

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