Stefan Toepler and Helmut K.

Anheier

Organizational Theory and Nonprofit Management:

An Overview

1. Introduction

Over the past decade or so, there has been a perceptible increase of interest
in, and need for, management knowledge, skills, and training that are specific
to the characteristics of charitable, nongovernmental or nonprofit organi-
zations (NPOs). To a large extent, this has been due to significant changes in
the institutional environments in which nonprofits operate. In much of the
West, the purported failure and prophesied end of the traditional welfare state
(Pierson, 1991) in combination with the economic recession of the 1970s led
to fiscal retrenchment and growing interest in private, more market-oriented
approaches to the production and delivery of collective services beginning in
the 1980s. In the East, the end of state socialism in the late 1980s triggered
similar changes, perhaps only more rapidly and with less institutional inertia.
As a result, Western nonprofits have seen a slow decline of the traditional
societal arrangements that protected their particular niches in the overall
welfare system, and Eastern nonprofits faced the challenge of developing
their niches and societal position in the context of the overwhelming tug-of-
war between the state and the market after 1989. All in all, greater
environmental turbulence and complexity in terms of funding and cross-
sectoral partnership arrangements, for example, raised awareness for the need
of a more professionalized approach to nonprofit management.
In the context of state retrenchment, the post-1989 resurgence of civil
society concepts and the current wave of neo-Tocquevillian thought
(Edwards/Foley, 1998), triggered by Robert Putnam’s theses on social capital
(1993; 2000), placed the spotlight on nonprofits and led to a worldwide
increase in the visibility of the sector, but also brought a new set of challenges
and expectations (Anheier/Kendall, 2001). In a way, this has been both a
boon and a bane. While favorable political rhetoric and expressions of
support for the sector have increased, so has public scrutiny and critical
media coverage of misconduct and management scandals in nonprofits
(Gibelman/Gelman, 2001). What is more, the neo-Tocquevillian vision of
civic activities is not easily reconciled with the increasingly complex and
competitive management reality of nonprofit service providers in particular.
254 Stefan Toepler and Helmut K. Anheier

A misfit between new political visions and organizational realities brings with
it the potential for eventual public disillusionment and the risk of political
backlash. This in turn makes it harder for nonprofit managers to find their
way around the new and at times conflicting demands and expectations that
they are facing. Moreover, the diversity of the sector—ranging from small
grassroots clubs to highly professionalized hospitals—and the newness of the
emerging management needs further complicate the sui generis development
of a coherent nonprofit management science.
Accordingly, nonprofit management thinking has been subject to various
ideas and concepts emanating either from the business world or public
administration. The privatization and new public management strands in the
government sector (Kettl, 2000; Reichard, 2001) have brought to nonprofit
management concerns about, among others, outcomes versus outputs,
efficiency versus effectiveness, as well as accountability and performance
measurement. Business administration contributed inter alia an increased
consumer orientation (Drucker, 1990), marketing management concepts
(Kotler/Andreasen, 1991), and most recently a focus on social entre-
preneurship (Borzaga/Santuari, 1998; Borzaga/Defourny, 2001; Dees/ Emer-
son, 2001). These various concepts and pressures have led to a number of
competing tides of nonprofit management reforms (Light, 2000) on the one
hand. On the other, they have so far prevented the development of generally
accepted, comprehensive management models that are distinctly different
from those of business and public administration and go substantially beyond
the discussion of typical nonprofit management tasks and issues.

2. Special Functions of Nonprofits and Structural

Differences between Nonprofits, For-Profits and Public
Agencies

Given this background, the question arises as to why the evolution of a

specific nonprofit management science is necessary or desirable in the first
place. To the extent that NPOs were no more than an extension of gov-
ernment, public administration and management concepts would be sufficient
to address management challenges. To the extent that nonprofits were no
more than “for-profits in disguise” (Weisbrod, 1988), traditional business
administration might suffice. In the end, there are two answers to this ques-
tion: firstly, nonprofit organizations may perform a set of special functions
that set them apart from both government and the business sector; and
Organizational Theory and Nonprofit Management 255

secondly, a number of structural differences exist between organizations

across the three sectors that make a separate exploration of nonprofit
management issues necessary.

Special Functions

Looking across NPOs in the welfare field in four developed countries,

Kramer (1981) identified four key special roles or functions that NPOs tend
to perform and that set them apart from the other sectors. In one form or the
other, these roles appear to be applicable not only in the developed world, but
in transitional and developing countries as well (Salamon/Hems/Chinnock,
2000; Edwards/Hume, 1996). Specifically, Kramer (1981) differentiates the
following roles:
Vanguard Role: NPOs innovate by experimenting with and pioneering
new approaches, processes or programs in service delivery. In their fields,
they therefore serve as change agents. If innovations prove successful after
being developed and tested by NPOs, other service providers, particularly
government agencies with broader reach, may adopt them.
Value Guardian Role: Governmental agencies are frequently con-
strained—either on constitutional grounds or by majority will—to foster and
help express diverse values that various parts of the electorate may hold.
Businesses similarly do not pursue the expression of values, since this is
rarely profitable. NPOs are thus the primary mechanism to promote and guard
particularistic values and allow societal groups to express and promulgate
religious, ideological, political, cultural, social and other views, preferences
and interests. The resulting expressive diversity in society in turn contributes
to pluralism and democratization.
Advocacy Role: In the political process that determines the design and
contours of policies, the needs of underrepresented or discriminated groups
are not always taken into account. NPOs thus fill in to give voice to the
minority and particularistic interests and values they represent; and serve in
turn as critics and watchdogs of government with the aim of affecting change
or improvements in social and other policies.
Service Provider Role: Since government programs are typically large-
scale and uniform, NPOs perform various important functions in the delivery
of collective goods and services. They can be the primary service providers,
where neither government nor the business sector is either willing or able to
act. They can provide services that complement the service delivery of other
sectors, but differ qualitatively from it. Or they can supplement essentially
similar services, where the provision by government or the market is insu-
fficient in scope or not easily affordable.
Looking across the diversity of organizational types and purposes within
256 Stefan Toepler and Helmut K. Anheier

the nonprofit sector, it should be understood though that individual NPOs are
rarely able (or willing) to perform all four roles at the same time. Moreover,
the simultaneous pursuit of multiple functions may occasionally lead to
tensions that hamper rather than improve role performance (e.g., aggressive
advocacy campaigns may curtail an organization’s ability to receive govern-
ment contracts for service delivery). In balancing such tensions, nonprofit
managers should at a minimum aim for a reasonable performance of one core
role.
Following the differentiation of organizational forms (membership,
interest, service and support organizations), certain organizational types can
be associated with respective core functions. Membership associations typi-
cally act as value guardians by primarily providing a vehicle for members to
express beliefs and worldviews (e.g., religious associations) or pursue joint
interests (e.g., sports and hunting clubs). Service organizations engage in the
service provider and—ideally—in the vanguard roles, and interest organi-
zations in the advocacy function. As Sachße (see bonus section on CD)
rightfully notes, these core roles are quite frequently flanked by the pursuit of
additional roles, such as membership organizations providing services for
their members (or the public at large) or service organizations promulgating
values (e.g., religiously-affiliated schools or hospitals) and advocating on
behalf of the clientele for their services. Support organizations can pursue a
variety of these roles, depending on their nature. For instance, a privately
endowed foundation or fund may foster the specific values of the founding
donor (value guardian), seek to fund innovation in service delivery
(vanguard) or support independent policy research and analysis (advocacy).

Structural Differences

Beyond these broad societal functions, NPOs also tend to differ to varying
degrees from both governmental agencies and businesses at the organizational
level. Several analysts (including Kramer, 1981; 1987; Horch, 1992; Najam,
1996; Zimmer, 1996), have developed lists of characteristics that allow an
ideal-typical comparison in Max Weber’s sense of the three types of organi-
zations. Table 1 presents a not necessarily comprehensive set of criteria to
distinguish the three types of organizations. Each sector is discussed in turn.
Organizational Theory and Nonprofit Management 257

Table 1. Ideal-typical Comparison of NPOs, Government Agencies and

Businesses
Public-
Member-
Government serving NPO
Business Firm serving NPO
Agency (service
(association)
provider)
member client group
Objective Profit- Social welfare benefit benefit
Function maximization maximization maximi- maximi-
zation zation
Public/ Collective and
Outputs Private goods Club goods
collective goods private goods
Distribution
Exchange Equity Solidarity Solidarity
criteria
External,
External, External Internal,
External discriminate
indiscriminate indiscriminate discriminate
Orientation (targeted client
(customers) (public, citizens) (members)
groups)
Complex, Complex, Complex,
Goals Specific, clear
ambiguous diffuse clear
Structure Formal Formal Informal Formal
Accountability & Owners/ Voters through
Members Board
Control shareholders Elected officials
Indirect:
democratic
Decision-making Hierarchical Democratic Hierarchical
Direct:
hierarchical
Quasi-voluntary Voluntary/
Automatic/
Participants (economic Voluntary Quasi-
coercive
needs) voluntary
Solidaristic/
Motivation Material Purposive Solidaristic
Purposive
Coercive Donative/
Resourcing Commercial Donative
(taxation) Commercial
Size Large Large Small Medium

Source: Own Table

258 Stefan Toepler and Helmut K. Anheier

Business Firms

At the most fundamental level, the literature suggests that the different sectors
pursue fundamentally different objectives. Private firms pursue the key
objective of profit maximization for owners through the production of private
goods that can be sold in markets. Production is regulated by the interplay of
supply and demand, and the distribution is based on exchange. Business firms
are outwardly oriented toward customers and are indiscriminate in whom to
serve, as long as there is a willingness to pay.
At the organizational-structural level, the bottom line measure of profit
allows business firms to set clear and specific goals that are also easily
monitored and measured. High goal specificity translates into clearly
delineated tasks and a formalized structure. Decision-making is top-down and
hierarchical, and the controlling authority is vested in the owners or share-
holders to whom the organization is also primarily accountable.
Participation in business firms is voluntary, although necessitated by
economic needs. Choices concerning work participation can also be
understood as a managerial sorting process (Weisbrod, 1988; Steinberg,
1993) that depends on organizational objective functions and individual
preferences, motivations and perceived incentives.1 In the business context,
material incentives, such as tangible, monetary rewards, dominate. Lastly,
organizations across the three sectors principally differ in the way they
generate financial resources. Business firms employ commercial means of
financing by way of charging market prices.

Government Agencies

Government is generally concerned with optimizing overall social welfare by

redistributing resources and providing for basic needs that are not otherwise
met. Outputs are pure and impure public or collective goods that are not
privately provided due to the free rider problem (Olson, 1965) or where
market provision would lead to socially inefficient solutions. Equity and
social justice are the primary distribution criteria for publicly provided goods
and services. Outwardly oriented toward citizens, public services are
indiscriminate, serving all who meet the respective eligibility criteria.
Government agencies lack a clear bottom line measure. Goals and man-
dates are both complex and ambiguous due to changing and at times con-
flicting political imperatives as well as interventions of outside interest
groups. External accountability and the locus of control are split with public

1 There are basically three types of incentives (and corresponding types of organizations):
material, solidaristic, and purposive incentives (Clark/Wilson, 1961; see also Etzioni,
1975; Mayntz, 1963 for similar organizational typologies).
Organizational Theory and Nonprofit Management 259

agencies being ultimately accountable to the voters, while direct control is

vested in elected officials that serve as the electorate’s proxies. The decision-
making process is thus indirectly democratic (through the election of political
officials), but internally and directly hierarchical. Ambiguity and conflicting
accountability lead to rules-based formalized structures (Rainey/Bozeman,
2000).
Regarding organizational participants, participation in the state is
typically automatic (i.e., citizenship) and, given eligibility requirements, the
same is also true for public sector agencies whether individuals choose to
avail themselves of entitlements or not. In some types of public agencies, such
as schools, prisons, or the military, participation is or can be also coercive.
Beyond this, government agencies attract participants that respond to purpo-
sive incentives, i.e., goal-related, intangible rewards. Public agencies are
predominantly financed in a coercive manner through the government’s
power to tax.

NPOs

Before discussing structural differences between NPOs and private firms and
public agencies, it is important to introduce a caveat. Given the significant
differences between nonprofit organizational types, the validity of the concept
of a unified sector (and a corresponding generic approach to nonprofit
management) is frequently questioned. Arguably, a large and highly profess-
ionalized nonprofit hospital and a small-scale self-help group have too little in
common to be treated theoretically and managerially in a similar fashion.
However, such arguments fail to take into account that differences of similar
or even greater magnitude also exist within both the market (e.g., multi-
national corporation vs. neighborhood grocery store) and the public sector
(e.g., military vs. county arts council). Nevertheless, for heuristic purposes in
the context of this volume, it may be appropriate to discuss a nonprofit ideal
type as well as common deviations. For the present purposes, the member-
serving associations are considered as the ideal type, but structural differences
with and commonalities to public-serving organizations will be highlighted
briefly.2
Member-serving Associations: Associations typically aim at maximizing
member benefits. Accordingly, outputs have “club good” character, and
distribution is based on solidarity between members. On occasion, there may
not be any tangible outputs at all. In terms of their orientation, associations
are internally focused on their members and can discriminate in terms of their

2 For reasons of clarity of argument and presentation, this discussion is restricted to service
organizations (in Sachße’s typology on focs-CD) and omits further differentiations with
interest and support organizations.
260 Stefan Toepler and Helmut K. Anheier

willingness to welcome and serve members.

Like public agencies, associations also lack clear-cut bottom lines.
Missions tend to be broad and vague, and members may join and support the
organization for a diverse set of reasons leading to complex and diffuse sets
of goals. In contrast to public agencies though, associations are primarily
accountable to their members who may vest limited operational control in the
governing board. The proximity between membership as principal and the
board as agent, however, is closer, decision-making procedures are directly
democratic, and the organizational structure is informal. Participation in
nonprofits is typically purely voluntary. Members participate because of
intangible solidaristic incentives resulting from the act of association itself.
Ideal-typically, associations rely exclusively on membership dues and
gifts for their financing, although some associations also have to draw on
outside resources (e.g., sports clubs may need to rely on facilities provided by
the municipality). Since donative financing is also subject to the free rider
problem, nonprofits face chronic resource insufficiency issues (Salamon,
1987), which tend to restrict organizational size vis-à-vis public and business
organizations.
Public-Serving Organizations: In contrast to the pure ideal-type of the
membership association, public-serving nonprofits typically aim at maxi-
mizing client group benefits (e.g., the homeless, environmentalists, opera
fans). To the extent that public-serving NPOs have members in the first place,
any member benefits are coincidental and indirect. For example, supporting
members of a nonprofit opera company help finance the public service, such
as staging a performance, but may choose to attend the performance
themselves. Outputs are primarily collective goods, although public-serving
nonprofits also produce private goods in order to cross-subsidize their
collective good provision (James, 1983; Weisbrod, 1998). While their
objective function thus differs from associations, governments and busi-
nesses, outputs are closer to markets and governments than associations.
However, solidarity as the primary distribution criterion is the same as with
associations. Like business firms and government agencies, public-serving
nonprofits are essentially externally oriented in contrast to the internal,
member-orientation of associations; but like associations, they may discri-
minate in terms of their willingness to serve clients on grounds of faith,
ideology, social status, etc.
Like associations, they also lack clear-cut bottom lines, such as profits or
political mandates. Missions are frequently broad and vague as well, and
institutional goals complex. Nevertheless, without having to accommodate
and navigate changing membership directives and with final authority vested
in small (self-perpetuating) boards, public service NPOs can define goals
more clearly and implement formal organizational structures and hierarchical
decision-making procedures. In these respects, public-serving nonprofits tend
Organizational Theory and Nonprofit Management 261

to resemble firms and public agencies more than associations. However, in

some cases issues of professional autonomy and equality set limits to
hierarchical structures. University presidents or hospital administrators, for
example, must work within the confines set by faculty or physicians and
surgeons.
Participation in public-serving nonprofits is typically voluntary
(volunteers) or quasi-voluntary (staff). Volunteers join because of intangible
solidaristic (or altruistic) incentives, but purposive incentives—like those that
prevail in government—typically motivate professional staff (e.g., religious
and political groups, human rights campaigns). While these organizations
may receive membership dues, the focus lies on external donative revenue,
including private gifts and grants and public subsidies and contracts. To
combat resource insufficiency, public-serving NPOs also fall back on
commercial income by charging fees for their collective good provision,
where feasible, or by offering private goods like business firms. Being thus
more akin to public agencies in attracting human resources and private firms
in commercially generating financial resources, public-serving nonprofits tend
to be larger than member-serving associations, but do not necessarily reach
the size of businesses or government bureaus.

Summary

Naturally, broadly generalized views of how public and private organizations

differ—as exemplified by the ideal-typical comparison—tend to obscure the
fact that in the organizational reality many of these differences may only be
weak or even non-existent. It has been argued, for instance, that many
commonly accepted assumptions about public agencies do not hold up to
empirical comparisons with business firms (Rainey/Bozeman, 2000).
Similarly, ideal-typical or “idealized” beliefs about what sets nonprofits apart
are not always easily reconciled with the highly professionalized, either
bureaucratic or commercialized nature of large nonprofits—as the differ-
entiation between member- and public-serving nonprofits has shown. This, in
turn, further complicates the nonprofit management and leadership chal-
lenges. Both the general public and most policymakers tend to cling to the
traditional view of NPOs, which is closer to the ideal-typical model (i.e.,
small, informal associations, financed through dues and donations, without
much broader public benefit significance), forcing nonprofit managers—
particularly in public-serving organizations—to balance environmental
expectations resulting from these views with organizational needs resulting
from competitive pressures of the increasingly commercialized collective
goods market places. Additional complexity derives from the frequently
multiple pursuit of societal as suggested above.
262 Stefan Toepler and Helmut K. Anheier

While the ideal-typical comparison illustrates that there are similarities

between nonprofits and both public agencies and business firms on a number
of dimensions, these similarities cut across both sectors and thus prohibit a
simple sorting of nonprofits into either public or business administration.
Both apply partially, but neither fully; and nonprofits retain organizational
characteristics that are specific to them. The implication for the development
of management models is therefore that nonprofit management is, at the
minimum, characterized by greater stakeholder, goal and structural
complexity (Anheier, 2000), resulting from a push and pull between the state,
market and civil society and underlining the need for a multi-faceted,
organization-focused approach.

3. Organizational Theory Models

Although the literature on nonprofit management has grown considerably

over the past two decades, there have been few attempts (e.g., Schwarz et al.,
1999) to develop a comprehensive conceptual framework that captures both
the unique features of nonprofits as well as the similarities to other
organizational forms (Kramer, 2000). On the other hand, a not insubstantial
number of organizational theory approaches were first developed on the basis
of research on specific types of nonprofits. Among the general organizational
concepts that are the most useful in illuminating aspects of nonprofit
management are systems theory, contingency theory, resource dependency
theory, and neo-institutionalism.

Systems Theory

Drawing on Scott’s (1998) typology and discussion, organizations can be

understood either as rational, natural or open systems. The rational
perspective sees organizations as mechanisms constructed to purposefully
pursue certain ends or goals. Goals as the focal point of organizational
activity and behavior are highly specified, clearly delineated, explicit and
unambiguous. Rational systems are also formalized with precise rules
concerning organizational tasks and roles; and rules and formal structure are
constructed in view of the goals pursued. Frederick Taylor’s scientific
management, Henri Fayol’s public administration and Max Weber’s
bureaucracy theories exemplify the rational perspective (Scott, 1998: 37-49).
The natural systems perspective, by contrast, sees organizations as
collectives of individual participants who pursue their own goals. The
collective goal set is complex and diffuse and changes over time and with the
Organizational Theory and Nonprofit Management 263

addition or attrition of participants. Formal goals and structures can still be in

place, but they do not necessarily guide individual and organizational actions
and behaviors. Informal, relational structures prevail, and the multiple goals
and interests are held together by the realization that the organization
constitutes an important resource for all participants. The human relations
school and the work of Talcott Parsons among others embody the natural
systems view (Scott, 1998: 61-76).
The open systems perspective overlays the rational versus natural systems
perspectives. The central tenet of this perspective is that organizations are not
closed in the sense of being isolated from external forces. Rather,
organizations are closely interconnected and interdependent with their
external environments from which they exchange and draw resources,
including participants, funding and information. The open boundaries
between the organization and its environments make it more difficult to
pursue common goals, as loose coupling requires bargaining and renego-
tiating of goals. Most organizational theories since the 1970s, including those
discussed below, incorporate the open systems perspective.
These different understandings of organizational systems have already
been played out in the earlier ideal-typical comparison. Business firms tend to
be more rational systems with well-specified goals and high degrees of
formalization. Public agencies are similarly rational, although goals are more
ambiguous. Nonprofits, on the other hand, resemble the natural systems per-
spective the closest with goal sets that are diffuse and at times even conflic-
ting due to variation in the motivations of members, employees, volunteers,
funders, and other stakeholders.

Contingency Theory

Recognizing the open systems nature of organizations, contingency theories

emphasize the importance of the goodness of fit between key characteristics
of task environments and organizational structure (Lawrence/Lorsch, 1967).
For some tasks, a centralized, hierarchical approach works best for both
efficiency and effectiveness, while for other task environments, an organi-
zational structure made up of decentralized and flexible units seems best
suited (Perrow, 1986). Whether organizations are efficient and able to survive
thus depends on (that is, “is contingent on”) the appropriateness of their
structure in relation to the nature of their environments. Formal and
centralized structures are more appropriate for relatively stable environments,
but environmental turbulence requires higher degrees of flexibility and
informality. However, organizations can face stability and turbulence in their
various task environments at the same time.
In the case of nonprofit organizations, a complex picture is presented:
264 Stefan Toepler and Helmut K. Anheier

some parts of the organizational task environment are best centralized, such
as controlling or fund-raising; other parts of the organizational task environ-
ment could be either centralized or decentralized, depending on managerial
preferences or the prevailing organizational culture; other parts, typically
those involving greater uncertainty and ambiguity, are best organized in a
decentralized way. In other words, nonprofit organizations are subject to both
centralizing and decentralizing tendencies. For example, a social service
agency may face relative stability in its client base (allowing for a centra-
lization or routinization of service provision) at the same time that it faces
turbulence in its funding environment (requiring a diversification of funding
sources and a concomitant decentralization of fund-raising efforts). Contin-
gency theory remains the most widely accepted organizational perspective
and holds important insights for understanding the nature of nonprofit
organizations (see Anheier, 2000 for a nuanced application).

Resource Dependency

The realization that the most effective structure is contingent on the respec-
tive task environment should not necessarily lead to the assumption that there
is a one-way interaction between the organization and its environment. In
fact, managers and organizations have the ability to change their task
environments in turn. Resource dependence theory (Pfeffer/Salancik, 1978)
argues that organizations face environmental constraints in the form of
external control over resources that the organization needs to ensure opera-
tional efficiency and continued survival. Since few types of organizations are
resource independent, they necessarily become interdependent with their
environments. At the same time, external actors in control over critical
resources will attempt to influence the organization and threaten managerial
autonomy. Organizations will, however, not simply comply with external
demands, but attempt to employ various strategies to manage dependencies
and regain managerial freedom and autonomy. In the process, the
organization influences and changes its environment as well. Pfeffer and
Salancik (1978) suggest that among the strategies organizations employ are
various types of interorganizational linkages, including mergers, joint
ventures, interlocking directorates, and the movement of executives within
industries. This may either help reduce dependence on given critical resources
or help obtain other resources that are in turn critical to the external actors
trying to exercise control.
In the nonprofit context, the resource dependency perspective is
particularly useful in understanding the perpetual quest for a balanced mix of
revenue sources. In both Western Europe and the United States, the overly
heavy reliance of some types of NPOs on government financing has given rise
Organizational Theory and Nonprofit Management 265

to concerns about governmentalization, bureaucratization, loss of autonomy,

as well as goal deflection of NPOs (Kramer, 1981; Horch, 1992;
Smith/Lipsky, 1993; Horch, 1994; Evers, 1995; Anheier/Toepler/
Sokołowski, 1997; O’Regan/Oster, 2002). All of this can be understood as a
failure on the part of NPOs to manage and neutralize dependency on
government resources. It may also partially explain the current revived
interest in fostering philanthropy and civic engagement in many countries
(Anheier/Toepler, 2002) as an attempt to regain resources with no “strings
attached” that increase the managerial scope of action.

Neo-Institutionalism

Neo-institutionalist theories have made significant inroads in a variety of

disciplines, ranging from economics to political science and sociology (North,
1990; Alt/Shepsle, 1990; Brinton/Nee, 1998), and have also deeply influ-
enced management and organizational thinking (Powell/DiMaggio, 1991;
Academy of Management Journal, 2002). At the heart of neo-institutionalist
thinking lays the belief that the rational-actor model of organizations is
insufficient and that organizational actions are formed and shaped by insti-
tutions, that is, prevailing social rules, norms and values that are taken for
granted. Institutions constrain and also form individual and organizational
behavior by limiting the range of available options that are perceived as
legitimate. Legitimacy, understood as conformance with institutional expec-
tations, thus becomes the central resource that organizations require for long-
term survival.
In addition, since all organizations in a particular organizational field are
subject to the same institutional expectations and constraints, they will tend to
become homogeneous over time, a process that is called isomorphism. Powell
and DiMaggio (1991) differentiate between three mechanisms of institutional
isomorphic change. Coercive isomorphism appears as a reaction to direct or
indirect pressure to abide by institutional expectations and such pressures are
typically exerted by organizations on which the pressured organizations
depend. Mimetic isomorphism occurs in situations of technological or
environmental uncertainty. Faced with uncertainty, organizations may mimic,
or model themselves after, other organizations that are perceived as success-
ful. Finally, normative isomorphism derives from professional norms and
standards that guide the work of professionals in organizations and thus shape
organizational behavior.
Neo-institutionalist theory is helpful in explaining a large variety of
trends in the nonprofit management field. Coercive pressures exerted by
government and other funders help explain how NPOs change from informal,
voluntaristic and amateuristic groups to increasingly bureaucratic and
266 Stefan Toepler and Helmut K. Anheier

professionalized organizations through the coerced adoption of accounting,

monitoring, performance and certification requirements. Similarly, with the
replacement of volunteers with service professionals such as trained social
workers, counselors, art historians or educators, normative pressures affect
change in the same direction (Sokolowski, 2000). Mimetic pressures, on the
other hand, help explain why NPOs, facing considerable financial uncertainty,
begin to utilize business techniques and profit-making activities. More
broadly speaking, isomorphic trends are also largely responsible for the
increased “borrowing” of American nonprofit management techniques, such
as fund-raising, that has taken place in both, Western and East-Central Europe
over the past decade or so, as well as the modernization of nonprofit legal
frameworks in Central and Eastern Europe after 1989.

4. Implications for Nonprofit Management

As this chapter has shown, nonprofits perform a set of important functions

that set them apart from both business firms and government agencies. Not all
NPOs perform all of these functions and there remain significant differences
even among various nonprofit types. In terms of organizational
characteristics, nonprofits also differ from governments and private firms.
These differences are most clearly borne out in the case of member-serving
associations, whereas public-serving nonprofits—particularly service provi-
ders—show more similarities with either businesses or public agencies. Such
commonalities, in terms of outputs, structure, or resource generation, make it
more difficult for nonprofit service providers to navigate a proper balance in
the pursuit of the special roles and functions, and the constant challenge is to
integrate the expressive dimension—essential to nonprofitness—into the
management of dominant service activities (Mason, 1996).
The review of some key strands of organizational theory provides further
useful insights for understanding nonprofit management and the relative
importance and distinctiveness of specific management functions and tasks.
Most broadly conceived, fundamental leadership and governance structures
(e.g., one or two-tiered—see Siebart and Reichard) as well as decision-
making procedures are largely contingent on both the immediate task
environment (internal for associations; external for service providers) and the
concomitant specifications in the regulatory environment. Somewhat
oversimplifying, the basic internal or external nature of the primary task
environment also highlights differences in the nature and extent of various
management functions. Marketing (other than applied to member recruitment)
is generally of lesser salience to associations than service providers, except
where associations choose to utilize social marketing techniques in the
Organizational Theory and Nonprofit Management 267

context of larger advocacy purposes (e.g., a mental health self-help group

advocating on behalf on the mentally ill beyond its more narrow
membership). Similarly, evaluation, project and quality management tasks are
generally more germane to public- and member-oriented NPOs.
The distinctive nature of nonprofit finance—combining commercial and
donative revenues from public and private sources—is an important area
where nonprofit management significantly diverges from business and public
administration. In addition to differences in accounting requirements and
procedures, nonprofits—except for purely member-dues financed associ-
ations—usually must manage simultaneously revenue streams deriving from
fees-for-services, public grants, contracts and third-party payments, private
grants and donations, investments and commercial loans. As noted above,
resource dependency issues often arise in the context of government funding,
but, as the Central European experience has shown, dependency on large
private donors yields the same effects. To manage resource dependencies, the
nonprofit-specific management task of fund-raising serves to diversify
funding sources and reduce potential for external control. Within the context
of limited philanthropic resources though, nonprofits find it increasingly
necessary to adapt and employ traditional marketing techniques in efforts to
attract fee income as well new public sector resources to generate a balanced
revenue mix.
The open and natural systems character of all NPOs in combination with
the nature and motivations of participants lends another distinctive element to
nonprofit management. Nonprofit managers have to be particularly sensitive
to the individual goal sets of participants, as material incentives have no hold
over members and volunteers and only marginal hold over staff that responds
more strongly to solidaristic and, to some extent, purposive incentives.
Increasing isomorphic pressures on nonprofit service agencies to act more
like business firms or government agencies and de-emphasize the expressive
and solidaristic dimensions of their work constitute a constant threat to the
precarious balance of member, volunteer and staff goals that nonprofit
managers have to negotiate. The complexity and diffusion of stakeholder and
participant goal sets complicate strategic planning on the one hand (v.
Eckhardstein/Simsa in this volume), but most clearly affect the management
of participants within or around the organization’s loose boundaries. This
poses specific challenges to traditional human resource management issues
(v. Eckardstein/Brandl); highlights the necessity for specialized volunteer
management (Sozanská/Tošner/Frič); and puts a premium on the often-
neglected conflict management task (Simsa) within the broader nonprofit
management context.
All in all, the management of nonprofit organizations presents its own set
of more or less distinct challenges that can be addressed at best only partially
by adopting the approaches of traditional business or public administration.
268 Stefan Toepler and Helmut K. Anheier

Both disciplines provide concepts and techniques that modern nonprofit

managers have to be familiar with, but too much emphasis on these concepts
will likely lead to a further blurring of the boundaries of the three sectors and
ultimately to the loss of the distinctive features that accord nonprofits their
special role within the political economies of both the East and the West. On
the other hand, the behavioral management sciences offer useful conceptual
frameworks that lend themselves easily to an application to the nonprofit
context. The key challenge in the development of a nonprofit management
discipline remains to harness the analytical tools and insights of organi-
zational theory to a greater extent, and to highlight the importance of focusing
on people, expression and multiple role performance, while acknowledging
and recognizing the proper place of currently dominant management issues in
the nonprofit management repertoire, such as financial management, marke-
ting or questions of efficiency and quality control.

Suggested Readings

Anheier, H.K. (2000): Managing Non-profit Organizations: Toward a New Approach.

www.lse.ac.uk/Depts/ccs/pdf/cswp1.pdf
Mason, D. (1996). Leading and Managing the Expressive Dimension. San Francisco
Scott, R.W. (1998): Organizations: Rational. Natural, and Open Systems. Prentice
Hall
Staehle, W./Conrad, P./Sydow, J. (1999): Management – Eine verhaltenswissen-
schaftliche Perspektive. München

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