Media Futures recently interviewed Leanne Ferris of Ferris Management Consultants about the new order sweeping the Human Services Category.
Here’s a snap shot summary of what Leanne had to say –
1. Question : Has Human Services really become a business?
Response : Human Services comprises a number of services for the Australian public that are delivered directly by The Government or are Government funded through service delivery organisations. The large majority are Not for Profit or Profit for Purpose (i.e. the more contemporary name) which generate their own income largely through commercial activities, social enterprises or philanthropic activities supported by volunteers
Yes much of Human Services has become a business. They operate under constitutional governance, have stakeholders, a board of directors and invest in the development of products and services. They conduct their finances to be sustainable for their clients or for public benefit and are increasing their investment in brand building and marketing. This is not new. Religious based organisations have pursued a businesslike approach for decades if not centuries owning and operating hospitals, schools and childcare and more recently are the major players in aged care. Even the government is treating human services as a business. Earlier this year Australian Unity paid the NSW government $114million for the government’s NSW Home Care Service, so we are seeing for-profits buying government human services that has been traditionally been contracted at no cost to NFPs.
2. Question : Are Human Services NFPs prepared for a new era when competition is fiercer than ever and the philanthropic dollar is simply harder to get ?
Response: Responding, yes. Prepared, it’s work in progress for most. The JB Were Cause Report for 2016 and ABS data 2013 reports that there are 57,000 NFP’s in Australia. They secure 8 per cent of their income from philanthropy and gift giving which represents 0.23 % of Australia’s GDP. The largest recipient sectors are health and education which are 3 to 4 times larger than any other sector that NFP’s are found in. The interesting thing is that health and education are dominated by religious based organisations and therefore the largest proportion of giving goes to religious based organisations. Yet many of these of these organisations can’t and don’t offer a deductible gift receipt. Schools are funded through taxes and hospitals through Medicare, yet religious based schools and hospitals have been some of the more successful fundraisers because of their long term unwavering strategic focus.
So where is the competition coming from – it’s the immense profileration of charity start ups in Australia. On average there are 10 new charities per day in Australia and we have the highest number of charities per person in the world. This trend has occurred over the past 50 years. The proportion of tax payers who donate has been stable at 36 % which peaked in 1983. The average donation per taxpayer has doubled over the past 10 years. So competition is fiercer. Most Human Service NFP’s are not prepared for the new era, which is evidenced by the fact that unfunded Govt commercial and philanthropic activities has fallen from 63 % to 54% of revenue for NFP’s over the past 20 years. This is because NFP operators have become more reliant on outsourced Govt work and program grants. Whilst this has been good for these organisations the profit margin is small and organisations have not focused on skills and capability growth in response to increased commercial and philanthropic competition. They now face significant capability disadvantage in preparing for the reforms the Govt is undertaking.
3. Question : How do organisations prosper when Govt funding is turned off?
Response: Recognition of the challenges and to face commercial reality. NFPs can only do the work of their mission if they have the working capital to support the operation. Traditionally good work was done to the extent that the Govt provided the income and topping up from fund raising. Financial preparation and to be sustainable over the longer term requires the creation of a war chest of working capital to provide for the cost of change. Most NFP’s are fixed asset rich and cash poor. NFP’s must make reserves for capital investment, innovation and maintain responsible levels of liquidity.
The organisations are typically top heavy with unsustainable levels of management overheads due to inefficient practices and structures. This is supported by the Australian Institute of Company Directors 2016 NFP Governance study reporting 38% of Directors believe that the sector was efficient, that means 62% are reporting operations that are less than efficient. NFPs over the decades have fostered a command and control culture so as to operate under the demanding compliance requirements of government contracts. The early adpoters who make cultural and structual change have a better chance of surviving. This same study concluded that NFP Directors key issue is financial sustainability and reported that NFP’s Directors top 3 key ways forward were -
1. Maintain and build income which means being sales focussed in the markets that you can offer a value proposition that meets customer needs.
2. Being clear about your strategic direction is imperative. Chasing Govt grants and outsourced Govt work has resulted in too many organisations spread too thinly in their operations and market focus. Prospering organisations are more disciplined concentrating on what they do best and who they do it for.
3. Directors say they must diversify their income sources which is a contradition of the two recommendations above. Only those who have navigated the changes and have the working capital available can look to diversification to prosper.
4. Question: How can they upskill and capitalize on an uncertain future?
Response: Although there are uncertainties for NFP’s in the new world, what is clear is the move towards models of human services based upon empowered consumer choice. This forces organisations to put the customer at the centre of their thinking. The command and control top down structural business model and institutional approach is no longer relevant. Consumer choice models require the contemporay approaches of style (i.e. the way we do things) and experience (i.e. the way we make people feel) for the customer and employee, as the most important elements of culture to have an effective organisation. In an uncertain future, recruiting, training and investing in staff and skills is needed. However, elevate the style element as the key driver for cultural shift. Up-style before up-skilling.
Legacy behaviours are not welcome and if not addressed will be a root cause of organisational failure. Investing in board members and staff to shift organisational style and culture rather than skills development can deliver the collective experience that is needed for the empowered human services customer of the future.
Media Futures undertook this interview as an update on current trends and thinking.
The aim is to be more predictive and how that effects future media models and audiences.
The payback to companies, organisations and advertisers is to be more precise in how they go to market and be able to operate more effectively.
Contents copyright Media Futures 2016