1. Nonprofit Learning Point June 10, 2015 Presented by: Sam Davis III Principal, The Davis Group

2. STRATEGIC NONPROFIT MANAGEMENT FOLLOWING IS THE SCHEDULE AND CONTENT FOR DAY ONE OF THIS TWO-DAY COURSE. THE SCHEDULE AND CONTENT FOR DAY TWO WILL BE PRESENTED SEPARATELY. Sam Davis III, The Davis Group for NPLP June 10&17 2015 2

3. Day One Objectives Understand what we mean by “Strategic Management”. Understand and practice “Strategic Thinking”. Understand how Business Thinking applies to nonprofit management. Understand the context in which Strategic Planning can be undertaken; prepare for Day Two. What additional objectives do you want to pursue on the first of this two-day class? Sam Davis III, The Davis Group for NPLP June 10&17 20153

4. PROPOSED SCHEDULE 9:00–9:30Introductions; Overview of the day 9:30–10:00Strategic Management w/exercise 10:00–10:45Strategic Thinking w/exercises 11:00–11:15Break 11:15–12:30Business Thinking Applied to Nonprofits 12:30–1:30Lunch on your own 1:30–1:45Nonprofit Theory of Change 1:45–2:15Nonprofit Lifecycles w/exercise 2:15–2:30Break 2:30–4:00Strategic Management Process & Planning 4:00 – 4:30Review; Questions; Homework Sam Davis III, The Davis Group for NPLP June 10&17 2015 4

5. TO BEGIN: SOME ADULT LEARNING PRINCIPLES TO CONSIDER - THE 4 Is Inductive Work connects the learner to the task by relating the core concepts to the core of the learner’s real life, making the material relevant. Input – Verbs are used for input tasks: describe; examine; listen…New content is presented to supplement what the learner has experienced in life and work. Implementation is key. To retain what you have learned, you need to touch it a practice it right away. Integration tasks ask learners to move the content into the world and apply it in some meaningful way. Sam Davis III, The Davis Group for NPLP June 10&17 20155

6. STRATEGIC MANAGEMENT Strategy is about the future state and the need to manage change. Strategy is not planning. Strategy is about making smart choices as the world changes around us and taking action in real-time. - David LaPiana, 2011 Strategic Management: A disciplined process to guide decision-making and prompt actions that shape and guide what an organization is, what it does and why it does it. - John Bryson, 2004 Strategic Planning – Development of a road map to clarify desired future state, how it might be achieved and how to measure progress. Sam Davis III, The Davis Group for NPLP June 10&17 2015 6

7. STRATEGIC MANAGEMENT PROCESS 4 MAJOR PHASES 1. Preparation – Enduring Purpose. Our Guiding Principles. Our Stakeholders. The need for change. 2. Strategic Thinking – Current situation. Internal and External Analysis. S.W.O.T. Analysis 3. Planning – Vision. Strategic Plan. Business Plans. Yearly Priorities. Quarterly Operating Plans. 4. Execution, Feedback, Learning & Adapting – Accountability. Continuous learning. Managing change. Sam Davis III, The Davis Group for NPLP June 10&17 2015 7

8. STRATEGIC MANAGEMENT SYSTEM Sam Davis III, The Davis Group for NPLP June 10&17 2015 8 Strategy Formulation Translate the Strategy Plan Operations Execute Processes and Initiatives Monitor and Learn Revise / Adapt the Strategy Decision Action Ready – What to Do Steer – Do It Aim – How to Do It

9. DISCUSS IN PAIRS 1. With another person from your organization, the person next to you, or with anyone you choose, take 5 minutes to discuss your understanding of Strategy and the Strategic Management process. 2. What questions arose from your discussion? 3. Share with one another at least one example of strategic management, or the lack thereof, in one of your organizations. 4. Be prepared to share your questions and examples with the class. Sam Davis III, The Davis Group for NPLP June 10&17 2015 9

10. STRATEGIC THINKING I skate to where the puck will be. - Wayne Gretsky Sam Davis III, The Davis Group for NPLP June 10&17 2015 10

11. STRATGIC THINKING DEFINED Strategic thinking is about clarity and simplicity, meaning and purpose, focus and direction, relationships and feedback and desired outcomes. - Haynes Center for Strategic Management Anticipation Critical thinking Interpretation Decision-making Aligning Learning Sam Davis III, The Davis Group for NPLP June 10&17 2015 11

12. Sam Davis III, The Davis Group for NPLP June 10&17 2015 12

13. HOW OUR BRAINS WORK Emotional Intelligence Daniel Goleman The Role of Paradigms What are paradigms? Biases; assumptions Creatures of habit Shifting habits; new paradigms Sam Davis III, The Davis Group for NPLP June 10&17 2015 13

14. HOW OUR BRAINS WORK (cont.) Strategic Intuition – William Duggan o Intelligent Memory o Expert Intuition o Presence of Mind o Flashes of Insight; Coup d’Oeil o Learn and Evolve; Resolve Sam Davis III, The Davis Group for NPLP June 10&17 2015 14

15. HOW DOES THIS APPLY TO YOUR ORGANIZATION? Think – Pair - Share Think - On note cards provided for you, write down at least two examples each from your organization of : (1) Intelligent Memory; (2) Expert Intuition; and (3) Learn, Evolve and Resolve. Pair – Join with another student (or two) and share your notes. Select the best example of each of the three components of Strategic Intuition above. Share – Select one person to speak for your group and prepare to share your examples with everyone. Sam Davis III, The Davis Group for NPLP June 10&17 201515

16. CREATIVE vs CRITICAL THINKING Analytical Thinking and Problem Solving Design Thinking o Inspiration o Ideation Brainstorming Grouping Prioritizing o Implementation Creativity and Innovation Sam Davis III, The Davis Group for NPLP June 10&17 2015 16

17. CREATIVE THINKING EXERCISE BRAIN CIRCLING An Exercise Sam Davis III, The Davis Group for NPLP June 10&17 2015 17

18. LET’S TAKE A 15 MINUTE BREAK Sam Davis III, The Davis Group for NPLP June 10&17 201518

19. BUSINESS THINKING IN NONPROFIT ORGANIZATIONS Nonprofit refers to a tax status; Ex: 501 (c)3 Nonprofits have traditionally not focused on the business aspects of building and sustaining an organization. Few business courses are offered in traditional academic programs taken by nonprofit managers. The language of business and the language of nonprofits can be somewhat different. Some nonprofit leaders have a bias against thinking of themselves as operating a business. Let’s re-examine that thinking. Sam Davis III, The Davis Group for NPLP June 10&17 2015 19

20. BUSINESS THINKING If business is part mystery and part art, a big part is also basic science and math. Some fairly ordinary rules predict financial results. - Clara Miller, “The Looking Glass World of Nonprofit Money”, The Nonprofit Quarterly, Spring 2005. A business model describes the rationale of how organizations create, deliver and capture economic, social, cultural and other forms of value for stakeholders. - the logic by which an organization earns its livelihood and sustains itself financially. Sam Davis III, The Davis Group for NPLP June 10&17 2015 20

21. CLOSELY-HELD BUSINESSES & NONPROFITS: SIMILARITIES & DIFFERENCES Both typically have values-driven missions. Leadership succession can be a challenge for both. Industry and competitive environments are fragmented. Attracting and retaining talent can be a challenge. Neither closely-held businesses nor nonprofits tend to offer equity to executives. Access to capital can be a challenge for both. Profitability can be a clear “bottom line” for businesses, but success measures for nonprofits are often unclear. Sam Davis III, The Davis Group for NPLP June 10&17 2015 21

22. BUSINESS RULES APPLY TO NONPROFITS 1. B - focus is on consumers. NPO - focus on clients and donors. 2. B - Product price covers costs plus profit margin. NPO – Donors subsidize portions of cost plus surplus. 3. B - Operating capital comes from revenues, debt and investment capital. NPO – Some revenues restricted; management of cash flows critically important 4. B – Price determined by supply and demand; NPO – demand almost always exceeds supply; cost of services and goods based on ability to pay Sam Davis III, The Davis Group for NPLP June 10&17 2015 22

23. BUSINESS & NONPROFIT RULES (CONT.) 5. B – Profits reinvested in the business; NPO – limited working capital; surpluses become operating reserves 6. B – Investments made to stimulate growth for efficiencies and increased profitability; NPO – growth limited by ability to attract donors 7. B – Overhead is seen as a cost of doing business; NPO – overhead % must be kept low to satisfy donors 8. B – Innovation sought as a competitive advantage; NPO – Risk averse; innovation not part of culture Sam Davis III, The Davis Group for NPLP June 10&17 201523

24. AN INDIVIDUAL EXERCISE: On a note card or piece of paper answer the following: 1. WHAT IS YOUR BUSINESS MODEL ? How do you pay for and sustain impact? List your revenue sources by % of total annual operating revenues. 2. HOW TO YOU DETERMINE THE USE OF OPERATING SURPLUSES? How do you cover operating deficits? 3. HOW DO YOU DETERMINE THE PROPER BALANCE of revenues and expenses needed to sustain the organization over a multi-year period? 4. HOW DO YOU MEASURE IMPACT? (Not program objectives alone.) 5. DONOR INVESTMENT? Have you defined what benefits donors receive from “investing” in your organization? Sam Davis III, The Davis Group for NPLP June 10&17 2015 24

25. LUNCH WILL BE ON YOUR OWN Sam Davis III, The Davis Group for NPLP June 10&17 201525

26. THEORY OF CHANGE or LOGIC MODEL for NONPROFITS How will we create the desired impact? What are our key inputs needed to induce change? What strategies need to be our priorities? How will we measure change? Outcome measures? a. Immediate b. Intermediate c. Long-term What is the ultimate impact we are trying to have? How will we measure our success in achieving impact? Sam Davis III, The Davis Group for NPLP June 10&17 2015 26

27. AN EXERCISE FOR YOU 1. On a note card or piece of paper, try to answer the questions posed on the Theory of Change slide using your organization as the example. 2. For those questions you are unable to answer, list the steps you will take prior to next week’s class to find answers to those questions within your organization. 3. If your organization has not defined its Theory of Change, list steps you might take to help define this for your organization, and include the names of individuals or positions who need to be involved in articulating that Theory of Change. Sam Davis III, The Davis Group for NPLP June 10&17 2015 27

28. YOUR ORGANIZATION’S LIFECYCLE STAGE AFFECTS YOUR STRATEGIC THINKING AND YOUR STRATEGIC MANAGEMENT PROCESS Sam Davis III, The Davis Group for NPLP June 10&17 2015 28

29. ORGANIZATIONAL LIFECYCLES Source: Nonprofit Lifecycles by Susan Kenny Stevens Sam Davis III, The Davis Group for NPLP June 10&17 2015 29 Turnaround Renew

30. LIFECYCLE PRINCIPLES Source: Susan Kenny Stevens  Diagnostic, not deterministic  May not be evolutionary or sequential  Not age or size dependent  Some capabilities may be at different stages  Used to set realistic expectations  Characterizes capabilities in an objective fashion  Sets the context for strategic thinking and action Sam Davis III, The Davis Group for NPLP June 10&17 2015 30

31. 7 STAGES OF NONPROFIT CAPACITY Source: Susan Kenny Stevens 1. Idea Stage – Magnificent Obsession 2. Start-Up Stage – The Labor of Love 3. Growth Stage – Becoming Who You Are 4. Maturity Stage – Maintaining Your Edge 5. Decline Stage – Someone You Used to Be 6. Turnaround Stage – The Rubber Meets the Road 7. Terminal Stage – Alive in Name Only Sam Davis III, The Davis Group for NPLP June 10&17 2015 31

32. DIFFERENT STRATEGIC THINKING AT DIFFERENT STAGES – EX: START-UP Governance – Members with personal connections Strategy – Focused initiatives; outcomes lacking Program – Simple, experimental; breadth not depth Management – Founder led; part-time staff; volunteers Marketing – Founder is the brand; trial and error Resources – Low budget; grant dependent Infrastructure – Financial and admin weak or outsourced Sam Davis III, The Davis Group for NPLP June 10&17 2015 32

33. ANOTHER EXAMPLE: GROWTH STAGE Governance – Board formalizes; board committees Strategy – Simple strategic plan; priorities change rapidly Program – Defined programs; differentiation from others Management – Leaders see potential and manage change Marketing – Begin build brand, target audiences Resources – Diversified income sources; expand donor base Infrastructure – Financial systems maintain accountability Sam Davis III, The Davis Group for NPLP June 10&17 2015 33

34. A FINAL EXAMPLE: DECLINE STAGE Governance – Board unaware; hands-off; status quo Strategy – Outcomes not achieved; strategies stale Program – Program costs high, losing clients to competitors Management – Lacking strategic vision; blaming others Marketing – Brand value in decline; not reaching audiences Resources – Fixed costs heavy; cash management challenges Infrastructure – Systems antiquated, upgrades not funded Sam Davis III, The Davis Group for NPLP June 10&17 2015 34

35. LIFECYCLES AND YOUR ORGANIZATION Where are you today on the Lifecycle graph? Where is the momentum in your organization? What are the core strengths and weaknesses of your organization? Thinking strategically, what challenges lie ahead? What options might you consider for addressing these challenges? How might a strategic planning process benefit your organization? Sam Davis III, The Davis Group for NPLP June 10&17 201535

36. NOW, IT’S YOUR TURN AGAIN Think – Pair - Share Think – Writing on your note cards again, use the Lifecycle hand- out to plot the location of key components of your organization on the Lifecycle curve. Then, consider what type of Leadership Styles might fit the needs of the organization in the stages given in the 3 examples. Consider: entrepreneurial; analytical; collaborative; controlling/directive; steady/cautious; bureaucratic; inspirational; etc. Pair – With the partner with whom you have been working or another individual, compare your Lifestyle charts and the Leadership Styles you each recommended for your organizations. Be prepared to present your ideas to the larger group. Share – Choose a member of your group to present some highlights of your shared information to the larger group. Sam Davis III, The Davis Group for NPLP June 10&17 2015 36

37. LET’S TAKE A 15 MINUTE BREAK. Sam Davis III, The Davis Group for NPLP June 10&17 2015 37

38. Strategic Management as Process: Some Important Principles 1. Strategic Management should be an ongoing process, not an event. 2. The strategic management process logic is generic, but its application is very situational. 3. Strategic Management is necessarily messy and iterative. 4.“Keep it simple, but no simpler than it is.” -Albert Einstein 5.There must be a system to balance the tensions between strategy and operational tactics. Sam Davis III, The Davis Group for NPLP June 10&17 201538

39. STRATEGIC PLANNING: A ROADMAP FOR MANAGING CHANGE Sam Davis III, The Davis Group for NPLP June 10&17 2015 39

40. Formulate Strategies to Achieve Objectives Establish Goals/ Objectives Assess Current Situation; Develop Vision, Mission, and Values Implement Strategies Monitor and Evaluate Performance Task 1Task 2 Task 3Task 4Task 5 STRATEGIC PLANNING PROCESS: FIVE TASKS Revise as needed in light of actual performance, changing conditions, emergent strategies, and new ideas Sam Davis III, The Davis Group for NPLP June 10&17 2015 40

41. THE STRATEGIC MANAGEMENT PROCESS 1-Year Strategic Framework Strategic Plan (Road Map) Quarterly Line of Sight Plan Level 1 Level 2 Level 3 Level 4 Daily Execution 3-Year Business Plan & Resource Plans Level 5 Sam Davis III, The Davis Group for NPLP June 10&17 2015 41

42. Phase 1: Preparation STRATEGIC PLANNING KEY QUESTIONS What are realistic goals for the process?  What is the appropriate level of effort given the type, scale and timing of the required change?  What is the logical starting point?  What are the appropriate planning horizons/timeframes?  What will be the Planning Calendar?  How will the work be organized?  Who will be the Champion?  Who will be on the Strategic Planning Task Force?  What information will be required?  How will the Board and Senior Staff interact in planning?  Identify the task forces, their work plans and responsibilities Sam Davis III, The Davis Group for NPLP June 10&17 2015 42

43. STRATEGIC PLANNING PROCESS AND KEY RESPONSIBILITIES Board – Ordains the planning process and approves the Plan; tracks implementation performance CEO/Executive Director – Staffs the process; shapes the Vision; and directs implementation of the Plan CFO – Identities business model; projects revenues & expenses; tracks performance metrics Strategic Planning Task Force – Oversees the process and ensures coordination Planning Professional – Facilitates the design and conduct of the process; serves as objective advisor Sam Davis III, The Davis Group for NPLP June 10&17 201543

44. THE STRATEGIC PLANNING PROCESS PLEASE SEE HAND-OUT FOR FLOW DIAGRAM OF THE PROCESS Sam Davis III, The Davis Group for NPLP June 10&17 201544

45. STRATEGIC PLANNING PROCESS Four Phases 1. Pre-Planning – Gaining commitment; gathering data a. Review Mission and Values b. Define Business Model and Theory of Change b. Assess Internal and External Environment 2. Planning Retreat – Visioning; brainstorming; team building 3. Plan Development – The essence of the process a. Goals, Strategies & Implementation Details b. Strategic Business Plans (financial projections) 4. Implementation and Tracking – Strategic Management; getting it done; making changes as necessary Sam Davis III, The Davis Group for NPLP June 10&17 201545

46. SUMMARIZING DAY ONE 1. Take 5 minutes to review what has been presented, using hardcopy of the slides and your notes to guide you. 2. Write down any concepts or information you wish to have reviewed before departing today. 3. Identify any information you expected to be presented that was not covered today. 4. Write any additional questions you may want to ask. 5. Once everyone is ready, the Instructor will open the floor to questions and discussion. Sam Davis III, The Davis Group for NPLP June 10&17 201546

47. HOMEWORK TO PREPARE FOR DAY TWO 1. If your organization has a Strategic Plan, obtain a copy and bring it to the next class. 2. Identify key components of your organization’s Business Model. Feel free to bring information to class for review. 3. Review the Lifecycle chart for your organization and give further consideration to the lifecycle status or each major component of your organization. 4. Using the Lifecycle chart and thinking strategically, write down the key challenges you believe your organization will face in the next 3-5 years. Sam Davis III, The Davis Group for NPLP June 10&17 201547

48. THANK YOU. Sam Davis III, The Davis Group for NPLP June 10&17 201548