Chapter 3 from "Nonprofit Management," Third Edition by Michael J. Worth, https://secure.sagepub.com/protected/worth3e/icfr/intro.htm

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Chapter 3: Theories of theChapter 3: Theories of the
Nonprofit Sector and NonprofitNonprofit Sector and Nonprofit
OrganizationsOrganizations

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Nonprofit Functions vs.Nonprofit Functions vs.
GovernmentGovernment
1. Accommodate diversity – Since government’s
obligation is to treat all citizens equally, nonprofits
provide a voice and services in areas that are not
addressed by government.
2. Undertake experimentation – Nonprofits have greater
freedom to begin new programs on a smaller scale
than government is allowed to using public funds.
3. Provide freedom from bureaucracy – Government
moves slowly by virtue of its bureaucracy while
nonprofits can respond to social needs more quickly
and efficiently.
4. Attention to minority needs – Government priorities
must match those of the majority of voters while
nonprofits fill the gaps.

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Theories Explaining the NonprofitTheories Explaining the Nonprofit
SectorSector
• Discipline-centered explanations
• Historical -- distrust of government, voluntary
associations, religion, First Amendment rights,
population diversity, income tax and tax deductions,
shifts in public policy
• Social -- socialization, reinforcing norms and values,
social capital, nonprofits as mediating structures
• Political -- accommodating diversity,
experimentation, freedom from bureaucracy,
attention to minority needs
• Economic -- private versus public goods, externalities,
market and government failures, nonprofits as gap
fillers, supply-side theories
• Motivation theories (altruism versus self-interest)
• Theory of the Commons

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History The nonprofit sector reflects voluntary traditions of early
America, changing social needs arising from various historical
movements, and the tax structure as it has evolved
throughout U.S. history.
Sociology Involvement in nonprofits helps socialize individuals,
reinforce norms and values, and develop social capital.
Nonprofits are mediating structures that help people interact
with large bureaucracies, such as government and business.
Political science Nonprofits exist to accommodate diversity, undertake social
experimentation, provide freedom from bureaucracy, and
address minority needs.
Economics Nonprofit organizations fill gaps left by market failure and
government failure. Some nonprofits arise because of action
on the supply side, that is, social entrepreneurs or donors
who are motivated to solve a problem or promote a cause.
Interdisciplinary Lohmann’s Theory of the Commons defines common goods as
a separate category, distinct from private and public goods. At
least some nonprofits exist to provide common goods to
groups of individuals who share an interest in them.

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Common Characteristics of NonprofitCommon Characteristics of Nonprofit
OrganizationsOrganizations
• Organized Entities – chartered as formal organizations;
most incorporated under state law
• Private – not agencies of the government but may receive
some funding from the government
• Non-Profit Distributing – excess revenues are reinvested
in the organization; no dividends to individuals or investors
• Self-Governing – control lies with a board of directors or
board of trustees responsible for the overall welfare of the
nonprofit
• Voluntary – board of directors and some service providers
are volunteers
• Of Public Benefit – exists to serve a social purpose
deemed to be of public benefit

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External EnvironmentExternal Environment
• Open systems -- nonprofits are dependent on
and interact frequently with their external
environments
• Shift away from emphasizing the internal
mechanics of an organization’s operation
(e.g., bureaucracy)
• Focus on the relationship between an
organization and its external environment
(e.g., social context)

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External EnvironmentExternal Environment (cont’d.)(cont’d.)
• Resource dependency -- nonprofits are
dependent on external constituencies for
revenue, information, and other resources
• Goal displacement, performance
measurement, internal impact, adaptation
and management

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External EnvironmentExternal Environment (cont’d.)(cont’d.)
• Isomorphism -- nonprofits in the same field tend
to become more like each other as a result of
facing similar influences from their environments

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Internal Structures and OrganizationalInternal Structures and Organizational
CultureCulture
• Attempt to explain why some organizations are
relatively bureaucratic and centralized, while others
are more entrepreneurial and flexible
• Task environment -- internal structure as a
reflection of the day-to-day transactions that make
up an nonprofit organization’s work
• Organizational culture – the unwritten rules that
prescribe dress, manner of doing business, social
mores in the office
• In Search of Excellence (Peters and Waterman,
1982)
• Built to Last: Successful Habits of Visionary
Companies (Collins and Porras, 1994 )

10. © 2014 SAGE Publications, Inc.
Internal Structures and OrganizationalInternal Structures and Organizational
CultureCulture
• Attempt to explain why some organizations are
relatively bureaucratic and centralized, while others
are more entrepreneurial and flexible
• Task environment -- internal structure as a
reflection of the day-to-day transactions that make
up an nonprofit organization’s work
• Organizational culture – the unwritten rules that
prescribe dress, manner of doing business, social
mores in the office
• In Search of Excellence (Peters and Waterman,
1982)
• Built to Last: Successful Habits of Visionary
Companies (Collins and Porras, 1994 )