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Aug 21, 2014

HR Needs to Return to the Strategic Planning Team

The Chronicle of Philanthropy recently reported that “nearly half of nonprofit human-resource executives say their influence has grown in the past year.”  While the survey that reported these findings focused on large nonprofits, I am gratified that some organizations are reversing an unfortunate trend of the 1990s to convert HR into a transactional function from its former strategic function.  The reporting relationship is a key indicator of the role of the HR function.  The survey found that at two-thirds of the 260 responding large nonprofits the senior HR officer reported to the CEO.

I have always viewed HR as a strategic function since most nonprofits are service organizations that rely on engaged, capable staff to deliver their mission.  And since most nonprofit employees are motivated by being part of something greater than themselves (the mission) and salaries are not usually at or above market, the HR function has an essential role in ensuring these non-financial factors are continually addressed.

The well-publicized aging of nonprofit leadership has also brought succession planning to the forefront of many nonprofit boards.  Succession planning reaches down deep into an organization and must not be limited to ensuring an orderly replacement of the CEO.  Rather, it needs to provide career advancement and professional development so that all levels of the organization maintain continuity and retain essential organizational memory.

The recent Community Impact Portrait released in May by the Center for Social Enterprise Development identified skills and culture management to be significant concerns for nonprofits considering or engaged in social enterprise.  This tells me that HR issues are a critical success factor for nonprofits considering social enterprise.  The role of HR in producing the appropriate environment for success falls into three areas:

Culture  In my mind social enterprise requires an acceptance that, despite being called “nonprofit”, being profitable is essential to nonprofit survival.  Profits provide reserves: for emergencies, to avoid service cuts in recession, to develop new programs, to experiment.  It also requires understanding that new businesses will lose money in their first few years of operations.  This goes against the grain of the common culture of budget balance being the metric of management competence.  Addressing these cultural issues requires a well-designed HR program that includes training, careful word choice in outreach, and a redefinition of organizational success.

Business skills  Developing business plans and attracting investors requires very different skills than grant-writing and conventional fundraising.  The organization also needs to have sharp skills in business analysis so that it can correctly identify its lines of business, capture the appropriate data, adapt its chart of accounts, and  allocate all costs to continually evaluate the revenues, costs, and profit/loss of each of its activities.  Since the majority of nonprofit employees come from program areas, this requires a careful HR training program or a well-conceived HR recruitment plan to ensure the necessary skills are present (and well-regarded) in the organization.

Morale  In many businesses, staff look at the annual budget to infer if their department is “in” or “out.”  In a nonprofit which has profitable social enterprises it is essential to avoid a sense of hierarchy between profitable activities and mission-focused unprofitable activities.  Both are equally essential to the sustainability of the nonprofit and its relevance to mission and community need.  This equal importance is essential to maintain.  In addition, the definition of success for activities needs to be adapted.  Profitable activities should be measured by their profitability, not unlike how we evaluate success in for-profit businesses.  But mission-focused activities need to be measured by success in addressing their mission objective without being given carte blanche to run losses that may undermine the overall organization.  Development of a careful program of goal-setting and personnel evaluation is an HR task that is essential to a successful strategy.

That is why I welcome this survey’s results.  HR has been relegated too long to a tactical role of recruitment, dismissal, and compliance.  Its strategic role needs to be re-established if nonprofits are to successfully use social enterprise to sustain their futures.