Modalities of Managerialism: The “Double Bind” of Normative and Instrumental Nonprofit Management Imperatives

Abstract

Nonprofit managers are influenced by managerial logics that guide their everyday understandings, decisions, and behaviors. This article identifies, conceptualizes, and examines these logics through the lens of institutional theory, which implies a distinction between normative and instrumental modalities of nonprofit managerialism. These modalities are contrasted across seven domains of nonprofit management—portfolio management, organizational growth and capacity-building, fundraising, collaboration and competition, effectiveness, efficiency, and accountability—generating insights for managers, scholars, and society at large. Specifically, the framework identifies contradictory managerial imperatives that can create a “double bind” for practitioners, provides a mechanism for organizing and positioning nonprofit management scholarship, and raises fundamental questions about the attainability of nonprofit missions and the function of the nonprofit sector in society.

Keywords

managerialism nonprofit management institutionalism instrumental normative

Managerialism represents a reflective and critical approach to nonprofit, NGO (nongovernmental organization), civil society, and public administration research that has become more widely acknowledged over the past decade (e.g., Appe, 2015; Hvenmark, 2015; Maier & Meyer, 2011; Meyer, Buber, & Aghamanoukjan, 2013; Overeem & Tholen, 2011; Roberts, Jones, & Frohling, 2005). Managerialism refers to the “knowledges and practices of organizational governance and operations” and is “marked by concepts like accountability, transparency, participation, and efficiency, as well as practices like double-entry bookkeeping, strategic planning, Logical Framework Analysis, project evaluation, and organizational self-assessment” (Roberts et al., 2005, p. 1849). Most broadly, managerialism is “an ideology prescribing that organizations ought to be coordinated, controlled, and developed through corporate management knowledge and practices” (Hvenmark, 2015, p. 17).

Nonprofits enact managerialism to articulate legitimating accounts of their organizations to stakeholders (Appe, 2015; Meyer et al., 2013). Managerial practices are therefore linked to specific justifications that rationalize organizational behavior. These justifications exercise particular logics that map onto distinct modalities of nonprofit managerialism.

This analysis focuses on two modalities of managerialism implied by March and Olsen’s (1989, 1996, 1998, 2009) theory of institutionalism, which distinguishes between two institutional logics: the logics of appropriateness and consequences. The normative modality of managerialism enacts a logic of appropriateness, whereas the instrumental modality enacts a logic of consequences.¹ Although prior scholarship has identified accoutrements of managerialism, previous research has not yet systematically distinguished between distinct varieties of managerialism nor considered their implications for the nonprofit sector. This research seeks to address this gap by identifying, conceptualizing, and examining these two modalities and exploring their significance to managers, scholars, and society at large. In particular, analysis demonstrates that the two modalities often present contradictions that can frustrate organizational management and that each modality agrees with a fundamentally different position about the attainability of nonprofit missions and the role of the nonprofit sector in society.

This article is organized as follows. The next three sections define and elaborate upon the normative and instrumental modalities of managerialism and then address additional considerations pertaining to the overall framework. The subsequent section then applies this framework to seven domains of managerialism that receive significant attention in nonprofit management literature: portfolio management, organizational growth and capacity-building, fundraising, collaboration and competition, effectiveness, efficiency, and accountability. This is followed by a discussion that considers the implications of this analysis for the nonprofit sector and society at large. The final section provides a brief conclusion with suggestions for future research and practice.

The Normative Modality and the Logic of Appropriateness

The normative modality of nonprofit managerialism exercises a logic of appropriateness. According to this logic, “actions are seen as rule-based” and involve

evoking an identity or role and matching the obligations of that identity or role to a specific situation. The pursuit of purpose is associated with identities more than with interests, and with the selection of rules more than with individual rational expectations. (March & Olsen, 1998, p. 951)

Institutionalized rules, duties, rights, and roles define acts as appropriate (normal, natural, right, good) or inappropriate (uncharacteristic, unnatural, wrong, bad). (March & Olsen, 1996, p. 252)

Moreover, “as an ethical matter, appropriate action is action that is virtuous” (March & Olsen, 1998, p. 951), vesting the logic of appropriateness with “overtones of morality” (March & Olsen, 1996, p. 252, 2009, p. 4). Rules of thumb and social norms often prescribe appropriate action (March & Olsen, 2009). For example, the 80-10-10 rule is a common rule of thumb in nonprofit management that instructs managers to allocate at least 80% of their functional expenses to programs, at most 10% to fundraising, and at most 10% to administration. Organizations follow this rule because doing so is virtuous, moral, and appropriate given their identity as nonprofit. According to March and Olsen (2009), “sometimes action reflects in a straightforward way prescriptions embedded in the rules, habits of thought, “best practice” and standard operating procedures of a community” (p. 7).

Systemic rule-following may promote institutional isomorphism and convergence toward group norms as individual organizations mimic the actions of their peers and pursue conformity with social standards (DiMaggio & Powell, 1983). Indeed, prior research has found that reputations for organizational effectiveness are significantly driven by perceived similarities with peer organizations (Mitchell, 2015a). The normative modality thus may manifest itself in (a) an external focus on the actions of peer organizations, (b) conformity with extrinsic social norms, (c) benchmarking to industry standards, and (d) a general concern for organizational reputation vis-à-vis specific reference groups.

The origins of specific social rules and normative practices are difficult to trace, but they often emerge from violations of social codes that give rise to public scandals (March & Olsen, 2009). It is easy to imagine, for example, how particular scandals over “excessive” endowments, executive compensation levels, fundraising expenses, or overhead rates may give rise to “industry standards” prescribing appropriate levels, ranges, benchmarks, and rules of thumb to govern organizational practices. Although it may be difficult to define “normal practice” (Bowman, 2011) within such a heterogeneous sector, appeals to normality and conformity with nonprofit “industry standards” provide socially legitimating accounts of organizational practice. Indeed, many nonprofits display seals of approval from information intermediaries that serve as arbiters of normality and conformity, such as the Better Business Bureau Wise Giving Alliance and Charity Navigator, both of which evaluate nonprofits based, at least partially, on their conformity with rules of thumb similar to the 80-10-10 rule.

Extrinsic norms may act as constraints on managerial behavior (Mitchell, 2015b), with the power to condition action regardless of whether norms are individually internalized. Even reluctant norm-following reenacts and reinforces norms, ironically implicating individual actors in the reproduction of their own external constraints. Whereas the constructivist principle of mutual constitution holds that the relationship between individual actors and social structures is reciprocal (Wendt, 1987), the generally extreme asymmetry between any single nonprofit actor and the sector at large ensures that broadly enacted sectoral norms exert exogenous pressure from any individual perspective.

The Instrumental Modality and the Logic of Consequences

The instrumental modality of nonprofit managerialism enacts a logic of consequences in which “actors choose among alternatives by evaluating their likely consequences for personal or collective objectives” (March & Olsen, 1998, p. 949). An action is not motivated by rule-following, but instead is “driven by calculation of its consequences” (March & Olsen, 1998, p. 950). In short, “All action is for the sake of some end” (Mill, 1861/2003, p. 182). The modality and logic exercise utilitarian rather than deontological precepts and emphasizes the relationship between organizational practices and results rather than the relationship between social conformity and moral virtue.

The logic of consequences primarily manifests itself in an internal orientation focused on efficient organizational goal attainment, although external conditions and incentive structures also significantly influence behavior. This logic is equivalent to the economic logic of constrained optimization in which organizations “rationally maximise long-term organisational effectiveness given exogenous financial constraints” (Mitchell & Schmitz, 2014, p. 501). Such an approach does not negate concern for norms and principles, but rather norms and principles may be interpreted as external constraints on rational and efficient action.

Nevertheless, instrumental action is goal-directed and impact-oriented, which may produce behaviors that violate social mores. For example, a nonprofit may incur moral disapprobation for highly compensating high-performing officers. Even if the higher salary expenses are significantly outweighed by overall gains in organizational efficiency, a nonprofit may nonetheless be seen to violate social norms that prescribe nonprofit boards to limit officer compensation to levels beneath the for-profit sector as a means of symbolizing a degree of altruism “appropriate” to the nonprofit sector.

Ontology, Separability, and Causality

Although the normative and instrumental modalities are conceptually distinct, they also represent alternative interpretive lenses for describing organizational logic and action. These lenses are best applied in parallel to identify contrasts and contradictions between the modalities, rather than separately as competing, mutually exclusive explanations for a given phenomenon. As such, it is useful to briefly address ontology, separability, and causality in relation to the two modalities.

An important ontological complication may occur when either logic of action appears to reduce to the other. For example, a manager may follow a norm for fear of the consequences of disobeying it or engage in strategic planning not for want of intended consequences but because the practice seems to be the “right thing to do.” Goldmann’s (2005) thorough and detailed critique of the ontological separability of the logics of appropriateness and consequences thus proposes that the two overlap to create a third, mixed logic, recognizing their ontological duality. This duality is not problematic so long as the logics are understood as parallel alternative perspectives rather than as contending, mutually exclusive theories. Indeed, it is unlikely that any single actor exercises either logic by itself or that any particular situation imposes either logic alone, yet the conceptual schema can nevertheless provide a useful heuristic device to alert managers to important considerations in decision-making.

In many situations, for example, managers may experience a “double bind” that occurs when the normative and instrumental modalities present contradictions that frustrate efforts to pursue desired actions. The causes of these contradictions may be intrinsic, extrinsic, or both, and may vary in relative importance according to individual traits and situational circumstances. The modalities of managerialism postulation does not presume any specific pattern of causality or contingency, but rather constitutes an interpretive device to assist managers in identifying contrasts and contradictions in the practices and assumptions of nonprofit management. Application of the framework can assist managers in identifying and understanding behavioral determinants and anticipating the consequences and contradictions of decision-making.

Contrasts and contradictions between the normative and instrumental modalities are evidenced in many domains of nonprofit management. The following section examines these contrasts across seven such domains, highlighting how the two modalities can lead managers to conceptualize and address problems differently, ultimately motivating distinct patterns of organizational behavior.

Domains of Managerialism

A brief analysis of seven domains of nonprofit managerialism using the framework introduced above illustrates the contrast between the normative and instrumental modalities (see Table 1). These seven domains include many of the most active areas of nonprofit management scholarship: portfolio management, organizational growth and capacity-building, fundraising, collaboration and competition, effectiveness, efficiency, and accountability. The subsequent section will discuss the implications of these distinctions for the nonprofit sector more broadly.

Table 1.

Contrasts Between Normative and Instrumental Managerialisms.

	Modality of managerialism
	Normative	Instrumental
Portfolio management	Revenue stream propriety	Risk mitigation; volatility management; fiscal health
Organizational growth and capacity-building	Fiscal leanness; avoidance of excessive reserve accumulation; spending rather than saving	Efficient growth; intertemporal revenue stabilization; program continuity
Fundraising	Fundraising expense minimization	Fundraising optimization
Collaboration and competition	Symbolic collaboration; preservation of organizational independence and identity; minimization of government support; maintenance of private support	Pursuit of better results; increased funding; program expansion
Effectiveness	Reputation management; financial benchmarking; program expense maximization	Demonstrable goal achievement
Efficiency	Overhead minimization; financial benchmarking	Minimization of the cost per unit of impact
Accountability	Financial accountability to donors; benchmarking; demonstration of fiscal propriety	Outcome accountability; accountability to organizational mission

Portfolio Management

Literature on nonprofit financial portfolio management adopting a normative perspective tends to center on the issue of revenue diversification and its rationales. From a normative perspective, revenue diversification may be motivated by (a) the nature of the benefits a nonprofit’s programs confer, (b) the desire to preserve an appropriate degree of organizational autonomy, and (c) the need to demonstrate fiscal probity through the avoidance inappropriate revenue streams.

Benefits theory proposes that a nonprofit’s revenue streams should reflect whether the organization’s program activities primarily generate private benefits to individuals, group benefits to identifiable subgroups of society, public benefits to society at large, or trade benefits to organizations or individuals that supply resources to nonprofits (Young, 2006). Subsequent research has largely confirmed the test implications of benefits theory, finding that nonprofits whose programs provide public benefits tend to have more donative funding, while nonprofits whose programs provide private benefits tend to have more earned income (Aschari-Lincol & Jäger, 2015; Fischer, Wilsker, & Young, 2011). The match between program benefit and revenue source may be taken as an indication of the appropriateness of an organization’s income portfolio.

Another important consideration in normative portfolio management theory concerns organizational autonomy and resource dependence. According to resource dependence theory, an organization is vulnerable to external control when it relies on its external environment for a large proportion of a critical resource, such as funding (Pfeffer & Salancik, 2003). Unfortunately, a high degree of asymmetry between a resourceful funder and a dependent nonprofit can compromise organizational autonomy. Prior research has found evidence that nonprofits do indeed experience resource dependence and that, for example, funding source may influence portfolio diversification (Shea & Wang, 2016) and nonprofit strategy (Hodge & Piccolo, 2005). Nonprofits, meanwhile, may proactively attempt to safeguard their organizational autonomy through mitigation strategies that include revenue diversification (Carroll & Stater, 2008; Mitchell, 2012). By reducing their reliance on a single or a small number of income sources, a nonprofit is better able to reduce the likelihood that any one funder exercises an inappropriate degree of influence. More generally, through revenue diversification, a nonprofit may seek to avoid the undesirable appearance that it is “grant-driven,” rather than “program-driven” or that it is “chasing the money,” rather than pursuing its mission.

The degree of match between a nonprofit’s provision of benefits and its revenue sources coupled with its degree of revenue concentration combine to raise a third concern of normative portfolio management theory. Diversification away from small private individual donations and toward grants, contracts, and sales of goods and services may be seen to incentivize behavioral improprieties. According to Carroll and Stater (2008),

Relying on the latter types of resources is controversial as revenue generation strategies not only instigate fears that the nonprofit’s mission will shift and the organization’s legitimacy will be undermined from the rent-seeking behavior required to obtain them but also that diversification could lead to burdensome complexity, especially for small organizations. (p. 947)

Whereas the normative perspective stresses the function of revenue diversification in preserving organizational autonomy and other “social and psychological” considerations, the instrumental perspective emphasizes the relationship between portfolio composition and “financial risk” (Chang & Tuckman, 1994, pp. 287-288). Here, portfolio diversification is associated with reduced revenue volatility (Carroll & Stater, 2008; Mayer, Wang, Egginton, & Flint, 2014), reduced financial vulnerability (Chang & Tuckman, 1994, 1996; Froelich, 1999), increased financial health (Chang & Tuckman, 1996), and a decreased likelihood of organizational demise (Hager, 2001). However, diversification into specific revenue sources may yield different consequences. For example, replacing earned income with donations may reduce expected revenue, while replacing investment income with donations may increase expected revenue (Mayer et al., 2014).

Revenue diversification may, in some circumstances, serve both normative and instrumental goals, but in other circumstances, the two orientations may present trade-offs. For example, although diversifying into private donations may improve benefit-revenue match, promote organizational autonomy, and signal fiscal propriety, it also may increase revenue volatility (Carroll & Stater, 2008). In addition, revenue diversification may conflict with other organizational objectives, such as pursuing organizational growth (Chikoto & Neely, 2014).

Organizational Growth and Capacity-Building

A principal tenet of normative nonprofit management theory holds that nonprofits should remain fiscally lean, specifically by minimizing net assets relative to total expenses and generally by exhibiting a preference for current spending over the accumulation of net assets or reserves (Calabrese, 2013; Mitchell, 2015b). Citing concerns over “excessive” reserve accumulation, Tuckman and Chang (1992), for example, argue that “the presence of substantial surplus can be construed as indicative of a commercial intent on the part of a nonprofit” (p. 84) and should therefore threaten its tax exempt status, even despite courts generally having allowed for significant accumulations on the grounds that surplus funds will eventually be spent on charitable purposes. A fundamental challenge for the exponents of the normative management perspectiveis the determination of “normal” or “appropriate” levels of reserves or rates of net asset accumulation for specific nonprofits, specific categories of nonprofits, or the nonprofit sector generally. It is similarly difficult to determine normatively whether specific standards would apply consistently throughout fluctuating economic conditions or whether they should be dynamically adjusted in response to exogenous environmental shocks.

Nevertheless, the normative approach clearly prioritizes current program spending over other financial objectives and instructs nonprofit managers to spend rather than save surplus revenues under the presumption that “excessive” reserve accumulation indicates miserliness, commercial intent, or insufficient need (Calabrese, 2013; Handy & Webb, 2003; Mitchell, 2015b; Smith & Lipsky, 1993; Tuckman & Chang, 1992). Organizations should therefore maintain only minimal reserves in accordance with prevailing social norms.

Unlike the normative perspective, the instrumental perspective on net asset or reserve accumulation stresses the objectives of efficient organizational growth, environmental responsiveness (Mitchell, 2015b), the mitigation of fiscal volatility and vulnerability (Calabrese, 2012, 2013; Lin & Wang, 2015), intertemporal revenue stabilization, and program continuity (Calabrese, 2011). For example, Carroll and Stater (2008) find that

organizations with greater growth potential as exhibited by levels of retained earnings and fund balances actually experience less revenue volatility over time. It is apparent . . . that a financial cushion or “rainy day fund” may help organizations facing financial trouble and provide opportunities for growth, as well as reduce the amount of revenue volatility an organization experiences. An organization’s fund balance is particularly important for creating greater financial stability. (p. 963)

Indeed, additional research confirms that low equity balance is a significant predictor of organizational demise (Hager, 2001).

Normative and instrumental approaches are not necessarily incompatible, as each does allow for some level or rate of reserve accumulation. Unfortunately, while strategic growth and stabilization objectives may be readily defined for individual nonprofits, it is difficult to determine a general benchmark or range of normality for any particular sector or subsector. Nonprofits with significant fixed assets may require larger endowments for capital maintenance, (Calabrese, 2011), while smaller organizations attempting to grow to scale may wish to accumulate net assets more rapidly than larger organizations that have already matured to an efficient size.

Moreover, prior research has found that donors are sensitive to nonprofit wealth accumulation and appear to penalize organizations accumulating “excessive” wealth. Low levels of nonprofit wealth appear to initially exert a positive effect on contributions, signaling fiscal health, but after 5 years of expenses, the effect becomes negative, and accumulated wealth actually may reduce contributions (Calabrese, 2011). This same research also suggests that most nonprofits have too little wealth, arguing that “rather than focusing only on excessive wealth, nonprofit managers ought to be encouraged to maintain adequate minimum reserves to aid program continuity during economic downturns, when it is needed the most” (Calabrese, 2011, p. 867). Regardless of whether a nonprofit adopts a primarily normative or instrumental view of fiscal capacity and fiscal capacity growth, the problem of determining either appropriate or optimal targets, respectively, remains. More to the point, the logics guiding either approach provide divergent guidance to financial managers who may, depending on their organization’s circumstances, face unfortunate trade-offs between maintaining an appearance of fiscal leanness, on one hand, or achieving strategic financial goals, on the other hand.

Fundraising

Another major instruction of the normative management perspective requires the minimization of (a) total fundraising expenses, (b) the ratio of fundraising expenses to total expenses, and (c) the average cost to raise one dollar (Mitchell, 2015b). Because normative theory privileges current over future program spending, current fundraising expenditures—even if they generate substantial revenue to support future programming—are understood to reduce the available resources for program spending in the current period. Nonprofits with higher fundraising ratios or that face higher average costs to raise one dollar may therefore be regarded as “inefficient.” Indeed, rather than conceptualizing the cost to raise one dollar as an exogenous price that nonprofits must pay for charitable contributions, which is largely determined by the willingness of donors to give, the normative perspective interprets price as endogenous to the nonprofit (e.g., Tinkelman, 2004; Wong & Ortmann, 2016). Under this view, nonprofits determine how much they “charge” donors for each dollar of program service expenditure.

Research confirms that donors prefer nonprofits that spend less on fundraising, even while fundraising expenditures positively influence contributions. Okten and Weisbrod (2000), for example, observe these two distinct effects of fundraising expenditures on donations. First, fundraising expenditures are positively associated with contributions, but second, the “price” of program service expenditures appears to exert a negative effect.

Normative theory is heavily occupied with the possibility of excessive fundraising. Indeed, many studies investigate whether nonprofits engage in inappropriate levels of fundraising (e.g. Jacobs & Marudas, 2006; Marudas & Jacobs, 2007; Okten & Weisbrod, 2000; Tinkelman, 2004; Tuckman & Chang, 1998), although they generally find that most nonprofits do not.

Perhaps unsurprisingly, nonprofits have responded “appropriately” to the social pressures to minimize fundraising expenses and fundraising ratios, and the vast majority of reporting nonprofits—including tens of thousands of organizations with more than a million dollars in charitable contributions annually—simply report zero fundraising expenses. The phenomenon of zero-cost fundraising has by now been widely documented (Hager, Rooney, & Pollak, 2002; Mitchell, 2015b; Thornton, 2006; Tinkelman, 2004), and research consistently suggests that many nonprofits intentionally underreport their fundraising expenses in an attempt to avoid social disapprobation or even for private financial gain. For example, Krishnan, Yetman, and Yetman (2006) find that managers appear to deliberately underreport fundraising expenses when managerial compensation is positively associated with the program expense ratio. Regardless of the accuracy of nonprofits’ reported fundraising expenses, the evidence demonstrates that organizations are reacting to specific normative pressures to present themselves in conformity with social norms.

From an instrumental standpoint, however, the minimization of total fundraising expenses, the average cost to raise one dollar, or the fundraising expense ratio may be incompatible with a nonprofit’s supervening objective to maximize long-term program impact, particularly as current period fundraising expenditures may promote financial capacity growth and increase resource availability for future program services (Chikoto & Neely, 2014; Mitchell & Schmitz, 2014). Moreover, because the return on fundraising expenditures will vary with changing economic conditions, nonprofits wishing to maximize net resources available for their long-term charitable purposes are better off adjusting their fundraising behavior over time in response to changing environmental conditions rather than unconditionally minimizing specific costs or ratios (Mitchell, 2015b). Impact-maximizing nonprofits will seek not to minimize average fundraising costs, but rather to optimize fundraising revenue by equating the marginal cost to raise one dollar to one dollar (Hager & Flack, 2004). Microeconomic theory demonstrates that the normative imperative to minimize average fundraising costs actually guarantees a suboptimal amount of fundraising because average costs are still increasing as marginal costs approach marginal revenue (Young & Steinberg, 1995).

Empirical evidence favors the normative interpretation of reported nonprofit fundraising behavior. Most reporting nonprofit organizations in the United States report zero fundraising costs, and the preponderance of available research suggests that nonprofits deliberately underreport or minimize fundraising expenses and generally do not pursue an optimization strategy. Although marginal analysis is complicated by the difficulties of discovering or imputing nonprofit cost functions, prior research suggests that most nonprofits fundraise too little, ceasing well before achieving the optimality condition of marginal equality (Brooks, 2005; Thornton, 2006). Similarly, Okten and Weisbrod (2000) find that “nonprofits generally do not devote resources to fundraising at levels that maximize net profit from fundraising. Nonprofits fall short of net revenue maximization in some industries while exceeding it in others” (p. 271). Despite visible and persistent normative interest in identifying systemic patterns of “excessive” fundraising behavior in the nonprofit sector, the available evidence generally does not warrant such concern (Tuckman & Chang, 1998), and perhaps counterintuitively suggests that nonprofits underinvest in fundraising (Bell & Cornelius, 2013).

Although it is reasonable to expect that some nonprofits may observe fundraising optimality conditions that serendipitously coincide with normatively appropriate benchmarks or ranges for key fundraising variables, it is likely also the case that for many other nonprofits, managers face a contradiction between minimizing average fundraising costs, on one hand, or maximizing available revenues to support program services, on the other. In these latter cases, nonprofits confront a trade-off between maintaining an appearance of fundraising propriety in conformity with normative principles and achieving fundraising efficiency in accordance with instrumental economic principles.

Collaboration and Competition

Intersectoral collaboration between nonprofits and government, and intrasectoral competition among nonprofits, has received significant attention in both nonprofit studies and public management research. As public–nonprofit partnerships have become more popular over time (Weisbrod, 1997), government grants and contracts have likewise become a major source of revenue for many nonprofits (Boris, de Leon, Roeger, & Nikolova, 2010).

Drawing from principal-agent theory, the literature on public–nonprofit partnership typically characterizes the government as the principal, which awards the contract, and the nonprofit as the agent or steward, which executes the contract (Feiock & Jang, 2009; Van Slyke, 2006). Even in informal public–nonprofit partnerships that lack formal contracts the norm is that government is the principal actor (Gazley, 2007). Much of this contracting out of government services is motivated by a belief among public managers informed by the “New Public Management” that outsourcing and competitive contract bidding enhance service quality and lower costs. As service contractors, nonprofits compete against one another for government funding, presumably driving down costs and improving efficiency.

However, prior research has demonstrated that there is no link between competition and performance (Lamothe, 2015) and that although public–public partnership is associated with increased effectiveness, efficiency, and equity, public–nonprofit partnership is unrelated to performance (Andrews & Entwistle, 2010). High transaction costs and poor managerial capacity on the part of public agencies may contribute to this result (Johnston & Girth, 2012; Lamothe, 2015; Van Slyke, 2003). Given the evidence, these partnerships may largely be “used for politically symbolic reasons to demonstrate that government is getting smaller, working more efficiently by disengaging itself from direct service delivery, and not encroaching on private markets” (Van Slyke, 2003, p. 307). Partnership may be motivated by an instrumental desire to improve results, a normative belief that collaboration is “the right thing to do” (Mitchell, O’Leary, & Gerard, 2015), or both.

Although the view of nonprofits as public service contractors finds support among the proponents of the “New Public Management,” the nonprofit literature adopts a conflicting normative frame. Here, fierce competition for short-term contracts is associated not with efficiency or improvements in service quality but instead with goal displacement, mission creep, and organizational dysfunction (Cooley & Ron, 2002). Scholarship also raises concerns over government support of nonprofits in general and the potentially deleterious effects that public support may have on the nonprofit sector’s independence and legitimacy (Edwards & Hulme, 1996; O’Connell, 1996), even if nonprofits still enjoy substantial latitude for strategic choice in these relationships (Batley & Rose, 2011; Mitchell, 2012). Indeed, compared with public officials, nonprofit executives are more disposed toward negative attitudes toward intersectoral partnerships (Gazley & Brudney, 2007). From the perspective of the nonprofit rather than the public manager, normative concerns surrounding collaboration and competition relate to (a) the potential loss of organizational autonomy that nonprofits are likely to suffer as a result of resource dependence and government influence and (b) institutional isomorphism as nonprofits are compelled to imitate profit-maximizing businesslike behavior to survive in a highly competitive funding environment.

Another normative concern relates to the phenomenon of “crowding out.” Under the implicit presumption that donative revenue is more appropriate for nonprofits than government support, research has investigated whether non-donative revenues reduce private donations. This research has found that non-donative revenue generally does not crowd out private donations (Okten & Weisbrod, 2000) and that government support initially increases private support—perhaps by lending legitimacy to an organization—but subsequently exerts a crowding out effect as government support approaches about one third of total revenue (Nikolova, 2015). Related research finds that government support increases nonprofit density (Lecy & Van Slyke, 2012). Nevertheless, underlying these research programs is a normative position that the replacement of public donations with government support is inappropriate or undesirable for nonprofits.

Whereas the normative perspective focuses on either the symbolic role of nonprofits in the “New Public Management” or the risks that collaboration and competition pose to nonprofit autonomy and identity, the instrumental perspective values collaboration and competition insofar as they demonstrably enhance efficiency and service quality. The instrumental interpretation finds substantial support among nonprofits as well as public managers. Nonprofits engage in collaborations for a variety of reasons and tend to engage in different types of collaborations for different reasons. For example, prior research has found that while intrasectoral collaborations are most likely driven by a desire for better results, intersectoral collaborations are often also motivated by the prospects of increased funding and broader programs (Mitchell, 2014a). While nonprofit leaders still express concerns over organizational autonomy and identity, the perceived instrumental benefits of collaboration still make it worthwhile.

As with other domains of organizational management, normative and instrumental perspectives on collaboration and competition are not necessarily mutually exclusive, but rather serve to highlight different arrays of managerial objectives and concerns. Clearly, a prudent nonprofit manager would consider both the normative and instrumental implications of collaboration and competition and would need to exercise discretion in managing the balance when conflicts arise. For example, although some partnerships with public agencies and for-profit businesses may provide instrumental benefits such as improved access to resources and enhanced organizational efficiency and effectiveness, such arrangements may also significantly damage an organization’s normative reputation for authenticity and independence.

Effectiveness

Few topics have received as much attention in the nonprofit management literature as the definition and measurement of organizational effectiveness (e.g., Herman, 1990, 1992; Herman & Heimovics, 1994, 1995; Mitchell, 2013, 2014b; Sawhill & Williamson, 2001; Sowa, Selden, & Sandfort, 2004). The topic has been a popular subject for periodic review (e.g., Baruch & Ramalho, 2006; Forbes, 1998; Herman & Renz, 1999; Lecy, Schmitz, & Swedlund, 2011; Rojas, 2011) and analysis (e.g., Dart, 2010; Herman, 1990, 1992; Herman & Heimovics, 1995; Herman & Renz, 1998, 1999, 2004, 2008; Liket & Maas, 2013; Mitchell, 2013; Murray & Tassie, 1994; Osborne & Tricker, 1995; Sheehan, 1996; Sowa et al., 2004; Tassie, Murray, & Cutt, 1998; Williams & Kindle, 1992). Since the construct of organizational effectiveness appears to have multiple definitions (Mitchell, 2013) and multiple dimensions contingent upon the perspectives of various stakeholder groups (Balser & McClusky, 2005; Herman & Renz, 1997, 1998, 2004; Jun & Shiau, 2012; Packard, 2010; Shilbury & Moore, 2006), much of this literature has come to regard effectiveness as a social construct, often using reputational and perceptual conceptualizations in theoretical and empirical research (e.g., Herman, 1992; Mitchell, 2015a; Packard, 2010).

The concept of organizational effectiveness is closely tied to evaluative judgments of nonprofits, with all the attendant difficulties of determining whose judgments matter and based on what evaluative criteria. Indeed, the general absence of credible performance information throughout the nonprofit sector significantly impedes efforts to evaluate organizational effectiveness based on “objective” performance indicators. In lieu of such information, stakeholders have largely turned to alternative measures related to an organization’s reputation for effectiveness (Mitchell, 2015a; Mitchell & Stroup, 2015), ability to secure resources (Stone, Bigelow, & Crittenden, 1999), or most commonly, financial ratios loosely interpreted as measures of organizational effectiveness. The easy availability of information about nonprofits’ program expense ratios has exerted a particularly strong influence over managerial incentives and behaviors throughout the sector (Garven, Hofmann, & McSwain, 2016). Information intermediaries such as Charity Navigator, for example, provide publically available ratings of nonprofits based partially on their program expense ratios. These ratings benchmark individual nonprofits to “industry standards” for normal practices as evidenced by various financial ratios, where normality is typically defined by percentiles. Because industry benchmarking appeals to specific standards of normality, it is a quintessential practice of normative nonprofit management. Nonprofits with program expense ratios significantly below the industry average receive lower ratings, possibly inciting negative publicity and criticism, and risking damage to their reputations and funding streams. “Appropriately” managed nonprofits meet or exceed specific industry benchmarks, resulting in convergence throughout the sector as nonprofits make adjustments to ensure that their measures fall within ranges of normality.

From an instrumental standpoint, however, normative convergence makes little sense unless normativity is associated with preferable outcomes. Empirically, nonprofit leaders tend to define organizational effectiveness as either “outcome accountability”—the ability to demonstrate that an organization is achieving its intended results—or “overhead minimization”—the reporting of financial ratios at levels consistent with standards of normality (Mitchell, 2013). The instrumental perspective assumes both a specific stakeholder standpoint—the nonprofit itself—and a specific evaluative criterion—achievement of the organization’s own goals.

Although the two approaches to understanding organizational effectiveness may not necessarily conflict, they clearly provide divergent guidance for nonprofit managers. Pursuing normality relative to industry benchmarks draws managers’ attention to their expenses, specifically to ratios between functional expense categories such as program, administrative, and fundraising expenditures, with the objective of generally maximizing program costs in relation to administrative and fundraising costs. An instrumental strategy of outcome accountability, however, turns managers’ attention to the challenge of maximizing program impact given resource constraints and with less regard for the distribution of functional expenses (Mitchell, 2014b; Mitchell & Schmitz, 2014). Clearly, many managers will face conflicts when achieving sustainable organizational impact requires investments in administration and fundraising that reduce the program expense ratio and therefore damage perceptions of organizational effectiveness.

Efficiency

The normative and instrumental approaches to nonprofit management each conceptualize effectiveness differently, and these differences also extend to conceptualizations of efficiency. Normatively, efficiency is typically defined by one or more cost ratios derived from an organization’s functional expense classifications. For example, program or organizational efficiency is given by the ratio of program expenses to total expenses (the program expense ratio), fundraising efficiency is measured inversely by either the ratio of fundraising expenses to charitable contributions (the cost to raise one dollar), or the ratio of fundraising expenses to total expenses (the fundraising expense ratio), and administrative efficiency is measured inversely by the ratio of administrative expenditures to total expenditures (the administrative expense ratio; Frumkin & Kim, 2001; Hager & Flack, 2004). The normative conception of efficiency in terms of cost ratios is thus directly tied to the normative conceptualization of effectiveness as overhead minimization. Again, the operative management concern principally involves pursuing normality in efficiency through benchmarking and ultimately the ability to demonstrate that the nonprofit’s cost ratios fall within a range of normality or meet or exceed standards of normality. Organizations that exhibit cost ratios consistent with these normative expectations are therefore to be regarded as “efficient,” while those that fail to conform to these norms are to be regarded as relatively “inefficient.”

The instrumental approach to organizational or programmatic efficiency, by contrast, understands efficiency not as a ratio among costs but as a ratio of costs to impact, or more specifically, as the cost per unit of impact (Mitchell, 2014b). This view is respectively consistent with the outcome accountability conceptualization of effectiveness in its emphasis on impact per dollar rather than the composition of an organization’s functional expenses. Under this view, functional expense allocation is largely irrelevant, as managers instead attempt to increase impact holding total costs constant, to reduce total costs holding impact constant, or to both reduce total costs and increase impact simultaneously.

Impact-oriented efficiency benchmarking with reference to industry standards or ranges of normality is difficult at best, since units of impact are unlikely to coincide across different organizations operating in different contexts. Indeed, nonprofits overwhelmingly do not disclose such efficiency measures in common reporting channels and appear to mimic the reporting behaviors of their peers for reasons of social legitimation (Hyndman & McConville, 2015). Interorganizational comparisons may be less relevant for instrumental management, though, not only because they are more difficult and less common but also because they may be managerially unnecessary. A nonprofit adopting a purely instrumental approach demonstrates its efficiency when it maximizes its impact per dollar, ceteris paribus.

Assessments of both efficiency and effectiveness serve important roles in internal performance management and external evaluation, and whether stakeholders prefer normative or instrumental approaches has significant implications for beneficiaries, nonprofits, funders, government authorities, information intermediaries, and society at large. Specifically, the choice of approach directly affects how nonprofits are held accountable and for what. Although the two approaches do not necessarily conflict with one another in principle, in practice, nonprofit managers may frequently confront real choices with respect to resource allocations that reduce not only overhead but also impact per dollar, or increase not only impact per dollar but also overhead. Funders, regulators, intermediaries, and other stakeholders that reward one type of allocation over another will exert influence over nonprofit behavior, with far-reaching consequences for nonprofits, their beneficiaries, and for patterns of accountability throughout the entire nonprofit ecosystem.

Accountability

Nonprofit accountability is a multidimensional construct that involves both to whom an organization must account and for what (Ebrahim, 2010). Despite the inherent multidimensionality of nonprofit accountability and despite widespread interest in enhancing downward accountability to beneficiaries as well as promoting results-based accountability, most nonprofits remain principally upwardly accountable to their donors and primarily for financial performance (Schmitz, Raggo, & Vijfeijken, 2012). In line with this model of nonprofit accountability, the publication of nonprofit financial disclosures and the emergence of numerous information intermediaries such as GuideStar and Charity Navigator providing this information to the public once appeared to offer the promise of systemic accountability across the sector. Armed with financial performance information, donors and the general public would identify and reward “high performing” organizations with increased contributions, simultaneously introducing powerful incentives for “low performing” organizations to conform to industry norms pertaining to cost ratios, executive compensation rates, and other criteria derived from financial disclosures.

However, research on the impact of cost ratios and intermediary ratings on donor behavior has yielded mixed conclusions (cf. Ashley & Van Slyke, 2012; Cnaan, Jones, Dickin, & Salomon, 2011; Gordon, Knock, & Neely, 2009; Sloan, 2009; Szper & Prakash, 2011; Tinkelman & Mankaney, 2007). For example, while cost ratios seem to have an effect on donations for some nonprofits (Tinkelman & Mankaney, 2007), they do not appear to affect government support levels (Ashley & Van Slyke, 2012; Nikolova, 2015), and it remains unclear whether certain cost ratios should be regarded theoretically as negative indications of price, as positive indications of quality (Ashley & Van Slyke, 2012; Marwell & Calabrese, 2014), or as endogenous or exogenous to management (cf. Mitchell, 2015b; Tinkelman, 2004). Nevertheless, as testimony to the normative accountability architecture, research finds that nonprofits have adjusted their expense reporting practices in conformity with social expectations pertaining to appropriate financial criteria (Eckerd, 2014; Krishnan et al., 2006; Lecy & Searing, 2014; Szper, 2013).

Codes of conduct, self-regulation schemes, certification systems, and accountability clubs have become additional means for transmitting accountability norms across the sector (Gugerty, Sidel, & Bies, 2010; Tremblay-Boire, Prakash, & Gugerty, 2016). Indeed, prior research suggests that normative pressures “net of instrumental concerns” operating through “coercive, normative, and mimetic mechanisms” largely account for the proliferation of codes of conduct over time (Bromley & Orchard, 2015, p. 14). However, the existence of multiple and overlapping systems, their limited coverage, and their lack of credibility due to their voluntary and self-regulatory nature have limited their potential.

Meanwhile, an instrumental perspective emphasizes accountability for accomplishing organizational goals. This focus implies a shift from upward financial accountability to donors to inward outcome accountability to an organization’s mission (Mitchell, 2014b). However, unlike the business and public sectors, no systemic accountability mechanism currently exists in the nonprofit sector to require organizations to meaningfully disclose their goals or accomplishments. Various observers have advocated for a nonprofit sector analog to the U.S. Securities and Exchange Commission (SEC) that would require standardized reporting of nonprofit performance information pertaining to organizational effectiveness and programmatic cost-effectiveness (Herzlinger, 1996; Keating & Frumkin, 2003; Mitchell, 2014b) and have noted that with or without such an agency, some form of intermediation would be necessary to ensure that information disclosures would be useful for stakeholders (Ruff, 2013). Under an instrumental accountability system, nonprofits would be held to account less for maintaining conformity with industry benchmarks and more for accomplishing their own goals. Unfortunately, for the proponents of outcome accountability, most nonprofits lack the internal capabilities to produce the necessary program evaluation data to support such a system (Mitchell & Berlan, 2014).

Normative and instrumental conceptions of nonprofit accountability direct managers’ attention to different stakeholders and for different reasons. Whereas normative approaches emphasize financial benchmarking and upward accountability to donors, an instrumental approach emphasizes program evaluation and accountability to an organization’s mission. Again, although these two divergent approaches to nonprofit accountability may not necessarily conflict, prior research has shown that efforts to demonstrate normative accountability through practices such as overhead minimization, for example, may result in lower levels of organizational effectiveness (Wing & Hager, 2004). Moreover, efforts to exhibit normative accountability with respect to a growing multiplicity of information intermediaries and accountability clubs may divert time and resources away from strengthening internal management systems for achieving outcome accountability.

Discussion

The normative and instrumental approaches to nonprofit management illustrated above instantiate different philosophies about the nature and function of the nonprofit sector in society. Amid increasingly blurred lines between the state, the market, and civil society (Bromley & Meyer, 2014), these philosophical differences have produced an important debate within the sector, especially among international nonprofits that attempt to tackle particularly intractable social, political, and environmental problems on a global scale. Proponents of businesslike professionalization, on one side, argue in favor of improving efficiency, effectiveness, and accountability through modern management techniques, while their critics express fears that further professionalization will transmogrify nonprofit organizations from authentic sites of civil society mobilization to corporate bureaucracies that sacrifice their social functions in the pursuit of businesslike values (cf. Crowley & Ryan, 2013; Maier, Meyer, & Steinbereithner, 2016; Sriskandarajah, 2014). Which view one adopts appears to hinge upon a provocative thesis pertaining to the attainability of organizational missions.

Seibel (1996) observes that modern societies tend to delegate unsolvable problems to the nonprofit sector, and to do so for reasons of coping with cognitive dissonance brought about by the simultaneous presence of abundant wealth and persistent poverty. Societies seek comfort in the belief that “something is being done, regardless of how it is being done and how efficiently it is being done” (p. 1017). Under this interpretation, instrumental managerialism is self-defeating because transparent performance management and rigorous program evaluation would reveal the impossibility of success and therefore critically invalidate the raison d’etre of the nonprofit sector. It is this symbolic function of the nonprofit sector that would rationalize a preference for a normative modality of managerialism focused on fiscal propriety, performativity, procedure, and effort, over an instrumental modality focused on demonstrable goal attainment. According to Seibel (1996),

Nonprofit organizations may be especially suited to cope with the contradictions of organizational modernity. According to the logic of modernity and its intrinsic principles of organizational efficiency and accountability, we refuse to accept both problem nonsolving and organizational failure as standards of responses to problems of any kind. When it comes to unsolvable problems, the competitive advantage of nonprofit institutions as opposed to public sector and private sector institutions is that they may function as placebo arrangements. They may symbolize problem solving while solving nothing at all. They may pretend to be not just as efficient but even more efficient than private or public institutions when it comes to the delivery of certain services while being definitely inefficient and unaccountable. (p. 1022)

Seibel’s analysis also provides an explanation for the persistent normative focus on overhead minimization and cost minimization generally, and as substitutes for outcome accountability specifically. He argues that “to maintain an unattainable goal and to reduce the social and political costs of its unattainability is the main challenge” (Seibel, 1996, p. 1018). If one adopts the premise that nonprofit missions are fundamentally unattainable, then cost minimization is clearly the rational response to minimize waste.

This is to argue that a normative approach to nonprofit management is consistent with (a) an underlying assumption of problem unsolvability that justifies expense minimization and normative managerial practices that retard organizational growth, (b) disinterest in instrumental managerialism that would reveal persistent organizational failure and therefore negate the sector’s symbolic function, (c) the tolerance and preservation of systemically ineffective accountability mechanisms incapable of promoting efficient resource allocation, (d) strategies of opacity that obscure organizational ineffectiveness, and (e) persistent appeals to the idiosyncrasies and complexities of the work of nonprofits that excuse organizations for their inability to demonstrate their accomplishments.

The question of whether the problems delegated to the nonprofit sector are unsolvable yield potentially radical implications for public policy. If philanthropy serves no instrumental purpose for its presumed beneficiaries, then it is difficult to justify public tax expenditures to incentivize and subsidize wasteful warm-glow giving for wealthy philanthropists. If, on the contrary, society genuinely expects nonprofits to deliver results, then meaningful public oversight through an SEC-like regulatory body is imperative. Meanwhile, the willingness of individuals to donate to nonprofits even under the certainty that their contributions will have no impact (i.e., Crumpler & Grossman, 2008), combined with systemically lax regulatory oversight, seem to support a symbolic interpretation.

Conclusion

Managerialism and institutionalism combine to provide a useful perspective with which to examine the modalities of nonprofit management. An analysis of seven domains of nonprofit managerialism reveals important contrasts between a normative modality that exercises a logic of appropriateness and an instrumental modality that exercises a logic of consequences. These differences produce nontrivial implications for both the daily practice of nonprofit management and for the character and role of the nonprofit sector in society as a whole. The two modalities often place managers in a frustrating “double bind,” posing contradictions that can muddle strategy and complicate decision making. More broadly, they appear to reflect contrary positions as to the fundamental attainability of organizational missions. Specifically, disbelief in the possibility of goal attainment is consistent with a normative modality, while faith in goal attainability is consistent with an instrumental modality.

Although March and Olsen’s institutionalist theory has been the subject of some criticism (e.g., Goldmann, 2005), the two logics of action they propose demonstrate their practical utility in the variety of managerial domains analyzed above. Nevertheless, the separability of the normative and instrumental modalities should not be overstated, but rather their overlap and interdependencies recognized. “The two logics are not mutually exclusive,” according to March and Olsen (1998, p. 952), and “any particular action probably involves elements of each.” Organizations “calculate consequence and follow rules, and the relationship between the two is often subtle.” (p. 952). How to determine which logic might dominate depends on the “prescriptive clarity” of each, in which a “clear logic will dominate a less clear logic” (March & Olsen, 2009, p. 20).² It is, therefore, reasonable to presume that the instrumental modality may be more likely to prevail in domains of management where rules and norms are ambiguous or absent and that the normative modality may be more likely to prevail when rules and norms are relatively clear and under certain conditions of transparency in which information about organizational rule-following is available to relevant stakeholders.

Managers may wish to consider the extent to which normative and instrumental considerations inform their decision-making and whether contradictions exist that present a “double bind” that imposes trade-offs and necessitates prioritization. Where nonprofits receive significant public attention and information about organizational rule-following is publically available, managers may face stronger pressures to conform to norms, even at the expense of instrumental aims. Where nonprofits receive less public attention for rule-following, or where transparency is redirected toward instrumental aims instead, managers may enjoy more freedom of action to violate social rules and norms in the instrumental pursuit of organizational objectives.

Future nonprofit management scholarship should recognize its relationship to the two modalities and explicitly consider the implications and alternatives. In addition, future research should examine the conditions under which one or the other modality may dominate and should test whether information transparency about rule-following is correlated with a higher propensity for normative action. More specifically, the availability of financial disclosures and designations from information intermediaries may present researchers with opportunities to explore the behavioral implications of the modalities. Scholars may also wish to determine whether the balance varies by subsector or other characteristics and to investigate more extensively the concept of the “double bind” as it relates to contradictory managerial imperatives. Finally, in-depth qualitative research is needed to better understand how managers weigh normative and instrumental considerations in decision-making.

Neither the normative nor the instrumental modality carries with it any inherently legitimate claim to being “right” or “wrong,” or “good” or “bad.” Such determinations, as has already been intimated, appear to turn upon the criterion of a society’s position on the attainability of nonprofit missions. This may be an empirical question, or perhaps more likely, an intersubjective condition, but in either case, much hangs upon its understanding.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biography

George E. Mitchell is an assistant professor of political science and an affiliate of the MPA (Masters of Public Administration) and international relations programs at the Colin Powell School of the City College of New York. His research examines topics in NGO (nongovernmental organization) and nonprofit management, leadership, and strategy and has appeared in journals in nonprofit and NGO studies, public administration, and international affairs.

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