Reaching Out: Network building by US non-profit welfare organizations

Chandrasekhar Commuri

Abstract

Contemporary non-profit organizations operate in a fast changing
and challenging environment. While the challenges at the sector
level have been well documented, there is a gap in the literature
in examining this issue at the local level. Based on interviews
with non-profit executives, and using grounded theory
methodology, this paper proposes that non-profits are using a
reaching out strategy to deal with their most commonly
experienced challenges of overwhelming complexity, distancing,
and fragmentation. Reaching out involves different forms and
levels of inter-organizational networking. These forms may be
characterized as differentiation, symbiotic relations, and
advocacy networks.

Introduction

Even though the idea of a ‘welfare state’ may conjure up
images of a monolithic government bureaucracy, the modern
welfare state in the United States is a collection of public, nonprofit,
and private organizations with cross-cutting funding and
program interrelationships. Non-profits have been playing an
especially important role in the welfare system since the 1980s
(Salamon, 1987; Wolch, 1990; Salamon, 1995; Savas, 2000;
Chambre, 1999). Acting as contractors of the state, they are
delivering more services, reaching new, especially previously
marginalized, clients, and introducing novel solutions to sticky
social problems. They do this because they are generally more
nimble and efficient than public agencies. To that extent, the
welfare state has benefited from its relationship with the nonprofit
sector. In return, non-profit organizations have also reaped
benefits from this relationship. By some estimates, over a third of
the non-profit sector’s revenues come from the government
(Independent Sector, 2002). Among other things, this increased
funding led to a growth in the number of non-profits over the last
forty years.

Public policy and administration trends like ‘contracting out’
and ‘New Public Management’ (Osborne & Gaebler, 1993;
Frumkin, 2002; Brooks, 2003) facilitated this growth in state
support for the non-profit sector. Among other things these
trends emphasized cross-sector collaboration, the use of multiple
delivery agencies in order to encourage competition and
creativity, establishing service delivery close to the clients, and
outcomes measurement (Savas 1982, 2000). The operating
environment for the non-profit sector changed quantitatively and
qualitatively as a result. This environment provided many
opportunities for the non-profit sector, but it also brought with it
new problems and challenges. Non-profits found themselves in
unfamiliar terrain in the legal, collaboration, personnel, and
accountability areas. Therefore, along with growth and vibrancy,
the sector also experienced voluntary ‘failures’ (Salamon, 1987).
Examples of these are an inability to sustain the organization in
the long term due to increased competition, shortage of
professional managers, lack of accountability, the simultaneous
existence of duplication and gaps in services (Chambre, 1999),
and the altering of program priorities to follow changes in
funding trends.

Local level organizations are the primary workhorses of the
non-profit sector. They directly deliver more services and reach
more clients than national organizations and typically have fewer
(financial and human) resources than state or national
organizations. Previous research on this topic has focused more
on macro level challenges faced by the non-profit sector as a
whole rather than on exploring problems and challenges faced by
local organizations. The literature has explored such macro level
challenges as the sector’s overreliance on government funding,
the relative loss of autonomy of the sector due to such reliance on
government funds, the crowding out of private charity, the lack of
investment in capacity building, and the dysfunctional aspects of
competition between traditional non-profits on the one hand and
faith based organizations and private corporations on the other
(Salamon, 2002; Abrams & Schmitz, 1984; Brooks, 2004; Smith &
Lipsky, 1993). Even though these macro level challenges are
important, they do not fully capture the challenges faced by nonprofits
at a local level.

This paper presents a theory of reaching out through the
building of formal and informal networked relations among
localized non-profits to cope with the challenges they face.

Method

Grounded Theory (GT) methodology (Glaser & Straus, 1967;
Glaser, 1978; Glaser, 1992) was invoked for this study allowing
for the identification of social processes occurring in organizations
without having to approach the data with predetermined
concepts or expectations. Data were collected through twenty one
interviews with executive directors of non-profits in California’s
San Joaquin valley. All participants had been involved with their
organizations over an extended period of time and were probed
about crucial operations and decisions in their organizations.
Some participants were involved from the point of their
organizations’ founding and thus were witness to, or were directly
involved in, decision making in important areas as the
organizations expanded. The participants were typically involved
in such major decisions as strategic planning, adding or dropping
programs, choosing or rejecting new funding streams, or creating
services for new clients. All the participants’ agencies provided
what may broadly be called ‘social and human’ services. These
organizations represented a wide spectrum of operations and
were servicing such clients as migrant farm workers, the
homeless, abused and neglected children, and AIDS patients.

Initial sampling was done using the snowball method with
participants being asked to recommend others for the study.
From these names, potential participants were chosen so as to
bring in a diverse range of organizations (in terms of program
activities) into the study. As initial codes started emerging,
theoretical sampling was used to recruit additional participants
for the study. This was done based on participants’ expected
ability to contribute to the elaboration of emerging codes. Such
sampling is consistent with Glaser’s recommendation (1978) and
it helps in the fleshing out of the properties of the codes as well as
in the identification of the connections between them. Glaser
(1978, 1992) argued that, in GT methodology, the goal of the
researcher is the inductive elaboration of phenomena like social
processes and thus sampling and interviewing (or other data
collection techniques) should be guided by the need to identify
and fully develop such processes and their related concepts.
Eventually, this will lead to the development of hypotheses that
connect the concepts and processes.

Challenges Faced by Non-profits at the Local Level

Non-profits face a wide variety of challenges key among
which are the challenges of ‘overwhelming complexity’, whereby
the stubbornness of the problems, their depth and scope, as well
the long term impact they are having on clients seems to
overwhelm the small, local non-profit; and ‘distancing’, the
consequence of sustained fundraising success that transforms
small non-profits into large, bureaucratic organizations causing
them to lose touch with client groups and grassroots advocates
and frequently rendering them unable to respond quickly to
emerging issues – a key characteristic of their initial success. A
third challenge is ‘fragmentation’ due to lack of coordination
between non-profits when competing for grants or creating
programs for clients and resulting in redundancies, wastage, and
dissipation of focus and overall reduced efficacy.

Overwhelming complexity

Even the most experienced non-profit managers express
frustration with the complexity and stubbornness of these
problems. One of the sources of complexity, and a source of
frustration, is that problems seem to spill over in ways that
reduce the efficacy of a non-profit. All the hard work in an area is
brought to naught because other public or non-profit
organizations are not doing enough to address other aspects of
the problem. Among other things, this situation causes bitterness
among non-profit managers and leads to finger pointing. Another
dimension of overwhelming complexity seems to be the
stubbornness of the problems that non-profits are dealing with.
Managers often feel that in spite of their best efforts they make
little progress and feel that they are “running on a treadmill”.
Non-profits dealing with child abuse, domestic violence,
homelessness, gang violence, and AIDS education and advocacy
all seem to be impacted in one way or another by this problem.
Managers often feel that they are serving the same clients again
and again because underlying problems are not being addressed.

Overwhelming complexity also persists because, even though
the problems the non-profits are dealing with are multidimensional,
there is not enough funding available for designing
solutions that are well coordinated, systemic, and long term.
Traditional grants reward discrete projects with very specific
outcomes. The modest grants available to local non-profits do not
support projects attempting widespread solutions to social
problems. The situation is compounded by a lack of collaboration
within the local non-profit sector. The perceived competition for
grants can be so intense that many managers are reluctant to
work together for fear of having to share vital information with
potential competitors for funding support.

Distancing

In the literature, the ideal type of a non-profit is that of an
organization that caters to unmet local needs—needs that have
been ignored by the public and the private sectors (Hall, 2006). In
doing so, non-profits are expected to rely upon local resources. In
this sense they are uniquely different from public agencies
serving similar clients. Public bureaucracies are expected to be
more top-down and rule oriented while non-profits are expected
to be more flexible and creative in the way they address social
problems. In reality, however, non-profits tend to ‘go corporate’
too. As they receive larger grants, take on larger client loads, and
employ more people, non-profits tend to take on the bureaucratic
characteristics of public agencies. The literature on
organizational isomorphism (for example, DiMaggio & Powell,
1987) implies that this could happen; it would especially happen
to non-profits that are reliant on government grants and those
that have a long tradition of working closely with (and for) public
agencies in the implementation of the latter’s programs.

This presents a paradox for the non-profit. Even though
being close to the clients and quickly responding to their needs
were essential to their initial success, the subsequent
bureaucratization and formalism prevents their being able to
continue to sustain their grassroots responsivity. Rather, they
become preoccupied with procedures, evaluations, and internal
processes and the pressure to continue do the things that will
lead to even more success and to keeping or receiving large
grants. Thus, non-profit leaders become preoccupied with
maintaining organizational growth and developing external
relations.

Fragmentation

Fragmentation occurs as services are parceled and provided
amongst a large number of agencies with the onus on the clients
to coordinate and claim the services they need. Fragmentation
occurs for several reasons. Non-profits are intensely competing
for funds and credit such that they have limited innate incentives
to collaborate, share information or services. Further,
grantmakers reward specialization and projects with discrete
outcomes. Non-profits respond to this by slicing up the problem
into measurable and relatively one-dimensional parts. Another
reason for fragmentation is the regulatory environment that
makes it hard for agencies to share information and coordinate
services, especially where vulnerable populations like children
are involved. This last factor is compounded when the situation
requires non-profits to work along with public agencies. Thus,
non-profit managers feel that the value of what they are doing
(and its impact on their clients) is realized only when the other
pieces fall in place. In reality though it is not uncommon for
clients to ‘fall through the cracks’ because of the way the various
agencies work in their own worlds. The lack of coordination can
be particularly pronounced between non-profits and local
governmental agencies in the context of competition for credit.

Reaching Out as a Coping Strategy

Non-profit managers acquire methods of coping with the
challenges that their organizations face by ‘reaching out’ and
connecting with other non-profit and public organizations. More
specifically, the reaching out results in strategic competition
through differentiation, symbiotic relationships, single-issue
alliances, and advocacy networks. Differentiation helps nonprofits
enhance coordination and improve fundraising efficiencies.
Non-profits in small communities are sensitive to being perceived
as stepping on each other’s toes in raising funds. At the same
time though they feel the pressure to distinguish themselves to
the donor community and they understand that comparisons with
other similar non-profits are inevitable. Differentiation has the
advantage of not only enhancing fund raising efficacy but also
providing more focused services for clients.

The formation of symbiotic relations between smaller and
larger non-profits results in two-way sharing of resources
between organizations involved in similar work regardless of
major differences in their relative sizes. The relations involve
formal and informal linkages and result in the exchange of a wide
variety of resources (for example, people, training, ideas, and
strategy). Symbiotic relations are not primarily about the
transfer of money (though this may sometimes occur) but are
focused on other ways in which organizations can help each other.
One of the ways in which larger organizations benefit from
symbiotic relations is that smaller organizations help them
overcome the distancing problem described above. Larger
organizations gain insight regarding emerging clients’ needs as
well as other political issues that could potentially impact their
programs. Being able to quickly respond to such needs validates
that they still care about their clients and that they are still
nimble enough to create or modify programs for such emerging
problems (even though their connections to some of the
communities are indirect). At the same time, the small nonprofits
also benefit because they gain access to guidance from
experienced staff, leads to influential grant-makers, and even
some pass-through dollars. In some cases, the smaller
organizations act as sub-contractors for the larger non-profits
delivering services on the latter’s behalf while keeping them
plugged in, so to speak, with what is happening at the ground
level. The smaller organizations especially appreciate the
opportunity to have a larger impact than they otherwise would
have.

Non-profits may also use symbiotic relations to form single
issue alliances with government agencies in order to quickly act
on a hot-button public issue. Such alliances are unique in their
focus on raising the public’s awareness on a single issue and are
usually dismantled after some progress has been achieved
towards tackling that issue. Such alliances may be short-term or
longer-term and enable the non-profits to accomplish more, and
more quickly, than through their traditional individual efforts.
Further, because all participants realize that they are working
towards helping a single (or a few) cases, they tend to focus more
on the outcomes than on the ‘usual politics’ that exist between
non-profit and public agencies operating in a domain.

A third form of reaching out occurs when non-profits form
policy advocacy networks with public agencies with the goal of
changing existing public policies or shaping emerging policies.
These networks are unique in the sense that they are not directly
focused on delivering services to clients but on the broader policy
environment. This policy environment is important because it
sets the programmatic and funding priorities in their domain.
The advocacy networks are not lobbying groups because they
were relatively short term and were focused narrowly on one or
two issues. The advocacy networks are interesting because of the
strict legal and political environment they operate under—an
environment that imposes restrictions on lobbying by non-profits
and public agencies. Public agencies don’t want to be perceived as
lobbying their own political bosses for fear of criticism by the
latter. However, they stand to benefit (more funds, more
programmatic impact) should such lobbying be successful. They
thus seem to form networks with non-profits to advocate on single
policy issues. Non-profits want to walk a fine line between policy
advocacy, maintaining neutrality (for IRS purposes), and
positioning themselves in ways that they will be able to draw
more funds should a policy is changed after all. In these quid pro
quo relationships, the actual advocacy (its public face) is provided
by the non-profits; the public agencies take a relative back seat
but provide other resources (information, legislative know-how,
and access to policy makers). They also bring attention to the
issues being advocated on through timely newspaper
announcements. If public policy changes as a result, all members
of the advocacy network tend to gain.

Collaboration between non-profit and public organizations
for shaping policy takes many different forms. This happens for
example when non-profits reach out to collaborate with public
agencies in areas when the latter have discretionary funds. Thus
a public agency may be charged by its governing legislative body
with protecting children from abuse. However, a few non-profits
may lobby locally to make the case with the agency that targeting
teen parents with educational campaigns may be an appropriate
way of fighting abuse given the circumstances of the place. Thus,
non-profits and local public managers together make micro level
public policy by determining how exactly the funds will be used
and which client groups will be targeted. As Lipsky (1980) said,
street level bureaucrats sometimes set policy by determining the
details of program implementation. Interestingly, non-profits also
seem to be playing a role in street level bureaucracy of this kind.
Figure 1: (cannot be shown)

Discussion

Even though terms like ‘the independent sector’ and ‘the
third sector’ conjure up impressions of the non-profit sector as a
separate entity from the public and private sectors with relatively
impermeable boundaries, the reality is that the non-profit sector
has, especially since the 1980s, become very closely integrated
with the public sector. A key impetus in this regard was the
Reagan administration’s decision to allow large scale contracting
by public agencies with non-profits for the delivery of social
services. This phenomenon continued under subsequent
administrations. As a result, the non-profit sector grew at an
annual rate of 5.1 percent between 1987 and 1997 (Independent
Sector, 2002). This impressive expansion occurred at double the
rate of growth of the business sector during the same period. The
non-profit sector’s growth was especially dramatic between 1989
and 1992 (7.3 percent per year). The sector currently has over one
million organizations falling under the various exempt categories
of the tax code (most of them are under the 501-c-3 and 501-c-4
sections of the code). The sector employs over 11 million people
and has revenues over 700 million dollars (Independent Sector,
2002).

This increasing reliance of non-profits on government
funding sources, and their increasing coordination with public
agencies during the implementation of welfare programs has
caused people to question whether the ‘independent sector’ is
really independent. Salamon (1987, 1995) called this situation
‘third party government’ because of the extent to which the nonprofit
sector has become a contractor of the state. Other writers
have questioned whether the unprecedented reliance on
government funds could compromise the autonomy of the nonprofit
sector, especially in areas of advocacy. Wolch (1990)
explored the implications of this situation further by pointing out
that the non-profit sector has in effect become a ‘shadow state’ in
that it operates like the state (delivering public goods that are
deemed important by state actors and using public funds) but
without the full institutional capacity of the state and without its
legitimacy. This shadow state situation results in the transfer of
the state’s responsibilities to the non-profit sector but without a
sustainable strategy for maintaining the latter’s ability to
continue providing these services without state support. In the
worst case scenario the state could retrench funding for welfare
programs but the non-profit sector will be holding the
responsibility for delivering services to client.

Concerns such as these about the dysfunctions of the nonprofit
sector’s overreliance on the state have started a debate in
the literature about the challenges now facing the sector. Most of
these debates though have focused on sector level challenges (see
for example Netting et al, 1990; Smith & Lipsky, 1993; O’Regan
& Oster, 2000; Frumpkin & Andre-Clark, 2000; Austin, 2003).
There appear to be three major sector level challenges discussed
in this context. The first focuses on the concern that the nonprofit
sector may not be able to keep up with the fast growing
expectations from it, especially in an era of governmental
retrenchment in the welfare arena. The expectations are coming
from policy makers, public administrators, and citizens.
Discussions on this issue raise several questions. These include:
to what extent can non-profits continue providing current levels
of service, and carry current case loads, if governmental funding
for welfare keeps decreasing? If services have to be cut, would
non-profits be expected to make these decisions on behalf of the
state? On what basis will such decisions be made?

The second issue is related to the above but it focuses
specifically on emergency management. It addresses questions
such as these: to what extent can the non-profit sector be a
substitute for state agencies in ‘first responder’ situations,
especially during mass emergencies? Does the sector have the
professional expertise, financial resources, the logistical
sophistication (especially when coordination between agencies
within the sector is required), and access to supplies that are
essential for success in such situations? The criticism received by
the American Red Cross after the Katrina disaster (Moore, 2005)
shows that even the largest of non-profits can fail in this regard.

The third issue concerns the growing competition between
non-profits on the one hand and faith-based charities and, even,
private corporations on the other for the same pool of government
funds. Many non-profits already operate with low margins. Their
administrative expenses are under squeeze largely because many
funding sources do not want to pay for indirect expenses. Nonprofits
are struggling to compete for talented staff and the
downward pressure on administrative costs will make this even
worse. In this context, the growth in public policies that
encourage faith-based organizations and private corporations to
compete with non-profits could make matters worse for the latter.

All three of the above issues are important for the sector
from a macro level perspective because what happens at that
level would have significant ramifications for the non-profit sector
as a whole. However, these are not necessarily the issues that are
urgent and compelling for local level non-profits. As this study’s
proposed theory of reaching out suggests, the specific challenges
of particular concern to local non-profits have more to do with
their ability to coordinate and maximize their efforts within the
constraints of their local and often limited resources.

Relevant for this study are two bodies of literature in
organizational theory that have examined how, when, and why
alliances are formed. The first is the resource dependence
approach (notably Pfeffer & Salancik, 1978) and the second
examines inter-organizational networks from a political economy
perspective (notably Benson, 1975). The resource dependence
literature assumes that all organizations operate in an
environment of resource scarcity and they therefore interact with
each in order to acquire resources that will make them powerful.
Typical resources in these situations are money, information,
technology, and people. The relative power of an organization in
this situation is directly proportional to the control it has over
unique resources that are badly needed by others. Such power is
further enhanced if an organization can decrease its dependence
on others for the resources it needs. Organizations get into
networks in order to exchange resources and maximize their
utility. This approach is useful because it helps us focus on how
resources flow between organizations and it helps us see how
small and large organizations each have resources that the other
needs (see for example Provan, Beyer, & Kruytbosch, 1980).

Benson’s (1975) political economy approach to interorganizational
networks takes a slightly different perspective. He
argues that authority is an important resource being exchanged
in networks, along with money. Further, such power is dependent
on the links that organizations within a network have with actors
in the external environment. In that sense, Benson sees the world
of networked organizations as a relatively open system. We need
to study a wider variety of variables in order to see how, why, and
when organizations offer or seek linkages with others.

Benson’s approach appears more suited to understanding
the phenomena I observed in this study. Even though non-profits
are keen to acquire financial and other resources described by the
resource exchange approach, all of this seems to be guided by the
need to acquire authority and a sense of legitimacy. Non-profits
want to do well and they especially want to be seen to be doing
what others are not able or willing to do. This comes through
especially strongly in the comments of participants representing
the larger non-profits. Even though they already have many of
the resources like money and people, they still seem to need to
reach out to smaller organizations in order to build authority that
is based on legitimacy, on a sense that they are still relevant in
the community. As Benson (1975, p. 232) notes, authority “…
refers to the legitimation of activities, the right and responsibility
to carry out programs of a certain kind, dealing with a broad
problem area or focus.”

Reaching out then becomes a coping strategy of non-profits
when faced with compelling challenges. The reaching out that
was observed in this study should perhaps be understood in
terms of the jostling to establish legitimacy by actors, in their
own eyes and in the eyes of their peers, within the network and in
the larger environment. Benson calls such legitimated claims as
domains. The goal of organizations is to operate with authority in
domains or networked spaces where they are the dominant and
well-regarded operator. This then becomes the motivation for the
collection of relationships each organization forms with others.
Domains are conceptually distinct from inter-organizational
networks. In the context of this study, domains are areas for
operation or areas of interest while inter-organizational networks
are the functional mechanisms. For example, several such
networks could operate in the domain of foster youth care. This
suggests two research questions that merit further study:

1. What discourse strategies are used by actors to gain
authority in a domain? A lot of the talk that participants did was
to frame their own identity for themselves. We can assume that
this type of communication also occurs when non-profit managers
talk to their peers in other organizations. Because gaining
legitimacy by an organization requires the acceptance of such
position by others, such a pursuit would involve engaging actors
in the network through a discourse. Communication here could
take different forms—speeches, publications, pronouncements at
public hearings, and policy advocacy statements for example. A
future study could examine cases of legitimacy building by nonprofit
actors within a policy or program domain focusing
specifically on the discourse strategies. What modes of
communication are used? What metaphors? And, how do the
modes and metaphors vary in different situations?

2. What is the role played by public agencies in the growth or
decline of the legitimacy of a non-profit organization within a
domain? Benson’s approach is especially useful because it
emphasizes the role of external actors (external to the network) in
shaping outcomes within the network. As I discussed early in this
paper, governmental agencies play an enormous indirect role in
the contemporary non-profit sector. We need to study the
mechanisms through which public agencies enable or hinder nonprofit
agencies in the pursuit of an authoritative status within a
domain. Again, through the use of case studies we can see how
public agencies tip the balance one way or other and what quid
pro quo occurs.

Author

Chandrasekhar Commuri
Associate Professor
Department of Public Policy & Administration
California State University, Bakersfield, CA
Email: ccommuri@csub.edu

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