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The idea that for-purpose organizations should adopt for-profit management principles is a frequently discussed concept, often stemming from a desire to increase efficiency, sustainability, and innovation. While applying certain business practices from the for-profit world can provide benefits, treating for-purpose organizations exactly like for-profit enterprises misses the fundamental distinctions in mission, values, and operational focus that set these organizations apart.
The Case for Adopting Some For-Profit PrinciplesFor-purpose organizations, like any entity, must maintain financial health, provide accountability, and ensure operational efficiency. Several principles from the for-profit sector can enhance the way for-purpose organizations function:
Additionally, fostering a highly competitive atmosphere can detract from the collaboration that is often crucial to the success of for-purpose work. These organizations typically operate in a space where partnerships and shared knowledge are key to addressing complex social challenges. A competitive mindset risks undermining the collective impact of the sector. Finding the Right BalanceThe challenge for for-purpose organizations is finding a balance between adopting useful business practices while staying true to their mission-driven ethos. Smart financial management, operational efficiency, and strong branding all have a place in for-purpose management. However, the focus must remain on serving the community, fulfilling the mission, and achieving lasting social impact. For-purpose organizations play a unique role in society—one that is defined not by profit margins but by their ability to drive positive change. They fill gaps left by the market and government, creating value not in dollars but in improved lives and strengthened communities. At their best, for-purpose organizations blend the best practices of both worlds, integrating the rigor of for-profit management with the compassion and commitment to service that defines their sector. The goal isn’t to become for-profit but to build resilient, efficient, and impactful organizations that remain rooted in purpose.
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Stakeholder theory has gained prominence as a guiding philosophy in the for-profit business world. It challenges the traditional notion that the sole responsibility of a company is to maximize shareholder profit, advocating instead that organizations should consider the needs and interests of all stakeholders—employees, customers, suppliers, communities, and the environment. While this idea represents a significant shift for many for-profit enterprises, it is, in fact, a framework that closely mirrors how for-purpose organizations have been operating for decades.
At its core, stakeholder theory is about creating value for a broad array of groups connected to an organization. The approach is holistic, recognizing that the long-term success of any institution depends on maintaining and enhancing relationships with everyone who is impacted by its actions. For-purpose organizations, by their very nature, are designed to function within this framework. They are mission-driven entities, often with a charter to benefit not just one group, but entire communities. In many ways, for-purpose organizations are the living embodiment of stakeholder theory. The Mission-Driven Nature of For-Purpose Organizations For-purpose organizations exist to serve a mission, and that mission is typically centered on improving the well-being of a broad group of people or tackling a specific social issue. Whether a for-purpose organization’s focus is health care, education, environmental conservation, or social services, its success is measured not by profits but by its impact on stakeholders. For example, a community mental health center (CMHC) doesn’t prioritize financial gain for shareholders, because it has none. Instead, it measures its success based on how well it serves patients, collaborates with community partners, and addresses public health issues. The same can be said for organizations that provide early childhood education or services for individuals with disabilities. Every strategic decision is made with stakeholders in mind—the people who rely on the services, the employees who carry out the work, the communities that benefit from the mission, and even donors who fund the organization. This stakeholder-centric approach is already embedded in how for-purpose organizations are structured and operate, making stakeholder theory a natural extension of their governance model. Accountability Beyond the Bottom Line One of the most striking ways for-purpose organizations exemplify stakeholder theory is in their accountability. While for-profit companies traditionally focus on shareholder returns, for-purpose organizations are held accountable by their broader impact on society. Governing boards in the for-purpose sector are composed of individuals who are tasked with representing the interests of the community, service users, staff, and other key groups—not just a financial bottom line. Consider the example of a for-purpose organization providing substance abuse treatment services. If its primary metric were simply maximizing revenue, it might focus on attracting clients who could afford expensive treatment plans. But the very essence of such an organization is to serve those most in need, often regardless of their ability to pay. In doing so, it inherently prioritizes the broader stakeholder group—clients, community partners, and the larger public health system—over any financial benefit. Similarly, employee welfare and development are prioritized as key factors in the sustainability of for-purpose organizations. The idea that organizations should create value for their employees is integral to stakeholder theory, but it is already a common practice in for-purpose organizations. Many leaders instinctively operate with an understanding that the success of their mission depends heavily on the well-being and engagement of their staff, which often leads to a more people-centric management style. For-purpose organizations also routinely involve their communities in decision-making processes, ensuring transparency and fostering trust—another tenet of stakeholder theory. Sustainability and Long-Term Impact A core concept in stakeholder theory is sustainability. For-profit organizations that adopt this approach recognize that creating long-term value requires balancing financial objectives with the needs of other stakeholders. For-purpose organizations, however, have been taking this long-term view from the beginning. Because they are not driven by short-term profits, they tend to prioritize sustainable solutions to complex problems. In the field of community health, for example, a for-purpose organization may invest in preventive services, understanding that while the financial payoff might not be immediate, the long-term impact on public health will ultimately lead to a healthier, more stable community. Similarly, for-purpose organizations engaged in environmental work often operate on decades-long timelines, recognizing that the true measure of their success will not be felt until well into the future. This long-term perspective is precisely what stakeholder theory advocates. Moreover, for-purpose organizations are uniquely positioned to drive innovation in areas where traditional business models may falter. Since their primary responsibility is not to shareholders, they can take more risks in experimenting with new approaches to social problems, even when immediate returns are not guaranteed. This willingness to innovate for the broader good is another way in which for-purpose organizations are inherently aligned with stakeholder theory. The Challenge for For-Purpose Organizations While stakeholder theory aligns closely with how for-purpose organizations operate, that doesn’t mean the sector is without challenges. The increasing expectation for transparency, accountability, and measurable outcomes from donors, grantmakers, and government partners has intensified the focus on results-driven performance. For-purpose organizations must continue to strike a balance between meeting the demands of their various stakeholders while maintaining their commitment to their core mission. Another challenge is the growing complexity of for-purpose governance. As organizations expand and their stakeholder groups diversify, the task of balancing competing interests becomes more complicated. For leaders in this sector, the skill to navigate these dynamics while maintaining a clear focus on the mission is critical. Conclusion For-profit companies embracing stakeholder theory are stepping into new territory—challenging the narrow focus on shareholder value and adopting a more inclusive and sustainable approach to business. For-purpose organizations, however, have been operating within this framework since their inception. Their very existence is a testament to the power of balancing the needs of diverse stakeholders for the greater good. As businesses continue to evolve toward stakeholder-centric models, they would do well to look to the for-purpose sector as a model for how to integrate the needs of employees, communities, and other key groups into their strategic decision-making processes. For-purpose organizations may not have coined the term "stakeholder theory," but they have been living it out for decades, demonstrating that long-term success and social value go hand in hand. In the end, stakeholder theory is not just an abstract framework; it’s a blueprint that for-purpose organizations have followed all along. And if the for-profit world takes note, perhaps the line between profit and purpose will continue to blur in meaningful and impactful ways. Why Larger Organizations Mean Less Involvement in Day-to-Day Operations
As organizations expand in size and complexity, one of the most inevitable and often misunderstood shifts occurs within leadership: the leader becomes less competent in the minute details of day-to-day operations. Far from being a sign of failure, this evolution is a reflection of the changing dynamics inherent in organizational growth. Leadership responsibilities must adapt to the larger context, shifting focus from granular control to strategic oversight. The journey from hands-on management to high-level leadership is a natural, necessary progression that reflects the increasing complexity of the organization itself. The Myth of the All-Knowing Leader In smaller organizations, leaders are often intimately involved in daily tasks, processes, and decision-making. They know the ins and outs of operations, the people who handle them, and every challenge that arises. This closeness to the work can foster a sense of competence and control that is both empowering and comforting. However, as organizations scale, the leader’s direct involvement in day-to-day activities inevitably decreases. This is not due to negligence but because the sheer breadth and complexity of operations have outgrown what any one individual can manage. The myth of the all-knowing leader persists because we often romanticize the idea of the omnipresent CEO or executive who can drop into any department, fix a problem, and move on with a perfect understanding of every detail. But in reality, this is neither feasible nor desirable in a large, multifaceted organization. Leaders who try to hold onto that level of control risk becoming bottlenecks for progress, failing to empower their teams, and making decisions based on outdated or incomplete information. The Complexity Factor: Why Leaders Must Evolve As organizations grow, their structures naturally become more complex. New departments form, specialized teams emerge, and operational procedures evolve to accommodate a broader scope of work. The leader’s job transforms from direct involvement to a more strategic role that requires a broader perspective. Complexity necessitates decentralization. A leader must now focus on creating systems that ensure the organization runs smoothly without their direct involvement in every operational detail. This includes delegating authority, building trust in mid-level managers, and fostering a culture where problem-solving and decision-making occur at the appropriate levels within the organization. The day-to-day knowledge that leaders once prided themselves on becomes diffused among teams of experts, each responsible for their own area. This shift does not mean leaders are less capable, but rather that they are growing alongside the organization—moving from managing operations to managing the ecosystem that allows those operations to thrive. Shifting Leadership Focus: The Rise of Strategy and Vision In smaller organizations, leaders can focus on tactical decision-making because their span of control is relatively narrow. But as the organization grows, their focus must shift to high-level strategy, vision, and culture. Leaders become architects of the organization’s future, not the mechanics of its daily functioning. A CEO of a large company, for example, will spend far more time on mergers, acquisitions, stakeholder relations, or long-term strategy than on the granular workings of individual departments. This strategic oversight is crucial to steering the organization in the right direction, ensuring alignment with long-term goals, and making decisions that affect the organization’s overall health and sustainability. Meanwhile, the day-to-day operations are managed by those closer to the ground, who have the expertise and context to make informed decisions in real time. This shift in focus is not just practical; it is essential for the organization’s survival. Without a leader dedicated to the broader strategy, the organization risks stagnating or losing its competitive edge. It is the leader’s ability to delegate, trust, and empower others that allows the organization to adapt and thrive in an increasingly complex environment. Empowering Others: The True Mark of Leadership One of the most critical transitions in leadership as an organization grows is the move from being a “doer” to a “delegator.” The ability to empower others is the true mark of a leader in a larger organization. Leaders must recognize that they cannot and should not be involved in every decision. Instead, they need to build and support teams that can take ownership of their areas and make decisions independently. This shift requires trust—trust in the people you hire, trust in the systems you’ve built, and trust in the culture you’ve cultivated. When a leader tries to maintain too much control in a large organization, it stifles innovation and creates inefficiencies. But when leaders trust their teams, provide them with the tools and resources they need, and then step back, it fosters a culture of accountability and growth. Moreover, empowering others doesn’t mean a leader disengages. Instead, it requires a different kind of engagement—one that is more about coaching, mentoring, and removing barriers to success than about direct involvement in every decision. Embracing the Evolution of Leadership For leaders, accepting that they will become less competent in the day-to-day as their organization grows is not easy. It can feel like a loss of control or a step away from what made them successful in the first place. However, embracing this evolution is critical to the continued success of both the leader and the organization. Leaders who cling to the old ways of operating risk becoming micromanagers or bottlenecks. Those who embrace the transition to strategic leadership, on the other hand, create space for growth, innovation, and adaptation. This evolution requires humility—the ability to admit that you don’t know everything and to trust others to fill in those gaps. It also requires a fundamental shift in mindset. As organizations grow, leaders must redefine what success looks like. It is no longer about personal competence in every detail but about the competence of the organization as a whole. Leaders must focus on creating an environment where people can excel, where systems work smoothly, and where the organization can continue to grow and evolve. Conclusion: Leadership for the Long Haul The larger and more expansive an organization becomes, the more its leader’s responsibilities must evolve. This is not a loss of competence but a necessary adaptation to complexity. As organizations grow, leaders must shift from managing day-to-day operations to overseeing the systems, strategy, and culture that drive success. Effective leadership in a large organization is not about knowing every detail—it’s about building the infrastructure that allows those details to be handled by capable teams. The leader’s role becomes one of strategic vision, empowerment, and trust, ensuring the organization is positioned for long-term success. This shift is a natural progression, one that reflects the dynamic and ever-changing landscape of growing organizations. It's Time to Reframe How We Think About Mission-Driven Entities
In the vast landscape of organizational structures, terms like "nonprofit" have long been the default label for entities driven by mission rather than profit. However, as the world evolves and the lines between sectors blur, it's becoming increasingly clear that this nomenclature is not only outdated but also potentially limiting. The term "nonprofit" defines organizations by what they are not, rather than what they are. It's time for a paradigm shift—to rebrand these entities as "for-purpose" organizations. The Limitations of 'Nonprofit' At its core, the term "nonprofit" is a legal designation that indicates an organization's income is not distributed to owners or shareholders but is reinvested to further its mission. While accurate in a technical sense, this label inadvertently emphasizes the absence of profit rather than the presence of purpose.
Reframing nonprofits as "for-purpose" organizations shifts the focus from what they are not to what they are dedicated to achieving. This positive repositioning has several advantages:
One of the critical misunderstandings about nonprofits is that they should operate with minimal overhead, avoiding investment in infrastructure, staff development, or innovation. This expectation is not only unrealistic but also detrimental.
Adopting the "for-purpose" label has implications beyond individual organizations. It can catalyze a cultural shift in how society perceives and interacts with mission-driven entities.
The time has come to redefine how we perceive and label organizations dedicated to societal good. By adopting the "for-purpose" moniker, we acknowledge and celebrate the positive impact these entities have on our communities and the world. This shift is more than semantic; it's a strategic move to align perception with reality. For-purpose organizations are not merely entities that operate without distributing profits—they are dynamic, impactful, and essential drivers of social progress. By redefining nonprofits as for-purpose organizations, we can collectively enhance the effectiveness, sustainability, and impact of these vital entities. Let's move beyond what we're not and proudly declare what we are—for-purpose, for impact, for a better community. |