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Frequently Asked Questions

Question

What is a strategy and how do we develop one?

Answer

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When to Develop Strategies
How to Develop Strategies
Additional Strategies for Your Organization

In strategic planning it is critical to formally consider how your organization will accomplish its goals. The answer to this question is a strategy. There are a variety of formal definitions for strategies, but everyone fundamentally agrees that a strategy is the answer to the question, "How?"

"Strategies are simply a set of actions that enable an organization to achieve results."
MAP for Nonprofits, St. Paul, MN

"Strategy is a way of comparing your organization's strengths with the changing environment in order to get an idea of how best to complete or serve client needs."
Jim Fisk & Robert Barron, The Official MBA Handbook

Essentially, there are three different categories of strategies: organizational, programmatic, and functional. The difference among the categories is the focus of the strategy:

Organizational strategy outlines the planned avenue for organizational development (e.g., collaborations, earned income, selection of businesses, mergers, etc.).
Programmatic strategy addresses how to develop, manage and deliver programs (e.g., market a prenatal care service to disadvantaged expectant mothers by providing information and intake services in welfare offices).
Functional strategies articulate how to manage administration and support needs that impact the organization's efficiency and effectiveness (e.g., develop a financial system that provides accurate information using a cash accrual method).

When to Develop Strategies

Strategy development follows the creation and affirmation of the organization's purpose statement, environmental and program data collection and analysis, and identification of critical issues. It is critical that strategy development follow these steps because the information gathered and decisions made in these phases are the foundation for strategy creation and selection (see also FAQ 1, What is Strategic Planning?, and FAQ 8, What is a Situation Assessment?). Each of these steps provides the following:

The purpose statement, the statement of the organization's ultimate goal, provides the direction to which the strategies should ultimately lead.
External market data and program evaluation results provide critical data to support strategy development. Without this information and insight, the organization's strategies will not be in alignment with or effective in the marketplace.
The critical issues list serves as the specific focus and framework for the activities of the organization and the pattern of these activities (developing and selecting the strategies).

How to Develop Strategies

Strategy formulation is a combination of rational, scientific examinations and educated, intuitive best guesses. Many individuals are overwhelmed by the idea of developing strategies, but it can be a fun and invigorating process. The process entails:

examining the organization's critical issues
determining how the organization's strengths and skills can be employed to address the critical issues
analyzing opportunities and strengths and looking for ways to synthesize the two
exploring and choosing the best approaches for the organization.

During this evaluation ask these key questions: Does the strategy meet/address critical issues? Is this aligned with our mission? Is this approach financially viable?

One effective method of strategy generation is to list critical issues and organizational strengths onto flipcharts and then have staff or board members brainstorm possible uses of those strengths or other skills to address the critical issues. Once the brainstorm session is completed, use a roundtable discussion to investigate and evaluate the possible strategies. Remember to develop a list of alternative strategies to investigate and keep in the contingency planning file.

It is important not to discount the ideas that come to people during non-working hours. The Polaroid camera is the result of a three year old's question to her father: "Dad, why can't I see the picture now?"

Strategy of Development Tools

A number of analytical tools have been developed to assist organizations with the planning process (see also FAQ 8, What is a Situation Assessment? and FAQ 9, How Can We Do A Competitive Analysis? for a more detailed discussion of these tools). Many nonprofit organizations have adapted these tools, modifying the questions and criteria to align with their own specific services and markets. Listed below are analytical tools frequently used by nonprofit and for-profit organizations.

SWOT Analysis

SWOT analysis is a methodology of examining potential strategies derived from the synthesis of organizational strengths, weaknesses, opportunities and threats (SWOT). The partnering of the different elements and the extensive data collected as a result of the analysis can serve as a spark for roundtable discussions and refinement of current strategies or generation of new strategies.

The MacMillan Matrix

This strategy grid, developed by Dr. Ian MacMillan, is specifically designed to assist nonprofit organizations to formulate organizational strategies. There are three assumptions underlying this approach:

the need for resources is essentially competitive and all agencies wanting to survive must acknowledge this dynamic
given that resources are scarce, there is no room for direct duplication of services to a single constituency -- this is wasteful and inefficient
mediocre or low quality service to a large client population is less preferable to delivering higher quality services to a more focused population.

These assumptions have implications that are difficult and painful for many organizations and individuals. It might mean terminating some programs to improve core services and competencies, giving programs and clients to more efficient, effective agencies, or competing aggressively with those programs that are less effective or efficient.

MacMillan's matrix examines four program dimensions that guide placement on the strategy grid and indicate implied strategies.

Alignment with Mission Statement: Services or programs that are not in alignment with the organizational mission, unable to draw on existing organizational skills or knowledge, unable to share resources, and/or unable to coordinate activities across programs should be divested.
Competitive Position: Competitive position addresses the degree to which the organization has a stronger capability and potential to fund the program and serve the client base than the competitive agencies.
Program Attractiveness: Program attractiveness is the complexity associated with managing a program. Programs that have low client resistance, a growing client base, easy exit barriers, and stable financial resources are considered simple or "easy to administer." The level of program attractiveness also includes an economic perspective or a review of current and future resource investments.
Alternative Coverage: Alternative coverage is the number of other organizations attempting to deliver or succeeding in delivering a similar program in the same region to similar constituents.

The MacMillan Matrix provides ten cells in which to place programs that have been reviewed in terms of these four dimensions. Each cell is assigned a strategy that directs the future of the program(s) listed in the cell (e.g., aggressive competition, joint venture, orderly divestment, etc.). One cell of the matrix, "Soul of the Agency," requires additional explanation. These are the difficult programs for which the organization is often the clients' "last, best hope." Management must find ways to use the programs in other cells to develop, piggyback, subsidize, leverage, promote, or otherwise support the programs in this category.

For more information on the MacMillan Matrix, please refer to FAQ #9, How Can We Do A Competitive Analysis?

Additional Strategies for Your Organization

Listed below are several strategies applicable to both the organizational and program levels, adapted from Philip Kotler's Strategic Marketing for Nonprofit Organizations. From a social need and services perspective, some are more desirable than others.

Surplus Maximization: An agency runs its organization in a manner that increases the amount of resources on hand. Usually this strategy is adopted to accumulate resources for expansion or growth.
Revenue Maximization: An agency manages its organization to generate the highest possible revenues, perhaps in an effort to establish a reputation or critical mass.
Usage Maximization: An agency works to serve the highest number of users of their services. This strategy can be used to position the organization or program for funding or budgetary purposes.
Usage Targeting: An agency provides services in a manner that encourages serving a specific number or type of constituents. This strategy is used to address unmet needs of specific populations or to cover the costs associated with providing services.
Full Cost Recovery: An agency manages its programs and services so that it financially breaks even, providing as much service as the finances will allow. Many nonprofits adopt this strategy in an effort to provide services without entering fiscal crisis.
Partial Cost Recovery: An organization operates with a chronic deficit every year, providing services that are critical and cannot be provided at a break even level of costs (e.g., mass transit or the Post Office). These organizations rely on public and private foundations, individuals, and governments to cover the annual deficit.
Budget Maximization: An agency maximizes the size of its staff, services, and operating expenditures regardless of revenue/cost levels. Organizations that are concerned with reputation and the impact of trimming services or infrastructure on that reputation employ this strategy.
Producer Satisfaction Maximization: An organization operates towards a goal of satisfying the personal/professional needs of a founder, staff, or board of directors rather than the established needs of external clients and customers.
Fees for Service: An organization provides services to clients for a fee. The fee is typically below market rates and does not cover the full cost of providing the services.
New Revenue Strategies: An organization uses direct marketing activities designed to generate new sources of revenue from specific funders. Examples include starting a new service or program, approaching a new funder, changing the way services are provided, or setting up a profit making venture.
Legitimization Strategies: An organization works to communicate to the community that it is conforming to existing standards and norms - that it is a legitimate and worthy participant in the sector. Examples include adapting services to funder priorities, contributing non cash or cash resources to other nonprofit organizations, or seeking endorsements or board participation from prominent individuals.
Retrenchment Strategies: An organization emphasizes efforts to reduce internal costs to offset the potential or real loss of revenues or grant monies. Examples include increasing staff workloads, increasing use of part time or volunteer staff, eliminating services or programs, or reducing non-fixed expenses such as training or supplies.