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When Business Learned from Nonprofits

My good friend and museum colleague David Grabitske is back again with another erudite blog post. This one stems from the oft-recommended notion that nonprofits should operate more like businesses. We have discussed the topic many times and I have been contrary about it for years. In fact, I wrote about it back in 2011 on my blog, The Woo Woo Teacup Journal. David, however, has set about finding proof that businesses have learned something important from nonprofits. I’ll let him tell you about it. – MEW


When Business Learned from Nonprofits

How often haven’t we heard that nonprofits should be more businesslike?

And, how often haven’t we nonprofits said perhaps there’s something businesses could learn from nonprofits? We then go on to speculate that businesses could learn to care for communities and other soft skills. Those skills are very important, though perhaps disregarded until their impact on a financial bottom line can be established.

Not surprisingly business has learned from nonprofits. Wait! What?! You ask.

Hans B. Thorelli wrote in 1986 one of the most influential and transformative articles for business, “Networks: Between Markets and Hierarchies” in Strategic Management Journal (vol. 7, no. 1). The abstract succinctly states that “networks generally have been discussed in the context of nonprofit agencies…. the network potentially may be even more important in business.”

Picking up on the implication numerous books appeared in the 1990s. One of the first (Strategic Networks: Creating the Borderless Organization, Oxford, UK: Butterworth-Heinemann, 1993) came from Harvard-trained J. Carlos Jarillo who applied strategic networks to international business using the models of McDonald’s, Benneton, Apple, and others. Jarillo pointed out that networks were built on trusting relationships rather than contracts. Every part of the network was self-reinforcing. He noted that network “gain has to be shared in a way that all participants feel to be fair” (p. 143). In order to work best, participants need more of both coordination and individual responsibility. Such networks are counter intuitive as too many in business see them as ways of exerting control as a central player over others in the network or relegating low value-added activities to others in the network. Rather the role of central hubs is to empower and equip their partners to inspire quality standards and real-time problem solving.

Other more famous works elaborated on networks. In 1996 two of the more influential books appeared. Adam Brandenburger and Barry Nalebuff applied Game Theory to the collaborative aspects of networks in Co-opitition. The same year James Moore published The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. Moore’s work has deeply influenced technology businesses with a biological metaphor to show how entities in the network co-evolve, influence and are influenced by all participants. Historians J.D. Britton and Dianne F. Britton issued in 1994 a collection of case studies entitled, History Outreach: Programs for Museums, Historical Organizations, and Academic History Departments to show how so many segments of the history enterprise work collaboratively. Or could.

When did history organizations begin building such capacity building networks? August 1789. That’s not a typo – 1789. That’s when John Pintard of New York visited Jeremy Belknap in Boston. Their immediate goal was to begin historical organizations in their respective cities. Massachusetts Historical Society organized in 1791 and the New-York Historical Society in 1804.

During their meeting “They also projected a broader conception, the establishment of similar programs in every state.” The network of state-level historical organizations was baked into their plans from the start. “The net result of such a system would be the diffusion of historical information throughout the United States.” (Louis Leonard Tucker, The Massachusetts Historical Society: A Bicentennial History, 1791-1991, p. 11) The New-York Historical Society almost immediately extended the network to counties by encouraging the formation of county historical socieites.

There were many who worked to build up history networks. The Massachusetts Historical Society appointed Frances Manwaring Caulkins its corresponding secretary for Connecticut history in 1850. Although she was their first female member, she would also be the last until 1966. Rueben Gold Thwaites of the State Historical Society of Wisconsin went a step further than managing correspondence between historical organizations to actively supporting and organizing county and local history organizations when he established field services in 1896. Richard Sackett became in 1945 at Minnesota Historical Society the first full time employee anywhere dedicated to building the capacity of local history organizations. Wisconsin added their first full time capacity-development employee in 1947, and many other states added such staff in the 1950s-1960s in preparation for an anticipated growth in local organizations leading up to the National Bicentennial in 1976.

In 1979, the federal government heavily revised the Form 990 that stamped into nonprofits a business accounting of finances. Perhaps revision led businesses to consider the merits of networks maintained by nonprofits for Thorelli’s work appeared a few years later.

This summary, of course, oversimplifies the story of the history enterprise developing an effective and oftentimes efficient network to save and share the useful knowledge of history for the benefit of all. The takeaway, though, is that business learned about networks built on trusting relationships as an alternate to the two dominant forms of business organization: vertical integration and contracts. The third way championed by Jarillo and others was a strategic network, long used by the history enterprise.

Isn’t it reassuring to know that business can learn from nonprofits?

~ David Grabitske