“What Is the Competition for Homelessness?”

In its thirty-seventh decade as the archetypal nonprofit institution, Harvard has begun to take an academic interest in its own sector of society. At the Business School--best known for its work on profit-driven organizations--the Initiative on Social Enterprise encompasses new research, courses, and executive education on entities that lack sales and shareholders. The Kennedy School is creating a new Center for Nonprofit Institutions, endowed by a $10-million gift received in April.

What propels this new scholarly focus? For one thing, says John C. Whitehead, M.B.A. '47, LL.D. '95, the sector has become "an important part of our society, representing 8 or 10 percent of GNP and of our labor force." Whitehead, who was cochairman of Goldman, Sachs & Co. and deputy U.S. secretary of state, now devotes most of his time to nonprofit activities, where he has seen firsthand that such organizations are managed by "dedicated people who work at sub-average compensation, but very few of them have experience at running things." That concern led him to fund the business school's initiative with a $10-million gift in 1995.

The effectiveness of nonprofit groups matters more now than ever. "We have lost a certain amount of confidence in government's ability to address and solve persistent public problems," says Mark H. Moore, Guggenheim professor of criminal justice policy and management and faculty chair of the Kennedy School's new center, created by Rita E. Hauser, L '58, and Gustave M. Hauser, J.D. '53. "Standing there, waiting to be taken advantage of, is the voluntary sector."

But as new opportunities arise for this growing "third sector," so, too, do the risks--including poor performance, lax financial controls, and accountability.

The business school's initiative focuses squarely on such issues of leadership and management. Doing so has required fresh approaches to standard corporate strategy-setting, says V. Kasturi Rangan, Eliot I. Snider and Family professor of business administration and faculty cochairman of the social-enterprise program. For example, how do you measure success when profitability doesn't count? Who is a nonprofit's customer--the client who receives services, or the donor? Turning to a hypothetical organization's very reason for being, he asks, "What is the competition for homelessness?" and answers, "It is the status quo." Challenges like these lead Rangan to conclude that nonprofits, as they focus on doing good works, "tend to skip too quickly from the mission to the program. They don't think in terms of the strategy or the organization"--factors that determine the long-term success and sustainability of a nonprofit enterprise.

Rangan, fellow cochairman James E. Austin, and other colleagues have applied their research to the school's curriculum. "The boundaries between business, government, and nonprofits are becoming increasingly overlapping and blurred," says Austin, McLean professor of business administration. Accordingly, the first-year M.B.A. program now includes a required unit on social enterprises and business-nonprofit alliances. Optional second-year courses cover entrepreneurship and financial management in social enterprises. The initiative also conducts two executive-education programs, helping nonprofit managers and their directors set strategy and improve their organizations' performance.

Although few M.B.A.s go to work for nonprofits, their classwork and field experiences have two direct payoffs, Austin believes. First, most of the school's alumni report some involvement with nonprofits, and more than half serve on such organizations' boards. Second, business managers can learn from their nonprofit peers. Says Austin, "The nonprofits' ability to motivate, manage, and organize people working of their own volition is increasingly relevant to commercial businesses," which can no longer improve employee performance solely by salaries.

A similar mix of scholarship and practitioner education is emerging at the Kennedy School, where Mark Moore reports one third of the graduates already take jobs in the nonprofit sector, rather than in government.

In the past three years, faculty members interested in health care, education, the management of arts institutions, and international nongovernmental organizations have discussed research and curricular agendas, according to lecturer in public policy Christine W. Letts, who teaches a course on managing nonprofits and coordinates the nonprofit program. With the Hausers' gift, and plans to raise $20 million more over the next three to five years, the school is beginning a search for faculty members, formal research and fellowship programs, and broadened contact with practitioners. The proposed curriculum includes philanthropy, political action, and interaction with governments on such sensitive issues as nonprofits' tax status and the provision of social services. Thus the Kennedy School, in addition to management issues of the sort raised at the business school, also emphasizes policy questions and the content of nonprofit enterprises' work.

Moore makes a similar distinction in research agendas at the two schools. He raises questions about the purposes nonprofits serve, whether society derives those intended benefits, and the public policies appropriate to shaping an effective nonprofit sector.

In the meantime, the two programs stimulate one another, as their members teach in each other's courses, and both reach out to other faculties. The Divinity School's Center for the Study of Values in Public Life, for example, involves scholars throughout Harvard in seminars on such topics as business and values, and families and family policies. "Our contribution," says Dean Ronald F. Thiemann, who directs the center, "is to look at these questions from the institutional perspective of communities of faith, Christian or otherwise." And members of the education and law faculties are actively involved in the Harvard-wide advisory group overseeing the new focus on nonprofits.

Which is exactly as it should be, in John Whitehead's view. Reflecting on his own experience at the pinnacles of American capitalism and government, he says, "It's a lot harder to manage a not-for-profit successfully than it is to manage a for-profit company. The skills are harder to learn, and it's important that all young people learn them."

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