Episode 117: Ensuring Strategy During Challenging Times And Overcoming Short-Termism

Welcome to another edition of "Around with Randall" your weekly podcast for making your nonprofit more effective for your community. And here is your host, the CEO and founder of Hallett Philanthropy, Randall Hallett.

It's "Around with Randall" again in the latest episode of this podcast of course I'm Randall. Want to thank you for your time and for your listen as we talk a little bit about the challenges in our nonprofit industry, and frankly you could apply much of this to the for-profit world, around the balancing of short and long-term goals and the implication of worrying too much actually about the short term. This is all being driven by a lot of different factors, pressures, that are occurring right now. And what we find is that when we have these pressures which we're going to list here in a second, we've probably realized that leadership becomes more about solving those individual challenges or issues in the moment than they do around building long-term strategies.

Long term, short-term goals are more of the day. The thing is we need both, and what I'm finding or seeing more often is that we're spending much more time in leadership. Maybe that's you as a part of the leadership team. Maybe you're the CEO of a nonprofit. Maybe you're in the philanthropic area and you're looking at your leadership and you're like, where are we headed because it's missing that long-term strategy.

So what are those pressures that's causing the challenges of the day? Well first of all, we're hearing more and more particularly the nonprofit space around needing money. We need it now. I'm very fortunate I have clients across multiple areas or sectors of the nonprofit industry - healthcare, education, social service, all kinds of places - that I hear lots of stories and lots of circumstances of where the nonprofit is, or what they're dealing with. And what is consistent is that there's there's a shortage or a decrease in revenue and that expenses are up, which we'll talk about here more in a second. So there is this pressure that we need resources. If you're a healthcare or education, higher ed, you have alternative revenue streams. Philanthropy is a minority of the money you bring in, but yet CEOs chancellors, presidents, whatever titles, certainly CFOs are looking into the philanthropy area saying oh well we need we just need more money. If you're an industry or part of our industry and 100 of your dollars come from philanthropy, maybe you're an association like a zoo or a museum, maybe there's some membership dollars. But they're more driven by philanthropy in terms of what makes their budget work.There is questions about where are we going to find these resources.

Number two in that component is we're seeing rising expenses. We certainly know if you go to the grocery store at all, where I was this morning, you see that inflation is pushing prices up. But the biggest place we're seeing it is actually in the labor market. And so what we do is just becoming more expensive. Anytime you put a person in place there was a story, here in the last couple days related to McDonald's that they're seeing such inflationary pressures on their labor force they are beginning to implement, which you might have seen in kind of ad hoc ways, removing people from the equation to the point that one store has started to automate almost every aspect of getting your food from McDonald's, from the ordering to the manufacturing or the putting the food together to the delivery drive through, front desk or front counter, so we're seeing these huge increases, pressures on inflation, from inflation that are really causing our organization to figure out how can we be more efficient, how do we not spend as much money.

Third is that we're in particularly in the nonprofit world seeing pressure on increasing services, so if you talk to people who are in the housing or food areas, meaning they provide housing or they provide food like a food pantry, homeless shelter, it's becoming more and more challenging to meet all of the people's needs. I wrote a blog recently about what's going on in England and the the concept of the blog was are we paying attention in the United States what's going on the rest of the world the dramatic increase in basic necessities, housing, and I'll throw in assistance like gas or electricity, food insecurities is growing. We actually saw kind of a preview of this unfortunately during the pandemic with free and reduced lunch programs where somebody quickly realized, or lots of people quickly realized when you don't have schools and that's the place where many kids get their best meal, you remove that part of the equation it becomes more challenging for kids just in terms of basic necessities. So there's all of these complicating factors about we have more needs for service. When we talk about investment we have a stagnant market, meaning if you use the Dow Jones or the S&P 500, or whatever, those are just markers. The stock market over the last year has been very stagnant. It was down, then it was up, now it's down. It's anywhere fluctuating between 31 and 33-and-a-half thousand. For the Dow, well what that means is if people have endowments they're not getting as much money out of it and that if there's no growth or consistent growth, which there really hasn't been the last 16 months or so, then what you end up with is pressure on not taking as much money out because we're not seeing, we're not taking the growth, and we're dipping into the Corpus, which is eventually going to have a long-term effect on ability to support our organization.

The fifth and final piece, excuse me the fourth and final piece, is the supply chain. That literally one day you can't find something. So in the consumer market, give you two examples. Recently there were stories in December regarding Tylenol for kids, and my wife and I experienced this where we had not, didn't need hospitalization but we needed Tylenol and we began to realize we're a little low and we couldn't find it. I happen to find it in Costco in Iowa City and I don't live in Iowa City. Only because I was going through there and my wife said hey can you stop and just look around and see if you can find any. That's four hours away. I just happened to be there. There was, in the car and auto manufacturing industry, shortage on chips, which I think would apply to lots of other places but we saw it in cars that they were shipping cars with two pieces or two chips missing. Let's say my brother-in-law had this exact example. He got a truck but the heated steering wheel and the heated seat or something they needed to put the chips when they got them, now that's a first world problem. But what about things like when we went at the beginning of the pandemic, PPE and the ability to supply safety equipment for our frontline. Supply chain problems.

So when you add we need dollars now, based on the factors of rising expenses, more needs for these services, stagnant markets, and supply chain, that's leading us into something that I think of as we're doing a lot of filling holes. And we're we're taking moment-to-moment challenges to try to solve them, and in some regards we have to. I'm not dismissing the need for doing that, but the question becomes from a leadership perspective, how much time are you spending on that versus strategy?

Ernst & Young did a fabulous study in the last year or two on both for-profit and non-profit about what happens when they call short-termism, when organizations, particularly leaders, spend too much time on short termism solutions and forget about the long-term strategies. And they were able to track with a great deal of data. I'm not going to go into the report - it's 52 pages single spaced at about eight point type - but the big takeaways were this. Number one, when an organization spends too much time on short-termism their term, but filling holes to Randall, term is is that what happens is leadership's tenure diminishes. That CEO tenure, in particular, goes down a great deal. But all leadership tenure drops. That there is a reduction in investment in the things that are more long-term success-driven: infrastructure, equipment, and most importantly talent, people.

I also would add, this was was not in the study, but I think it's important that we see an increased number of questions as we go along. It's exponential. If we're solving these short-termism issues these three today, in three months we might have six. One or two might be the same but we're adding to it, and in nine months we got 12. And what ends up happening is that the number of things we have to juggle in solving short-term gap, filling holes begins to increase dramatically and it reduces the effectiveness of leadership and thus the organization.

You might be able to realize where I'm going. We're seeing too much short-term juggling, filling holes, short-termism. If we steal from Ernst & Young, and not enough strategy, so the question becomes how do we ensure that we have strategies? A part of what we do. It doesn't mean we can just eliminate the important individual needs our organizations have today. But if you're a leader, maybe you're the Chief Development Officer, Chief Philanthropy Officer, maybe you're part of an executive team, maybe you're on a board. If you're not thinking strategy even when things, times are challenging, what you're doing is all things. We just spent five, eight, nine minutes talking about is you're gonna have problems and bad outcomes. So how do we do this six steps? You can think about to integrate into conversations, discussions, strategy planning sessions that will allow you to think more strategy along with or maybe even overlaying short-term ISM problems.

Number one you have to start with the mission. If you allow the short-term challenges to become all-encompassing, what you're doing potentially is you're putting your mission at jeopardy. I'm working with a client in healthcare that literally is struggling with the concept that is remembering the mission. There are so many moving pieces that they're literally just trying to plug holes in the dike like the little boy. And I'm on the outside so I get to see it for maybe a much higher altitude, a little bit see the forest through the trees, and what I keep saying is, and there are some others as well, don't forget your mission. Your mission is to serve the community. The reason you're a nonprofit is you have to take care of those that need care, and it's coming really an issue that they're solving so many day-to-day problems that the executive team and the boards aren't talking about. The mission-driven activity that should occur. How do they do it? What does it cost? What are the implications? We're going to get to this in a second. Where does philanthropy fit into that? Because if you don't have those things then philanthropy struggles. Foundation Development Office, advancement office, to be able to fund things which we're going to come to because donors, particularly the top-end ones want to make a difference. So start having conversation about what we actually should be doing in terms of who we serve and what we do.

Number two is that we're having reduced focus on two, three, and five year strategies. Now in some industries five-year strategies may be too long. Just two and three. But what I'm finding is that we are dealing with so many short-term issues that nobody's talking about what do we want to be in three years, particularly at the senior level.

Another client I'm dealing with I had the privilege of spending some time with them in December on site and all we talked about for a full day with their two boards, their governing board or their healthcare board and their Foundation board, was around challenges that they're going to run into when they get to the year 2030. They didn't talk about the north nursing shortage. They didn't talk about the challenges with payer mix other, than to say those are internal things. We'll be glad to answer your questions, but what we want to talk about how we're going to meet the needs of what we should be, can be, and will be in 2030 with about 60 to 70 community leaders to really challenge them about where they're involved, what they should do, how to strategy fit into this. It was so uplifting. They're thinking eight years down the road with a big challenge they're gonna have and they have a lot of options if they execute them now rather than wait. So make sure that there's someone always pushing what does this mean for two or three years down the road.

How does this fit into the bigger picture? Number two, number three is as I'm seeing too often the use of the word yes. It's as if we're looking for magic solutions and we're forgetting about the tried and true. I think this is completely appropriate to say I find this a little bit more often in the finance area and CFOs than I do in other places. Let's just cut, we'll just cut our expenses. I'm not advocating we all shouldn't be smart with our expenses. Certainly in my business and at home I advocate that, but if that's the only response or it's the immediate response, it misses a key component, growth. And I've mentioned this a few minutes ago, what we know is people who are at the top end of philanthropy want to invest in things that are going to make a difference, that are measurable, that are going to increase the outreach of the nonprofit to serve the community in a stronger, better way. Well, that includes growth. Not just reduction, not magic beans. And that's when philanthropy is at its best. That's a hard message. If you are a smaller nonprofit in terms of I'll, let me put that differently. That's tougher if the organization is large and you're a very small part of the organization because you're one small voice amongst many. But if you go back to the mission and say I think we could really push some conversations, I think it could be with the community and with people who are generous and philanthropists, I think you might get some interesting conversations. And don't be afraid to be loud, respectful, but loud in being able to explain, exclaim that philanthropy can be part of the solution.

Number four is alignment. You need to have a really great alignment first and foremost with your stakeholders, with the community, and the board. And really emphasize particularly for those who aren't in our business, and we should follow this as well, it's what I tell my son. You have two ears and one mouth. Use them appropriately and and by percentage because we should be listening more. What does the community think? How do they value us? What do they think our challenges are? What do you think the community challenges are? How do we fit into those challenges and solve them? And just because the content expert may be your executive team or your chair, your board, doesn't mean they have a responsibility not to listen to every other person throughout the community who have their own ideas, even if you don't use them.

The second place is the ability inside leadership to have candid conversations to make sure everybody's on the same page. I just had a recent conversation dealing with a capital campaign with a client and I recommended that we have a very detailed conversation with discussion with Finance because the finances are tight and we're in the middle of this. We're beginning this campaign effort and once it's a capital project, so once we get the pledges the conversation was you got to put a shovel in the ground. And now that's not happening tomorrow, that's probably a year from now. But the one nightmare scenario I have in this particular case, and maybe a couple of others to be honest, is you raise the money and then Finance says and by the way it's pledged so maybe you don't have every dollar in hand but it's coming and finance says well we just can't do, we don't have the cash flow. It's like no, no, no, no. I can't go back to the donors and tell them that that was such a positive conversation, the CFO appreciated, the organizational treasurer appreciated it, the board treasurer appreciated it, because then they could plan. That's an alignment conversation.

The last is your employees. Are you aligned with them? Are you having candid conversations? Well it happened nearly a decade or I'm actually more than that ago I watched with great reverence one of my mentors, Glenn Fosdick, the former CEO and president of the Nebraska Medical Center which now is Nebraska Medicine and renamed when we went from a pension program to a 401k program, and the amount of time he spent in monthly meetings he personally, and all of us on the senior executive team, having constant meetings in departments, organizational-wide. We actually were using Zoom at the time, which is kind of amazing. Or some variation of internal communication to prepare the employees for this so that when it got rolled out and had strategy sessions with them and explained to them it was just not a problem because Glenn Fosdick forced us to be aligned with the employees. Communication openness. Here's where we're going. Here's why it's important. Here's what's going to mean financially for the organization. Here's how you can overcome that through a matching 401K program rather than a pension program. It was amazing. I thought this would be dead in the water when I first heard about it, but we were aligned. Foster deserves a credit for that. Are you aligned with your employees? Are you having honest, open conversations about what's going on?

The fifth real quickly is just are you looking at the right dashboards? And really it's about data. If you're a senior executive and you're worried about is the floor getting swept, because that's what we tend to do in crisis we tend to to narrow focus and not worry about strategy, or the board starts asking management questions rather than strategy questions, that's all about dashboards, data. And there has to be some candid, honest, open conversations about hey that's really not what we need to be talking about to get more strategy discussions amongst board, Community leaders, and our executive teams. And that's a hard sell because when things are up in the air and not running well sometimes leaders want more data, and more data is not bad but if it's strength, putting a strangle hold on adding strategy to conversations, then if you pull back the data you're more likely to see a longer view.

The last is that we have to invest in talent, and invest is the key word. Early on in my career I was helping a nonprofit get started and working with the CEO who was a actually Jesuit priest, and we were talking about how he was going to fund or find talent for the head of advancement for this particular school, and he had a dollar figure in mind. And I said you're going to get a terrible component, a terrible employee. You're just not going to get what you need or want. I was told in my favorite one of my all-time favorite phrases is it's a moral imperative this person make less than I do. And I said okay at the end of the day you get to make that decision, but I think you're not going to like the result. And literally six months later I get a phone call saying we have a real problem, and I said that's because you're not paying for talent. It may cost a little more in the short term but the long-term implications of hiring and having the right people even though they're a dollar or two more is worth it. You have to invest in the people that are going to drive success and something that's a hard conversation inside budgets, but it's a worthy one. If you're looking to improve your organization long-term.

So keep in mind mission focus on two, three point year plans. What does this mean? Long term not saying yes to everything that's a magic bean or bullet. Aligning with your constituencies, creating the right data flow, and looking at the right dashboards, and making sure you're investing in great talent. Those are ways that you can push strategy and pull back a little bit from filling holes, or that concept that are interested or EY now that if they call it Ernst & Young talks about short-termism so that we can continue to make sure our nonprofits are filling the holes that we need.

Always check out the blogs, two or three a week, hallettphilanthropy.com. If you'd like to reach me that's podcast@hallettphilanthropy.com. Finally it, challenging times require leaders to step up, step into the breach and figure a way to make what we do better. Nonprofit work is no different. What we know is that as I always try to say some people make things happen, some people watch things happen, then there are those who wondered what happened. In challenging times we need more people to be along the lines of making things happen rather than watching what happened or wondering what happened, and nonprofit work's all about bringing people together to take care of those who in the organizations and the causes that we believe in that make our community better. Don't forget that you're part of that, and hopefully a little bit of strategy will help you continue to be that. I'll look forward to seeing you next time right back here on "Around with Randall". Don't forget make it a great day.