Making a buck part of the business

28/05/2009 - 00:00


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FIGHTING widespread public perceptions of not-for-profit businesses as philanthropic organisations, while competing commercially against the private sector, is a key challenge facing the sector in Western Australia.

Making a buck part of the business

FIGHTING widespread public perceptions of not-for-profit businesses as philanthropic organisations, while competing commercially against the private sector, is a key challenge facing the sector in Western Australia.

CBH Group chief executive Andy Crane told the WA Business News boardroom forum one of the major challenges of working in the not-for-profit sector was the perception that a not-for-profit business need not be competitive or marketable.

"I think not for profit is a poor definition because we need to generate that profit in many cases to reinvest in the business," Mr Crane said.

"It doesn't mean we don't try to make a profit or don't try to be successful or don't try to be commercial.

"Job one is be commercial, otherwise you won't create a business that's sustainable for the people you are there for."

Penny Flett, chief executive of Brightwater Care Group, which focuses primarily on aged care and health care, said to survive in this environment her organisation has had to become as business-like as anybody else.

Nonetheless, Dr Flett said a not for profit's focus must not solely remain fixated upon the bottom line, an approach that creates distinct pressure within the company.

"The only difference when you get down to it is that our prime motivation is for the work that we do and the people that we're there for," Dr Flett told the forum.

"That actually creates a substantial ongoing tension because you're trying to sustain, or have a business that is financially sustainable, but not necessarily making a profit for anybody's benefit, yet you are driven by wanting to assist people and people for whom the systems don't completely cater.

"The tension between trying to do the right thing for the people and having to stick to the budget is a very hard thing for the people who are running the organisation."

Mr Crane agreed, saying the key difference between not for profits and private and corporate enterprise is that the products and services in privates and corporates are a means to an end of creating profit, which is then distributed to shareholders and investors.

"For many of us it's the products and services which we're here for, so it's not the money that we create; we're here to deliver products and services to members," he said.

"We provide a product as good and at an equal price, but there are additional benefits that you get if you happen to be a member.

"Our challenge is to actually communicate that to get the members because often all those other benefits are intangible and difficult to demonstrate."

HIF chief executive Graeme Gibson said one of the key differentiators for the sector was the utilisation of profits.

He said in the private sector profits were traditionally redistributed to shareholders, but in not for profits, this revenue was reinvested within the business to benefit the community or members.

"My job is to make as much money as I possibly can, I'm quite open about that," Mr Gibson said.

"The only rider I have on that is I don't make the money out of my members.

"With the profits I make I then pay a dividend, but I pay the dividend in the form of lower premiums, new benefits, or improved benefits."

HBF chief executive Rob Bransby echoed Mr Gibson's sentiments, adding that a degree of commerciality was necessary to compete with large for-profit enterprises in the highly competitive health insurance industry.

"The reality is that business is business, I guess the fundamental difference is my shareholders are now my customers," he said.

RAC chief executive Terry Agnew said the complexity of sustaining a business while not making a profit was further complicated by the absence of a simple self evaluation technique.

He said RAC, like other not-for-profit organisations, had a multi-pronged business approach, some parts of which had nothing to do with the business' bottom line.

"If you haven't worked in a not for profit, then you wouldn't understand the complications involved in working for not for profits," Mr Agnew said.

"We probably have three arms; one of them would be businesses, that's both service to our members, but also delivers financial well being.

"Then there are two other arms, one of which is member benefits, and then the other one is road safety, cost of motoring, green motoring and all those sorts of things.

"What that creates is a whole lot of tension, when you're not for profit it's difficult to come up with a simple success measure."

Superannuation fund manager Westscheme's chief executive, Howard Rosario, said it was important for a not-for-profit business to resist being categorised, a scenario that can undermine the necessary work that goes on behind the scenes.

"In the superannuation industry we've got away from the not-for-profit label because of the connotations that it brings, and we work on the label of 'profits for members'," Mr Rosario said.

"We've got this growing awareness that customers have to be treated the same way that you would deal with a customer in the [for-profit] areas as well, because these are very competitive areas.

"Getting the label right as profits for participants is probably the way that we have got to go.

"Everything in the end has got to be efficient and effective, so the commercial imperative that everyone else is facing is no less in our organisation than anywhere else."


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