The term ‘non-profit organizations‘ refers to government organizations, educational institutions, religious bodies, foundations, libraries, clubs, Government hospitals, and welfare organizations. These organizations exit to render service rather than to earn profits. Their success is also measured primarily by how well they render the service. For example, the purpose of a library is to provide books and a place for reading and reference. Its performance can, therefore, be measured by how well it renders the service to its readers. Non-profit organizations aim at providing the best possible service with the given resources and the managerial decisions are taken accordingly. The objectives of a non-profit organization are less precise, more diverse, and sometimes contradictory.
The main difference between profit and non-profit organizations lies in the purpose for which they exist. In addition following differences are found in the characteristics of these two types of organizations:
- Profit Measure. All organizations use inputs to produce outputs. Effectiveness is measured by the extent to which outputs accomplish the organization’s objectives whereas efficiency is measured by the relationship between inputs and outputs. In a profit-oriented organization the amount of profit provides a useful overall measure of both effectiveness and efficiency in most non-profit organizations output cannot be measured in quantitative terms.
- Market Mechanism. Non-profit organizations are less subject to market forces than profit-oriented organizations. Most non-profit organizations have no direct, competition and hence do not have the spur to use resources wisely that competition provides. Resources are obtained from appropriations, endowments, and cost-based prices rather than from the competitive market place, in the absence of competitive pressures and market mechanism, the allocation of resources in non-profit organizations becomes a game of competition among the in charges of responsibility centers. Every responsibility center may exert pressure to get as large a slice of the budget as possible. Managers in profit organizations undertake new programmes based on the market need. In case of non-profit organizations such programmes are determined on the basis of personal convictions of managers.
- Relationship with Clients. In a profit-oriented organization the new customer is an opportunity. Therefore, new customers are welcome and potential customers are promoted to increase revenue. On the other hand, in non-profit organizations the new client is a problem because he places an additional strain on existing resources without auditing to these resources. Therefore, such organizations try to avoid new customers. In profit-oriented organizations an increased demand for services is automatically accompanied by additional revenues, which provide the means of furnishing these services, most non-profit organizations, there is no such relationship between the demands of clients and the means of satisfying these demands.
- Diffused Responsibility. In profit-oriented organizations, policy and Management, responsibilities are vested in the Board of Directors which derives us power from the shareholders. In turn the board delegates power to chief executive ho acts as the board’s agent in the administration of organization. In most non-profit organizations, the line of responsibility is not clear. Instead of a single chain of command, there are often three somewhat independent power centers: (a) Contributors who can exercise control by with holding contributions, (b) The board which demure controls the organization, and (c) The chief executive who in fact holds much control over the board. The Board of directors in a non-profit organization may be self perpetuating because it is nominated rather than elected. In non-profit organization, the board has to play a relatively more active role, unless the board is, the organization may not move in the desired direction.
- Political Nature. Non-profit organizations are more prone to political pressures. These political pulls and pressures serve as a substitute for the demand function in the allocation of resources. The activities which are undertaken under pressure from political leaders and groups may not be in the best interests of the nonprofit organization.
- Legislative Restrictions. Government organizations must operate within legislative enactments, or statutes. Such statutes are more restrictive than the Memorandum and Articles of a private sector company. Statutes prescribe detailed operating practices and it is quite difficult to change them.
- Value System. Profit-oriented organizations operate on the basis of economy in cost, maximization of revenue, technical and operating efficiency, etc. Financial considerations are the main criteria in managerial decision-making. In contrast, in non profit organizations the value system of owners plays the key role in decision-making. The ethos and ideals arc more important than financial considerations.