CHAPTER 14 STRATEGIC ISSUES IN NOT-FOR-PROFIT ORGANIZATIONS True/False 1.

Not-for-profit organizations account for an average of one in every 25 jobs in nations throughout the world. (p.325) Answer: F 2. Not-for-profit organizations include private nonprofit corporations and public governmental units or agencies. (p.325) Answer: T 3. Examples of private nonprofit corporations include welfare departments, prisons, and state universities. (p.325) Answer: F 4. Examples of public or collective goods include paved roads, police protection, and schools. (p.325) Answer: T 5. Private nonprofit organizations qualify for special first-class mailing privileges. Answer: F 6. (p.326)

Privatization is the selling of state-owned enterprises to private individuals or corporations or the hiring of a private business to provide services previously offered by a state agency. (p.326) Answer: T 7. Religious organizations are better managed by not-for-profit organizations. Answer: T 8. (p.326)

The NFP organization depends on revenues obtained from the sale of its goods and services to customers. (p.326) Answer: F 9. The not-for-profit organization depends heavily on dues, assessments, or donations from its membership, or on funding from a sponsoring agency. (p.327) Answer: T 10. In profit making corporations, there is typically a simple and direct connection between the customer or client and the organization. (p.327) Answer: T 11. The public university is heavily dependent on student tuition and other client-generated funds. (p.327) Answer: F 12. The public university is more heavily dependent on outside sponsors such as a state legislature for revenue funding. (p.327) Answer: T 13. The marketplace orientation underlying portfolio analysis does translate into situations in which customer satisfaction and revenue are directly linked. (p.329) Answer: F 14. A not-for-profit can be said to have institutional advantage when it performs its tasks more effectively than other comparable organizations. (p.329) Answer: T

31

15. A analysis is not as relevant to a not-for-profit as it is to a profit-making organization. Answer: F 16. One issue of strategy implementation is that decentralization can be complicated. Answer: T 17.

(p.329) (p.331)

Strategic piggybacking refers to the development of a new activity for the not-for-profit organization that would generate the funds needed to make up the difference between revenues and expenses. (p.332) Answer: T 18. Dwindling resources are leading an increasing number of not-for-profits to consider liquidation as a way of reducing costs. (p.332) Answer: F 19. Strategic alliances involve developing cooperative ties with other organizations. Answer: T 20. (p.333)

The second impact of the Internet upon not-for-profit organizations was the issue of taxation. (p.335) Answer: F Multiple Choice 21. According to Peter Drucker, why do nonprofits need management even more than profit-minded businesses? (p.324) a. b. c. d. e. 22. They are required by government regulations to follow certain guidelines. To attract funding and donations, they need the proper exposure. Nonprofit organizations lack the discipline of the bottom line. They need proper management to avoid commercialism. Nonprofit organizations need to act like profit-minded businesses to attract qualified and competent personnel which are needed in both.

According to the text, not-for-profit organizations have accounted for an average of one in every _____ jobs in nations throughout the world. (p.325) a. b. c. d. e. 10 20 30 40 50 (p.325)

23.

Not-for-profit organizations employ over _____ of the U.S. workforce. a. b. c. d. e. 25% 35% 45% 55% 65%

24.

Not-for-profit organizations own approximately _____ of the nations private wealth. a. b. c. d. e. 55% 45% 35% 25% 15%

(p.325)

25.

Private nonprofit corporations include all of the following EXCEPT

(p.325)

32

a. b. c. d. e. 26.

hospitals. institutes. prisons. private colleges. organized charities. (p 325

Public governmental units or agencies include all of the following EXCEPT a. b. c. d. e. welfare departments. prisons. health and human services. private colleges. state universities.

27.

Strategic management has dealt primarily with what type of organization in the past? a. b. c. d. e. profit-making firms government organizations nonprofit organizations socialistic organizations none of these

(p.325)

28.

How much of the U.S. workforce is employed by not-for-profit organizations? a. b. c. d. e. less than 2% 8% 10 to 20% approximately 25% greater than 50%

(p.325)

29.

Approximately how much of the nation's private wealth is controlled by not-for-profit organizations? a. b. c. d. e. 5% 10% 15% 20% 25%

(p.325)

30.

Organizations that operate on public goodwill, but are formed outside the authority of governmental agencies or legislative bodies are placed in which category of organizations? (p.325) a. b. c. d. e. private for-profit private nonprofit organizations private quasi-public organizations public public for-profit

31.

Agencies of the government on the federal, state and local level, that are constituted by law and authorized to collect taxes and provide services are placed in which category of organizations? (p.325) a. b. c. d. private for-profit private nonprofit organizations private quasi-public organizations public

33

32.

e. public for-profit What is a "public" good? a. b. c. d. e.

(p.325)

A good in which the benefits can be enjoyed by someone who didn't pay for the good. A good which must be purchased by the user. An externality arising from a private good. A public good can only be supplied by governmental bodies supported by tax dollars. none of these.

33.

According to the text, what is one of the reasons why the not-for-profit sector of an economy is important? (p.326) a. b. c. d. e. not-for-profit businesses generate a substantial portion (35%) of the GDP. not-for-profit organizations use any excess of revenue over costs and expenses to accrue to their stockholders to improve the public standing. A private nonprofit firm tends to receive benefits from society that a private profit-making firm cannot obtain such as preferential tax status. without the not-for-profit sector, most of the workforce would be without employment. not-for-profit organizations produce goods and services which are imperative for good international trade relations.

34.

Not-for-profit organizations typically do NOT use which term to refer to the recipient of their service? (p.326) a. b. c. d. e. patient student customer client case

35.

Which feature best differentiates not-for-profit organizations from each other as well as from profit-making corporations? (p.326) a. b. c. d. e. the ability to earn a profit. the ability to earn a surplus. number of professionals they employ. their source of income. their management.

36.

The selling of state-owned enterprises to private individuals or corporations or the hiring of a private business to provide services previously offered by a state agency is referred to as (p.326) a. b. c. d. e. privatization. polarization. rightsizing. for-profitizing. customization.

37.

The text lists various areas of life that cannot easily be privatized and are often better managed by not-for-profit organizations. Which of the following is NOT one of these areas? (p.326) a. b. c. d. e. charities government religion education consulting

34

38.

In which of the following organizations is the customer/client likely to have the greatest amount of influence over organizational activities? (p.326) a. b. c. d. e. a public university a gas station a private college a welfare agency a community hospital

39.

Which one of the following is NOT true concerning the revenue sources of not-for-profit organizations? (p.327) a. b. c. d. e. Revenue is tax exempt. Revenue comes primarily from dues, assessments contributions, or funding from a sponsoring agency. In some instances, sponsors of not-for-profit organizations receive none of the service but may provide partial or total funding of needed revenues. The organization tries to influence the client to continue to buy and use its services to ensure that future revenues will be forthcoming. Revenue comes from a variety of sources, not just from sales to customers and clients.

40.

A study of Minnesota nonprofits found that donations accounted for almost _____ of total revenues. (p.327) a. b. c. d. e. 20% 30% 40% 50% 60% (p.327)

41.

Not-for-profit organizations such as unions receive most of their revenue from a. b. c. d. e. government grants. their members. donations. benefactors. fellowships.

42.

A study on Minnesota nonprofits found that 35 percent of total revenues came from a. b. c. d. e. donations. government grants. program service fees. members. unions.

(p.327)

43.

Which one of the following is NOT true of the relationship between the not-for-profit organization and the person receiving the service? a. b. c. d. e.

(p.327)

In most instances, the sponsors receive none of the services. Not-for-profit organizations tend to be totally dependent on sales of its products or services, and are therefore extremely interested in pleasing its customers. The recipient of the service typically does not pay the entire cost of the services thus requiring a sponsor to contribute funds. Sponsors provide partial to total funding of needed revenues. Not-for-profit organizations can be partially or totally dependent on sponsors for funding.

35

44.

According to the text, which entity in a private university is likely to have a stronger influence on the university's decision making? (p.327) a. b. c. d. e. the sponsors the parents of students the administration the students the faculty

45.

According to the text, a private university depends on _____ for the majority of its revenue. (p.327) a. b. c. d. e. student tuition and other client-generated funds state legislature government grants athletic paraphernalia governor executive orders

46.

According to the text, which entity in a public university is likely to have a stronger influence on the university's decision making? (p.327) a. b. c. d. e. the sponsors the parents of students the administration the students the faculty (p.328)

47.

What is the key to understanding the management of a not-for-profit organization? a. b. c. d. e.

It is the ability to bring a concern to the attention of the public media watchdogs. It is the ability to coordinate the recipients of the not-for-profit organization services/product to influence the direction of the organization. It is learning who pays for the delivered services. It is the process of applying influence on the sponsors. It is encouraging government intervention to ensure that not-for-profit organizations are meeting their stated obligations.

48.

To the extent that a not-for-profit organization depends more on its sponsors than on its clients for revenue, (p.329) a. b. c. d. e. the greater the responsiveness of the organization will be to the needs of the recipients. the lesser the responsiveness of the organization will be to the needs of the recipients. the less useful will be the standard concepts, techniques and prescriptions of strategic management. the more useful will be the standard concepts, techniques and prescriptions of strategic management. none of these.

49.

Which of the following is NOT true of the usefulness of strategic management concepts and techniques as applied to not-for-profit organizations? (p.329) a. b. c. d. Strategic management concepts and techniques are easily altered to fit the needs of most not-for-profit organizations. The marketplace orientation underlying portfolio analysis and PIMS research is not applicable when there are only indirect links between client satisfaction and revenue. The objectives of a not-for-profit organization are difficult to objectively measure. Strategic management techniques are not used because sponsors, not the marketplace, determine revenue.

36

e. 50.

Even when strategic management techniques are used in not-for-profit organizations, there must be some modifications to fit their individualized needs. (p.329)

The typical not-for-profit organization can be operated on the concept of a. b. c. d. e. competitive advantage. institutional advantage. manufacturing advantage. client-based advantage. public good advantage.

51.

When the not-for-profit organization performs its tasks more effectively than other comparable organizations, it is said to have a(n) (p.329) a. b. c. d. e. client-based advantage. invested advantage. institutional advantage. public good advantage. societal advantage.

52.

Which one of the following is NOT a constraining characteristic of strategic management in a not-for-profit organization? (p.330) a. b. c. d. e. Client influence may be weak. Service is often intangible and hard to measure. Strong employee commitment to professions or to a cause may undermine their allegiance to the organization employing them. Resource contributors may intrude upon the organization's internal management. Rewards and punishments are based upon clearly defined performance standards. (p.329)

53.

When public organizations are privatized, the trend is to have a. b. c. d. e. clients pay a larger percentage of the costs. clients pay a lower percentage of the costs. clients apply for subsidies from the government. organizations solicit state agencies for more funding. organizations sponsor fundraising events.

54.

Which of the following is NOT a characteristic of not-for-profit organizations which acts to constrain the organization's behavior and affect its strategic management? (p.330) a. b. c. d. e. Service is often very intangible and hard to measure. Resource contributors may intrude upon the organization's internal management. Strong employee commitment to a profession may undermine their allegiance to the organization employing them. Strong client influence causes conflicts with sponsors. Restraints on the use of rewards and punishments may result from these characteristics. (p.330)

55.

The constraining characteristics affecting the strategic management of NFPs a. b. c. d. e. are only applicable to profit-making organizations. can often be found in profit-making as well as in not-for-profit organizations. are only applicable to not-for-profit organizations. are not applicable to either profit-making or not-for-profit organizations. are identical in both profit-making and not-for-profit organizations.

56.

According to Newman and Wallender, the existence of multiple service objectives developed to satisfy multiple sponsors will result in (p.329)

37

a. b. c. d. e. 57.

service that is often intangible and hard to measure. client influence that may be weak. strong employee commitments to professions or an undermining of allegiance to the NFP. resource contributors that may intrude on internal management. restraints on the use of rewards and punishments.

According to Newman and Wallender, a NFP may have a local monopoly and the clients payments may be a small source of funds which may affect (p.330) a. b. c. d. e. service that is often intangible and hard to measure. client influence that may be weak. strong employee commitments to professions or an undermining of allegiance to the NFP. resource contributors that may intrude on internal management. restraints on the use of rewards and punishments. (p.311) a. b. c. d. e. Ambiguous operating objectives create opportunities for internal politics and goal displacement. Professionalism simplifies detailed planning but adds rigidity. Goal conflicts interfere with rational planning. External environmental factors cannot be predicted. An integrated planning focus tends to shift from results to resources. (p.330)

58.

Which one of the following is NOT one of the four complications to strategy formulation?

59.

Why might goals and objectives be very divergent in a not-for-profit organization? a. b. c. d. e.

It is much more difficult for a not-for-profit organization to establish such criteria than it is for a profit-making organization because of the greater diversity of duties. Differences in the concerns of various important sponsors may prevent top management from stating the organization's mission in anything but very broad terms. Goals and objectives take on very little meaning in most not-for-profit organizations. Government involvement often dictates the operations of the not-for-profit organization. none of these.

60.

Which of the following strategy formulation complications describes the not-for-profit organization's situation which tends to provide services that are hard to measure because they rarely have a net bottom line? (p.330) a. Ambiguous operating objectives create opportunities for internal politics and goal displacement. b. Professionalism simplifies detailed planning but adds rigidity. c. Goal conflicts interfere with rational planning. d. External environmental factors cannot be predicted. e. An integrated planning focus tends to shift from results to resources. Which of the following tends to complicate the strategy formulation process of a not-for-profit organization? (p.330) a. b. c. d. e. Ambiguous operating objectives create opportunities for internal politics and goal displacement. Linking pins for external-internal integration become important. Rewards and penalties have little or no relation to performance. Job enlargement and executive development may be restrained by professionalism. Decentralization is complicated.

61.

38

62.

Which of the following tends to complicate the strategy implementation process of a not-for-profit organization? a. b. c. d. e. Decision-making authority is delegated to the lowest manager. Professionals are constantly trying to enrich their jobs. Goal conflicts interfere with rational planning. Decentralization is complicated. Inputs rather than outputs are heavily controlled.

(p.331)

63.

Which complication of the impact on strategy implementation is concerned with the creation of "buffer" roles to relate to both inside and outside groups? (p.331) a. b. c. d. e. Goals conflicts interfere with rational planning. Decentralization is complicated. Professionalism simplifies detailed planning but adds rigidity. Linking pins for external-internal integration become important. Job enlargement and executive development can be restrained by professionalism.

64.

Which is one of the problems associated with constraining characteristics and their effect on how behavior is motivated and performance controlled? (p.332) a. b. c. d. e. Rewards and penalties have little or no relation to performance. Corporate cultures serve as limiting factors in motivation. Performance reviews provide objective criteria but do not allow for subjective appraisals. Behavior appraisals interfere with rational planning. Employee influence is weak.

65.

A special complication arising from the constraining characteristics finds inputs rather than outputs are heavily controlled, thus placing the emphasis on (p.332) a. b. c. d. e. achieving maximum profitability at all costs. promoting greater operating efficiency. creating more effective programs for the public good. setting maximum limits for costs and expenses. setting the minimum limits for costs and expenses. (p.330)

66.

A fear of funding cancellation often forces a not-for-profit organization to a. b. c. d. e. develop general objectives. develop clear objectives. develop quantified objectives. develop a narrowly defined mission. develop concise goals.

67.

Board members of a not-for-profit receive a. b. c. d. e. compensation equal to their current salary. no compensation for serving on the board. compensation in the form of free services. compensation in the form of non-financial benefits. compensation equal to one half of their current salary.

(p.331)

68.

According to the text, Eckerd College has over _____ members on its board of directors. (p.331) a. b. c. 50 60 70

39

d. e. 69.

80 90

According to the text, attendance rate of not-for-profit board meetings is approximately _____. (p.331) a. b. c. d. e. 50% 60% 70% 80% 90% (p.331)

70.

According to the text, the larger the board, a. b. c. d. e. the more control it exercises over top management. the less control it exercises over top management. the more likely the organization can attain additional funding. the more likely the organization will be audited. the less likely the organization will be audited.

71.

A study of Minnesota nonprofits indicated that _____ of the program directors had degrees or experience in business administration. (p.331) a. b. c. d. e. 15% 22% 29% 32% 38%

72.

A study of Minnesota nonprofits indicated that _____ of the staff had degrees or experience in business administration. (p.331) a. b. c. d. e. 15% 20% 25% 30% 35%

40

73.

When top management retains all decision-making authority so that low-level managers cannot take any actions to which the sponsors may object, this issue refers to (p.331) a. b. c. d. e. offensive centralization. defensive centralization. proactive centralization. reactive centralization. autonomous centralization.

74.

Cited by the text, one complication that could interfere with strategy implementation as it relates to its employees is (p.331) a. b. c. d. e. complicated decentralization. shifting of resources. linking pins. job enlargement and executive development. weak client influence.

75.

The text indicates that a not-for-profit organization should not spend more than _____ on administrative expenses. (p.332) a. b. c. d. e. 75% 65% 55% 45% 35%

76.

The text indicates that for a not-for-profit organization, the costs of fund-raising should not account for more than _____ of total income. (p.332) a. b. c. d. e. 5% 10% 15% 20% 25%

77.

If a not-for-profit organization acquires or develops a new business that is related to the organization's primary mission in order to help subsidize the deficit-producing primary mission, this is referred to as (p.332) a. b. c. d. e. strategic piggybacking. PPBS. mission enhancement. strategic funds deferral. interorganizational linking. (p.332)

78.

Strategic piggybacking is a form of a _____ strategy. a. b. c. d. e. conglomerate diversification concentric diversification vertical integration cost leadership focus

41

79.

In terms of portfolio analysis and not-for-profit organizations, question marks receive funding from _____. (p.332) a. b. c. d. e. stars dogs cash cows alliances other question marks

80.

The text indicates that approximately _____ of colleges and universities offer auxiliary services as sources of income. (p.333) a. b. c. d. e. 40% 50% 60% 70% 80%

81.

According to the text, _____ has built a $15 million office complex that rents to Nashvilles professional football team. (p.333) a. b. c. d. e. Baptist Hospital Mercy Hospital Mt. Sinai Medical Center Central Medical Center St. Marys Hospital

82.

According to the text, Smith-Kline Beecham pays _____ to use its name on Nicoderm chewing gum. (p.333) a. b. c. d. e. the Surgeon Generals office MADD the American Cancer Society United Way American Red Cross

83.

Why does the U.S. Small Business Administration take a negative position when a not-for-profit organization uses various income-generation ventures to defray the operating costs of the organization? (p.333) a. b. c. d. e. Meeting expenses and costs becomes the foremost goal of the organization. It views the activity as unfair competition. It does not conform to generally accepted accounting principles (GAAP). It does not provide a strict adherence to the goals of the organization. The recipients of the organization's products or services do not benefit from the income-generating ventures.

84.

The U.S. Internal Revenue Service (IRS) advises that a not-for-profit organization that engages in a business not "substantially related" to the organization's exempt purpose may jeopardize its tax-exempt status, particularly if the income from the business exceeds what percentage of the total organizational revenues? (p.333) a. 5% b. 20% c. 50% d. 80% e. 90%

42

85.

Which one of the following is NOT one of the potential negative effects of strategic piggybacks? (p.333) a. b. c. d. e. The revenue-generating venture could lose money. The venture could subvert or interfere with the primary mission. A successful venture could provide excess funds allowing the not-for-profit organization to grow much faster and larger than is advised. The public as well as the sponsors could reduce their contributions because of the negative response to money-raising activities. The venture could interfere with the internal operations of the not-for-profit organization.

86.

The U.S. National Association of College and University Business Officers predicts that over _____ of colleges and universities in the United States will be using strategic piggybacks within a few years. (p.333) a. b. c. d. e. 50% 60% 70% 80% 90%

87.

Which of the following is NOT one of the resources Edward Skloot suggests a not-for-profit organization have before it begins a strategic piggyback? (p.334) a. b. c. d. e. Something to sell. Trustee support. A reward system. Entrepreneurial attitude. Venture capital.

88.

Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that an organization should assess its resources to see if people might be willing to pay for goods or services which are closely related to the organization's primary activity? (p.334) a. b. c. d. e. Something to sell. Trustee support. Critical mass of management talent. Entrepreneurial attitude. Venture capital.

89.

Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that there must be enough available people to nurture and sustain an income venture over the long haul? (p.334) a. Something to sell. b. Trustee support. c. Critical mass of management talent. d. Entrepreneurial attitude. e. Venture capital.

43

90.

Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that if trustees have strong feelings against earned-income ventures, they could actively or passively resist commercial involvement? (p.334) a. b. c. d. e. Something to sell. Trustee support. Critical mass of management talent. Entrepreneurial attitude. Venture capital.

91.

Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that management must be able to combine an interest in innovative ideas with businesslike practicality? (p.334) a. b. c. d. e. Something to sell. Trustee support. Critical mass of management talent. Entrepreneurial attitude. Venture capital.

92.

Which one of Edward Skloot's suggestions for a not-for-profit organization proposes that because it often takes money to make money, engaging in a joint venture with a business corporation can provide the necessary start-up funds as well as the marketing and management support? (p.334) a. b. c. d. e. Something to sell. Trustee support. Critical mass of management talent. Entrepreneurial attitude. Venture capital.

93.

Developing cooperative ties with other not-for-profit organizations in order to enhance a not-for-profit's ability to serve clients or to acquire resources is called (p.333) a. b. c. d. e. strategic piggybacking. PPBS. mission enhancement. strategic funds deferral. strategic alliances.

94.

According to the text, between 1980 and 1991, more than ____ U.S. hospitals were involved in mergers and consolidations. (p.333) a. b. c. d. e. 100 200 300 400 500 (p.333)

95.

The New York and Presbyterian Hospitals Health Care System was a merger between a. b. c. d. e.

Baptist Health Systems and Research Health Services. Health Midwest and Research Health Services. New York Hospital-Cornell Medical Center and Columbia-Presbyterian Medical Center. Columbia-Presbyterian Medical Center and Health Midwest. Baptist Health Systems and Columbia-Presbyterian Medical Center.

44

96.

According to the text, between 1980 and 1991, more than 400 U.S. hospitals were involved in (p.333) a. mergers and consolidations. b. strategic piggybacks. c. conglomerate diversification. d. vertical integration. e. strategic alliances. Four universities agreed to create and jointly operate a new school of international business in the state of (p.333) a. b. c. d. e. North Carolina. New York. Kentucky. Ohio. Michigan.

97.

98.

The Collaborative Ventures Program, which has given more than $4 million in grants to help colleges set up money-saving collaborations, is part of an initiative run by the (p.334) a. b. c. d. e. Peabody Foundation. Teagle Foundation. United Way. UNCF. Americorps. (p.335)

99.

The first impact of the Internet upon not-for-profit organizations was the issue of a. b. c. d. e. shadow funding. strategic piggybacks. taxation. complicated decentralization. vertical integration.

100.

In 1998, the U.S. Congress agreed to a moratorium on the taxation of sales by purely Internetbased businesses for a period of ___ years. (p.335) a. b. c. d. e. 2 3 4 5 6

45