Why strategic decision-making in NFPs needs attention

Decision making within not-for-profit organisations does not mirror its for-profit counterparts. It needs its own approach.

The way organisations manage strategic issues and make strategic decisions has been studied extensively.

As such, there is a strong body of knowledge outlining how organisations can effectively resolve issues when they arise. 

However, this research has overwhelmingly focused on for-profit organisations.

While it is easy to assume that the strategic issues facing not-for-profit (NFP) organisations, and the most effective means to resolve them, mirror the For Profit (FP) sector, this is far from the truth. 

In fact, it is highly unlikely that effective strategic decision-making is the same for the NFP sector. 

To address this gap in knowledge, the Centre for Social Purpose Organisations is launching the first ever national study of strategic issues and decision-making in charitable NFPS.

Here we outline why strategic decision making in NFP organisations is starkly different to its FP counterpart and as such, requires separate, evidence-based, context-relevant decision-making frameworks. 

The number and diversity of decision-makers differs

Based on the body of research for FP organisations, it is known that strategic issues do not arrive clearly labelled.

When they emerge, they must be noticed and interpreted by the organisation’s leaders.

It is up to the decision-maker to judge whether the matter deserves attention, how urgently it needs a response, and even whether a response is feasible.

For a FP business turning over less than $20 million annually, who the decision maker is, is usually fairly straight forward. However, in a NFP of the same size, the number and diversity of the decision-makers involved in these matters is far more complex.

In Australia, over 97% of FP businesses turning over less than $20 million are private companies that are legally required to have at least one Director. In practice, this is often the owner who is working in the company and knows it intimately.

However, NFPs, irrespective of size, are required to have a Board of at least three directors, and more than 75% of those Directors are voluntary.

Often these Directors are recruited from the FP sector, and their experience is not specific to the social purpose context of the organisation they are governing.

They therefore find themselves relying heavily on the sector-specific and organisational knowledge of their CEO and other senior managers to make effective strategic decisions.

This means, that unlike a similarly sized FP company, strategic decision-making in a NFP can involve a large number of people, from very different professional backgrounds.

Often, unbeknownst to them, these decision-makers represent a diversity of norms, values and beliefs because of their professional backgrounds and experience.

This diversity in ‘world views’ can make agreeing on a course of action more complex and difficult than it is in a FP context. 

Australia operates as a liberal market economy, where influential NFP stakeholders, such as board members, funders and supporters, often prioritise commercial market perspectives over other viewpoints. 

While most modern NFPs recognise the importance of financial sustainability, the prevailing market-oriented mindset in economies like ours can place pressure on decision-makers to adopt practices similar to FP organisations, often to maintain credibility, even though NFPs have fundamentally different purposes.

NFPs have more complex stakeholder relationships and power dynamics 

Just as a NFP has more, and more diverse, decision-makers than a FP of a similar size, they also tend to have more complex stakeholder relationships.

In a small to medium FP company, those with a stake in any strategic issue or decision may include employees, customers, suppliers, shareholders/owners, and to a lesser extent the local community in which the company operates.

In addition to these stakeholders, NFPs also have the people or community at the core of their social purpose, government, funders and other organisations striving to address the same societal issues.

What complicates it further, is that not all these stakeholders hold the same decision-making power. In fact, the people and communities the NFP was established to support often hold the least power of all.

The result is that even for small NFP organisations, strategic decisions sit within a complex ecosystem that requires careful consideration and conscious engagement beyond the decision-makers.

NFPs are operating in resource scarce context

Resource constraints are a very real element of the NFP operating context.

Over 80% of Australia’s charitable NFPs generate annual revenue of under $10 million; this group has collective net income of $2.53 billion representing a net profit margin of 0.088.

Put another way, for every dollar of revenue these NFPs earn, only 8.8 cents finds its way to the organisation’s bottom line. Over 90% of income is used to deliver the social purpose of the organisation.

This leaves very little surplus for investing in innovation as a buffer against unforeseen events, or to spend on accessing the information and advice needed to resolve strategic issues.

The resource-scare contexts in which most NFPs operate also has another implication: the lack of a financial buffer coupled with the criticality of the social and environmental issues that they exist to address, renders strategic decision-making high stakes for the organisations themselves and the communities they serve.

NFPs face greater public accountability and scrutiny

In addition to the legal requirement NFPs have a greater number of Directors, another implication of them being public companies is their public reporting and disclosure obligations.

Regardless of their size, all charitable NFPS must provide an Annual Information Statement about the organisation's activities and basic financial data to the Australian Charities and Not-for-profits Commission.

There are then additional requirements for organisations deemed large charities ($3 million revenue or more), including full independent audits.

This contrasts with 99% of Australian private FP companies with similar revenue who have no public reporting or independent audit obligations.

This requirement for public disclosure is completely understandable, given that charitable NFPs benefit from tax concessions and possible donation income. However, it does increase the reputational stakes for NFP decision-making.

The difficulties evaluating decision-outcomes in NFPS

Finally, relative to FP companies, evaluating the performance of NFPs is complex, both in terms of what is evaluated and by whom.

In addition to the standard profitability, efficiency and cashflow metrics used by FP companies, NFPs have the complex task of evaluating their performance against their purpose.

In most instances, social (or environmental) impact measurement and monitoring is complex and expensive.

This process requires not only measuring the efficiency of inputs and outputs but also measuring if those outputs result in their intended outcomes, and ultimately if they lead to lasting improvement and impact.

In this context, decision-makers have the complex task of deciding on a strategic course of action that may not have an impact for years to come, making it difficult to evaluate its effectiveness.

A complex array of stakeholders, including funders, also form their own judgements of the organisation’s performance, effectiveness and overall legitimacy.

Addressing the knowledge gap for NFPs

To address this knowledge gap, the Centre for Social Purpose Organisations is launching an Australian-first study of strategic issues and decision-making in charitable NFPS.

The research will build on recent publications relating to Australia’s NFP sector, including the Not-for-Profit Sector Development Blueprint (2024), the Centre for Social Impact’s State of the Social Economy in Australia Report (2025), and the AICD’s NFP Governance and Performance Study (2026), by providing granular, evidence-based knowledge about how senior leaders within NFP organisations identify, interpret, and respond to the strategic issues their organisations face.

The study aims to develop evidence-based, context-relevant strategic decision-making tools and frameworks for use by the sector, that acknowledge the unique difference of the NFP sector.

The first phase of the program is currently underway, with the team seeking senior leaders of charitable NFP organisations, including chief executives, executive directors, and other senior managers, to participate in an online or in-person research forums this August.

If you would like to take part, you can sign up through the research forum registration form.

Dr Libby Ward-Christie is the Centre Director of the School’s Centre for Social Purpose Organisations. To learn more about the work the Centre is doing, visit their page.