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Profit and non-profit: operational optimization only marginally different
December 2008 - by Serge Derycke
HERENT - Contrary to the general assumption, a sheltered workshop indeed takes part of the real market economy. Both types of organisations fundamentally adhere to the same dynamics. The duality of social economy / non-profit against market economy / profit, creates tension between the external economic realities and the existing internal reality that may be biased by too many social motives.
60% of the workforce is faced with a disability.
Packaging is one of the main activities.
Choice dominated by market parameters
The finding is based on the result of a mission performed for one of the largest sheltered workshops in Belgium. It’s an organization of about 1.000 staff employed. Up to 60% of the workforce is faced with a disability. These people can be both physically, mentally or socially disabled.
The client is particularly active in the packaging or repackaging industry, especially in the food industry and more specifically in the beverage sector. They work internally, but also an important part is done externally. This means that the staff of the sheltered workshop are employed within the walls, using the machinery of the customer. Other activities include the digitization of documents, manning call centres, creating displays, maintaining green zones, making workers available and managing them in the context of service checks, etc.
Matching internal perception with the market
The duality of social economy / non-profit towards market economy / profit, creates tension between the external economic realities and the existing internal reality that may be biased by too many social motives. Different to other missions, it was automatically assumed that the activity was situated in the social economy as a non-profit organization.
This is not in line with customers expectations. The services and goods offered by them should comply to the market conditions. Customers do not choose this particular sheltered workshop out of filantropic motives. Hard economic reasons are at the basis of choice: price, quality, punctuality of deliveries and production volumes have to fit to the market
requirements. The pursuit of efficiency is as important for a sheltered workshop as for any other company.
The goals of a sheltered workshop are only marginally different to a profit organisation: instead of pursuing profit in order to create added value for their shareholders, the organisation has to achieve positive results in order to invest in more employment of disabled people and in their welfare. The beneficiaries are different, but the pursuit of positive results is similar to a company.
A “profit” project set-up in a non-profit environment
A mission can be very wide and consist of the review and optimization of the internal organization, of the personnel, of commercial and purchase policies and of the financial reporting, as well as seeking a broadening of the different product range.
We already came to the conclusion that the policies and the problems faced by a sheltered workshop are similar to those of other companies. Therefore the same techniques can be used.
It all starts with the installation, together with top management, of a project structure, including different staff members from the various departments. It should start with a vision, defining goals, targets and milestones.
The work was spread over different sub project teams. Key was the involvement of all levels of staff. The objectives of each project group were clearly defined:
- Start with thorough analysis
- Make improvement proposals
- With the agreement of the board of directors, implement those proposals
- Finally follow-up the implementations.
Today implementation is ongoing.
Pitfalls to implementation
On the implementation we encountered a number of problems which may also be recognized by profit organisations.
- Long and outdated decision structures
The organization and decision-making structures are outdated and log, no longer adequately fulfil the current market requirements. A small investment and recruitment of workers had to be approved by a board of senior management only held every 15 days. In addition the managers were not aware of their responsibilities, their employees did not know who was responsible for them.
The implementation of an organization made up of several Business Units, each with a senior manager at the head, was part of the solution. Within the Board of Directors’ approved budgets, they can take all decisions necessary for the realization of their objectives. Weekly individual reporting with the CEO takes places. Monthly board reporting meetings are held, through KPIs (Key Performance Indicators) compared to the approved budgets.
- Lack of customer focus
Production and costs and grant orientated. Decisions are taken on the basis of receiving grants, or on the basis of the actual accounting cost without taking into account future savings or revenues. There is no market orientation; new products or innovations are launched without any clear visibility on the existence of a market.
Tender prices are also calculated on the basis of an accounting cost plus a margin, without taking into account the market price. This policy results in an always rising price as all costs (including the not-cost efficient) are borne by the customer, with the risk of being priced out of the market.
Commercial thinking should prevail and all decisions have to be taken in function of market potential. Therefore, a commercial plan is now being drawn up.
- Personnel policy not aligned with market requirements
The personnel policy is shifted to far to the social sector, resulting in a huge absenteeism problem. It was interesting to notice that even the own personnel felt the current policy “unfair” towards those willing to work, be it with limited abilities. The project group proved the abuses to be antisocial. The good employees are punished since they need to work more individually and they may earn less because the total labour costs remains too high.
A completely new follow-up procedure is implemented to reduce the absenteeism problem. In addition to these major problems, a whole host of other problems were still identified, for which solutions are also implemented. The conclusion remains: the operational optimization for all organizations is only marginally different.
