How to Apply Lean Management to Nonprofit Organizations

Can Lean management produce the same benefits for nonprofit organizations as for corporations? Opponents of Lean nonprofit management say that Lean works in business because a profit motive exists; in charitable work, there is no such motive. Therefore, Lean is said to be a poor fit which could interfere with organizations’ laudable aims.

An Alternative to the Profit Motive

Arts coordinator Jennifer Tobin might cite another motivating factor driving charitable organizations to get lean: Survival. Her Michigan theater, described as “lean and mean,” has thrived despite a recession that left similar organizations reeling.

Jennifer succeeded where others failed, opting to reinvent her theater’s pay structure for performers, keep payrolls lean, and trim operating expenses. But can the choices that worked for Tobin save other struggling nonprofits? What about organizations that do not sell tickets, or those operated entirely by volunteers?

Approaching Lean Creatively

Nonprofit organizations should not focus on strategies and exercises found in Lean management handbooks, except insofar as these exercises help nonprofit managers learn to think Lean. The most important part of Lean management cannot be found in a book or scrawled on a worksheet. It is the overall philosophy of value driven by the customer–or, in the case of nonprofit organizations, the beneficiary.

A traditional nonprofit manager might be inclined to give farming equipment to impoverished farmers, after manufacturing it in a traditional plant. A Lean thinker would ask, “How can I make sure that my beneficiaries get the most value?” After detailed analysis, he or she might decide to teach local metalworkers to manufacture the equipment and sell it to farmers, energizing two industries rather than one while saving on manufacturing costs.

Lean Benefits Donors and Grows Revenues

We have shown that Lean can work for nonprofit organizations. But should it? Some argue that charities should focus on raising more money instead of cutting costs. However, from a donor’s perspective, cost cutting is a benefit; a more efficient use of donated funds means a better value for donors and for beneficiaries. Many charitable givers now use specialized search tools to learn whether or not nonprofit organizations spend their funds efficiently.

When donors are happy, new revenue streams appear. Philanthropically inclined people often discuss their favorite charities and brag about how much good their donations have done. In this way, cost-cutting is a revenue generation mechanism for Lean nonprofits.

The Bottom Line

Ultimately, Lean management can help most for-profit and nonprofit organizations. However, not every implementation needs to meet any particular set of criteria, nor use any particular methodologies. Lean thinking is the heart of Lean management.

You do not need to copy Toyota, Ford, GE, or even Jennifer Tobin’s community theater in order to be a Lean manager. All you need is a certainty that your organization can improve continuously while remaining efficient. That thinking will stand you in good stead, whether you head a business or a charity.