Risks Associated with Business and Non-Profit Alliances - Literature review Example

Topic: Risks associated with business and non-profit alliances Non-profit have not been forbidden by the lawfrom taking part in activities that are commercial so that they can be able to better a purpose that is non-profit. This can be viewed through the non-profit hospitals, day-care centers and research centers that are perceived to be in business from the operations that they conduct. These non-profits have ties with the business sector that are strong which are not only developed from the purchases that they make of goods and services, but also but also as partners in joint ventures with the for-profit affiliates. This relationship is made more complex by the addition of the extensive holdings in the corporations that are publicly traded in the endowments in universities and various other portfolios that are non-profit in the American economy (Cordes & Steuerle, 2009). Managing a non-profit or for-profit business that is successful needs leadership, management and planning that is very healthy and enduring in the marketing and financial management. These practices are supposed to be accomplished in a manner that is robust and wholesome that is keen on the success of the business. The sturdiest legal restrictions that are against the non-profit entities are I the federal tax code. There is an argument about the business activities that are associated with the non-profits and this were illustrated by the reversal in the federal tax policy in 1950 (Cordes & Steuerle, 2009). Profits that came from the activities that involved organizations that enjoy tax exemptions were able to escape income tax before the congress had taken the decision to adopt the unrelated business income tax where no tax was applied to any income that was to be used for purposes that were exempted. There can never be a clear difference between the non-profit and for-profit organizations when the statement of purposes is considered when the articles of incorporation are looked at. The laws that apply nowadays allow the noon-profits to be started for any purpose provided that purpose is lawful. One of the reasons why mergers have a negative implication for non-profit board members and managers apart from the botched for profit mergers that the media is quick to cover is the timing that they occur in. This is the case since in an industry that is going through consolidation, the players are weak are bound to merge first and this will more often than not take them out of business. It is important to realize though that when this happens and people lose jobs or services are shut down the same outcome would have been realized had the company not gone into a merger. It is the obligation of good leaders to read the signs that the environment that they operate in give out and the non-profit board member and their senior managers have been reading the messages sent by the funding sources, the government regulators and the social leaders which in essence was encouraging them to grow and expand the services that they offer while creating more organizations and innovations for growth (Mclaughlin, 2010). Relationships that are collaborative between businesses and non-profits have been growing tremendously in the last number of years. These alliances that take place across sectors differ from those that take place from inside the sectors which will involve one business and another have been weighed in research that has taken place over time. They commonly encompass corporate philanthropy, foundations which have a corporate nature, licensing agreements, sponsorships, promotions that have a transactional basis, promotions that are associated with joint issues and joint venture (Wymer & Samu, 2003). The collaborative relationships that exist between businesses and the non-profits have been on the increase in the recent years and businesses have demonstrated a great deal of interest in how the work with organizations that is in the non-profit sector. When looked at generally, businesses are in a position to develop collaborative relationships with organizations in the same sector or with organizations that are in totally different sectors and while relationships within the sector have received growing research attention marketing researchers have accorded less attention to the cross-sector relationships (Henley, Wymer, & Self, 2013). This is an unlucky scenario for two reasons and these are: to start with, cross-sector relationships especially those that are between businesses and the non-profit organizations are increasing in number. Secondly, the dynamics of cross-sector relationships differ from those from of within-sector ones for instance non-profit organizations have objectives that are varied, cultures and the styles of operation as compared to business. Some businesses mainly aim to make monetary or non-monetary contributions that are in kind to the non-profit organization on an occasional and informal basis while other companies allocate funds to a corporate philanthropy budget have a manager that is employed to supervise the disbursement of funds and allocate this funds as charitable contributions for tax deductions. Corporate philanthropy may also entail allowing the employees to volunteer for local non-profit organizations while the volunteers receive compensation from their companies while other companies encourage their own staff to volunteer at these organizations without getting any compensation. All the business to non-profit relationships have an amount of risk that is associated with them and the main risk is that a partner will have a partner that will behave in a manner that is scandalous and thereby ruining the repute of the partners that are innocent. Another likely risk for the business partner is that its philanthropy may be resented by the employees and the shareholders who may resent corporate giving during periods of declining valuation of the stock that the corporate controls. The employees may also be in a position where they resent corporate giving during the periods that are characterized by declining business cycles which result in pay freezes or layoffs of the employees that work for them. Corporate foundations are non-profit entities that are created by a company that is aimed at managing the philanthropy objectives that it has. And as it happens in the corporate philanthropy, this type of corporate involvement with non-profit sector emphasizes it mission and cause as the business partner maintains control through its surrogate which is the foundation (Cordes & Steuerle, 2009).While supporting the causes that they consider to be worthy, the main motivation of the corporate foundations, they also work towards having their good works being noticed by the markets that they target and the employees that work for them. And while the risks and motivations of foundations that are encountered are the same as those that are corporate philanthropic programs, the creation of a foundation greatly reduces the risk of the shareholder and the resentment of the employee during the times that the business is in the down-cycles. A commercial foundation as likened to a commercial philanthropy will permits a company to put away more money than the amount that it contributes in the times that business is booming and then contribute more that it puts aside when the business is not doing very well for one reason or another. This is meant to establish an endowment that will be aimed at serving as a disbursement regulator in which the companies can be able to control the amount of giving that they do to the foundation to correlate with the fluctuations in the business cycles. This is aimed at reducing the degree of resentment that the employees might have of corporate giving during the periods that are characterized by decrease in the value of stock and the employees experiencing austerity measures. There is also the risk for non-profits that involve the licensing of agreements could be a possible damage to the repute and image, reduced funding and even in the situations that are serious withdrawal of the corporate support. In this case the licensing partnership brings out the non-profit to a higher level of risk and therefore an agreement will imply that the non-profit is supposed to endorse the product apart from the benefit from the sales that it gets (Austin, 2000). Whenever a product is associated with a non-profit, the consumers will always tend to believe that the non-profit has evaluated the product and endorsed it. Therefore if the product will turn out to be of a quality that is poor or maybe it is dangerous to the consumers, then the reputation of the non-profit will easily be dented. For the business partner, the licensing agreements coupled with the expenses that are connected with the formation of the agreement represent potential merchandise that can be invested in and the cost of the distribution to the markets and any other expenses that are connected with the promotion of the licensed items. In licensing agreement, a business will pay a non-profit for using the non-profits image in the advertisements that they will be carrying, their packaging and other services. However, in the sponsorship the business will pay the non-profit a sponsorship fee for the use of the business brand in the non-profits advertisements or other communications that might be external (Riggio & Orr, 2004). There are two main components of sponsorships where in the first on, the sponsor pays the party that is being sponored a fee so that it can be able to associate itself with the activity that is being sponsored and the second one that involves the marketing of the association by the sponsor and both these activities are important and necessary if the sponsorship is to be a successful venture. A business that participates in sponsorships has its main interest in the promotion of its brand and the name of the company although the sponsors also want to fund and promote the events that are ongoing. The non-profits will normally be concerned about the protection of their favorite public perception and will normally have a preponderance of control about how the sponsors will undertake the advertisement of their association (Tschirhart & Bielefeld, 2012). Sponsors though, have paid for the right to have an association and put their name on the event and therefore will implement some power in the alliance as well. There are a number of business-nonprofit sponsorship types and these include several types of sports sponsorships, books sponsorships, exhibitions, education sponsorships, expeditions, cultural activities, local events and even documentary films. Sponsorships that take place between businesses and non-profit organizations have experienced an escalation in the corporate marketing budgets and while the main motivation for businesses is the opportunity to be able to be associated to the target market and also the public in a manner that is favorable, non-profits are motivated to enter into the sponsorship agreements so that they cab be able to generate some funding and the desired funding might be generated so that it can be able to fund an event or even the event that is being sponsored might be acting as a fundraiser for the non-profit. The partners though, may encounter some risks whereby the business partners risk being associated with a publicity that is negative that could be generated from the non-profit and the non-profit also faces the same problem from the business partner but the non-profit also faces an additional risk where should anything happen to go wrong and a scandal that the public will know of is created, then it will be very difficult for the non-profit to acquire any future sponsors. In the case where the promotions are based on transactions, a corporation will be mandated to donate a particular amount of cash, food or equipment in direct proportion to the sales revenue which is normally allowed up to a particular limit to one or more non-profit organizations. The main aim of the non-profit–business relationships is typically promotional and by partaking in Joint Issue Promotions businesses are anticipating to be view as winners in the cause which is key to their customers and these non-profits are driven to join this relationship because it is focused at accomplishing their goals and purposes and by tapping into the resources and the competences of companies, the non-profits are able to bring much greater awareness to their cause than would otherwise be possible (Longenecker, 2010). The control and coordination among the participating organizations is not great but it is far greater than in the other types of non-profits relationships simply because partnering organizations are all operationally involved in the promotion. There are risks that the partners may face in the process of their association for example when a partner is mixed up in a scandal, the situation can bring negative publicity to a particular organization and the corporations are in a better position to recover from the effects of going into a partnership with an unscrupulous non-profit and vice versa. Companies are more likely to have public relations expertise or to have enough resources that can enable then to hire publicists. In addition, the customers that the company has are likely to make purchasing decisions that are based on the benefits and values of the products and would only refrain from buying a product that is superior in the most egregious situations (Smith & Stodghill, 1994). The bigger chunk of funding that is directed at the non-profit comes from individual donors and if the reputation of the id damaged, then the ability that it has of getting other funds is significantly weakened. There is another risk for the nonprofits that had the potential to make there relationships that are existing to be dissolved and this arises from the non-profits ability to fulfill the mission that it has set out to complete and this can be restricted by the corporation if they decide to withdraw from the relationship in which they were providing the marketing, creative and other important support to the functioning of the non-profit. A business-non-profit joint venture is a new non-profit entity that is developed by the organizations that are being partnered so that they can be able to achieve objectives that are desirable to both parties. For instance the environmental groups strive to educate the public about issues that deal with the hazards in the environment and the business practices that are socially irresponsible while they seek remedies through policies from the government in the form of newer restrictions, regulations and laws while businesses in the past viewed environmental groups as their adversaries now they perceive them as partners and they are cooperating with them in the advocacy by forming joint ventures that produce favorable results for both of them (Hartman & Stafford, 1997). Taking part in the cause-marketing alliances between the business and the nonprofit is associated with a noteworthy number of risks that are important to the revenue that the non-profits get and also the prestige that they command. This generally depends on how deep the alliance that is in question is and in the case that the alliances that have been established become unsuccessful; there will be a waste of resources. For the business, that alliance might be looked at as one of the marketing strategies that it employs and there for if it fails, it will be considered as the cost of risk-taking. The situation may also be one that the non-profit is over-commercialized with the example of the American Cancer Society that has received criticism for being interested in profits that come out of cancer more than its prevention and this problem is more rampant in the cases that are associated with the arts. The alliances between the business and non-profit that have are aimed at marketing a cause may only produce effects that are not permanent. If there are donors or partners that are attracted by these ventures to the non-profit, then the relationship that they will have with the nonprofit will be a shallow one. The business that took part in the cause-marketing alliance that flopped might be at the receiving end of consumer anger over the perceived deception on the terms that the alliance was based on. There are other risks that are associated with these alliances which might make them last for a short time and ultimately fail since there are situations where there are misunderstandings in the early stages of the alliance. This are generally brought about by the managers of the businesses that are going into the alliance not understanding well enough the mission that the nonprofit has and how it conducts its internal affairs. The businesses go into the alliances having expectations that are not realistic which may include how much time the nonprofits are supposed to be part of the alliance. The differences are further escalated by the differences that they may have over the objectives and also the failure to discuss the measures of achievement that they seek. The perception that one of the parties is getting more benefit but putting in less cost is another feature that can be associated to the risks that might be experienced when the business creates an alliance with the nonprofits. In this scenario, the nonprofits will view the business as having a huge appetite for publicity that is favorable from the alliance and in most cases, after the alliances have existed for some time; the businesses get the feeling that the costs that are associated with them are too much. References Austin, J. E. (2000). The collaboration challenge. Hoboken: John Wiley & Sons. Retrieved from < http://tamarackcommunity.ca/downloads/clife/book_collaborationchallenge.pdf > Cordes, J. J., & Steuerle, C. E. (2009). Nonprofits & business. Washington, DC: Urban Institute Press. < http://books.google.co.ke/books?id=ysjNgfsKHIkC&pg=PA120&lpg=PA120&dq=Cordes,+J.+J.,+%26+Steuerle,+C.+E.+(2009).+Nonprofits+%26+business&source=bl&ots=jPj1yzn4zk&sig=ybn2JuMaF90PaWjFti6_Dh92rYA&hl=en&sa=X&ei=mGwnU7jtCeeO4ASn-oHgCA&redir_esc=y#v=onepage&q=Cordes%2C%20J.%20J.%2C%20%26%20Steuerle%2C%20C.%20E.%20(2009).%20Nonprofits%20%26%20business&f=false> Hartman, C., L. & Stafford, E., R. 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