The theoretical approaches to explaining the functional side of the nonprofit sector differ in their vision of the motivation and moving forces of nonprofit organizations to initiate their service delivery. From the general perspective, nonprofit organizations, as their title implies, do not generate profit, which means that their performance is motivated by non-monetary outcomes (Hager, 2011).
Moreover, the multiple views at the nonprofit sector on a theoretical level are influenced by the multifaceted and complex nature of the American nonprofit field, which has emerged on the intersection of philanthropy and individualism characteristic to the American society (LeRoux & Feeney, 2014). The theory that is capable of explaining nonprofit performance in its complexity is the entrepreneurial theory that provides valuable views on the managing side of nonprofits.
The entrepreneurial theory is an approach that views nonprofits as the organizations that function as the innovative leaders capable of providing necessary services in response to societal demand. According to Anheier (2014), entrepreneurship in its economic meaning is defined as the activity of change agents who are “innovative, opportunity-oriented,” and focused on creating value leading and managing enterprises (p. 127). From this perspective, it is evident that the entrepreneurial theory is based on the supply-oriented ground and views the functioning of a nonprofit organization as an entity that is not interested in generating monetary profit, and whose services are only a manifestation of achieving a greater goal.
Indeed, the achievement of a philanthropic or charity goal is the core of the nonprofit sector’s functioning. As Tschirhart and Bielefeld (2012) state, the mission is the essence of any nonprofit, which, from the entrepreneurial perspective, derives directly from the point of view of an entrepreneur who initiates the organizational activity.
Despite the type of services a nonprofit engages in, social entrepreneurs, unlike business entrepreneurs, generate social value that is a non-monetary impact on society, such as behavioral change or problem-solving (Anheier, 2014). Indeed, as described by Tschirhart and Bielefeld (2012), the framework for generating social value proposition involves the interaction between people, capital, and opportunity, which is possible under the regulatory influence of entrepreneurs leading the process. An important attribute of the entrepreneurial theory is religion or other ideology that is directly connected with the values of the organization.
Since the ultimate goal of the nonprofit, according to this theory, is generating social value, the delivery of services to people in need, such as healthcare or educational assistance in times of crisis, allows for achieving the greater goal of disseminating ideology and making a social change.
The strong side of the entrepreneurship theory is its application to the explanation of the value basis of the nonprofit sector and the core relevance of the mission statement in the overall functioning and performance success of the organization. On the other hand, the theory is limited to value-based organizations and puts emphasis on religion and ideology as the driving forces of nonprofit functioning.
Nonetheless, in contrast to other theories, the entrepreneurial approach justifies the importance of the supply side in managing nonprofits, which is particularly determined by the perspectives cultivated by entrepreneurs. Within the context of the nonprofit sector, the entrepreneurial theory allows for justifying the non-monetary returns that motivate the performance of nonprofit organizations and contributes to the understanding of the importance of organizational mission and values.
References
Anheier, H. K. (2014). Nonprofit organizations: Theory, management, policy (2nd ed.). Routledge.
Hager, M. (2011). Nonprofit? Really, is that the best name we can come up with? Web.
LeRoux, K., & Feeney, M. K. (2014). Nonprofit organizations and civil society in the United States. Routledge.
Tschirhart, M., & Bielefeld, W. (2012). Managing nonprofit organizations. John Wiley & Sons.