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Nonprofit Policy Forum

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The Future of Nonprofit Human Services

Steven Rathgeb Smith
Published Online: 2018-03-23 | DOI: https://doi.org/10.1515/npf-2017-0019

Welfare states in many advanced industrial countries are in transition as countries strive to cope with many important policy trends and developments: scarce public and private resources; increasing demand for an array of community services; and higher expectations for consumer and user choice in services and providers. As part of their response to these trends, governments have adopted a variety of policies and practices associated with the New Public Management (NPM) which emphasized market-oriented strategies to improve public services (Hood 1991). Over time, NPM and its ripple effects are transforming nonprofit human service agencies’ place in the social safety net and their relationship to users and their broader community. Nonprofit human service agencies are now coping with greater competition for resources, at the same time as governments, citizens, private foundations, and individual donors are expecting higher levels of performance and accountability from nonprofit organizations. Funders are now exhorted to be “investors” and to expect positive results and measurable impact. Government funders have also shifted toward performance-based contracts and “pay-for-success” funding models with reimbursement tied to attaining specific outcomes (Phillips and Smith 2011; Phillips and Smith 2014; Mosley and Smith 2018).

More transparency in operating nonprofit human service agencies will also be expected due to the embrace of NPM principles. Relatedly, emphasizing performance in the context of fiscal scarcity among public and private funders will abet prioritization of services that will lead funders to move away from low-priority services including services whose outcomes are vague or elusive. “Hard” services such as child protective services will be prioritized over “soft” services such as counseling or advocacy (Smith and Phillips 2016). These trends can also promote movement toward larger agencies with diversified revenue sources, sufficient infrastructure and capacity, and influential political and community connections. Yet, the push for innovative program models and more effective solutions to social problems will also ensure that new agencies will continue to form and seek public and private resources, although many will struggle with developing sustainable business models.

In addition, NPM in the context of fiscal scarcity and rising demand has also encouraged the adoption of the principles of the “New [Public] Governance” which emphasizes horizontal, collaborative, relational or governance over markets or hierarchies in this context (see Rhodes 2000; Koppenjan and Klijn 2004). In essence, NPM has led to the fragmentation of local services given the proliferation of competitive tendering; consequently, policymakers are now seeking better integration and coordination among local public, nonprofit and for-profit human service agencies. Thus, many nonprofit human service agencies face a more competitive funding environment but also pressure to collaborate with other service agencies and funders. The following pages offer an analysis of this turbulent, challenging and opportune moment for nonprofit human services. Agencies will need to invest in their infrastructure, and adapt their governance, to engage in more collaborative relationships with funders and partner organizations at the local level while at the same time competing effectively for scarce public and private resources. Building community and political support will also be essential in an era of higher expectations for accountability and transparency in agency operations.

Background

Human services is a diverse field, with many sub-sectors, and the composition of the field is shifting. In general, human services refers to a range of services provided directly by government or through private nonprofit and for-profit service agencies. These services involve social care provided to disadvantaged children and youth, the needy elderly, the mentally ill and developmentally disabled, and disadvantaged adults. They include child care, counseling, job training, child protection, foster care, residential treatment, home care, rehabilitation and transitional housing (Kramer 1987; Smith 2012). Nonetheless, the boundaries of human services are increasingly fluid, especially given pressure for human services to integrate into other public and nonprofit programs including health, housing, and corrections. For example, successful transitional housing programs may hinge on support services such as job training. Effective prisoner re-entry programs may need adequate housing and counseling services. At their core, however, human services encompass an array of programs designed to enhance the lives of families and individuals.

The roots of this diverse mix of services date to the nineteenth century in Europe and the US when an array of philanthropic organizations began to provide assistance to marginalized groups. (Prior to this, the responsibility for helping to the poor was generally the province of religious institutions and local government.) Public funding tended to be decentralized to the local level. Nonprofit organizations relied upon a mix of donations, fees, and subsidies from local government (Smith and Lipsky 1993; Lewis 1999; Henriksen and Bundesen 2004). Governmental income support was limited so nonprofit organizations were often the only source of relief. Many leading nonprofit human services agencies including the Salvation Army, Goodwill Industries, and the International Red Cross were founded during this period. Countries as diverse as Denmark, the UK, and the US had similar organizational responses to poverty and social problems. But the welfare state’s growth in the twentieth century caused substantial divergence in countries’ human service systems. In the early twentieth century, some countries such as the US remained dependent on local government and philanthropy for their limited human services. Meanwhile, others such as Denmark and Sweden developed their own capacity to provide human services, largely through local government, and displaced the role of private nonprofit human service agencies (Henriksen and Bundesen 2004; Alber 1995; Henriksen, Smith, and Zimmer 2012; Henriksen et al. 2016). Other countries including the Netherlands and Germany created tight relationships between government and nonprofit human service agencies, especially via national umbrella organizations which worked closely with government officials. These umbrella organizations such as Caritas relied primarily on government funds, especially national funds, to support local services delivered by affiliated nonprofit human service agencies (Henriksen, Smith, and Zimmer 2012; Henriksen et al. 2016).

Beginning in the 1960s, human services in many countries expanded sharply. In the US, the federal government dramatically increased spending on human services, primarily through contracts with local nonprofit human service agencies (Smith and Lipsky 1993). Service eligibility was expanded and many new initiatives were introduced, including services in: addiction; domestic violence; youth mentoring; transitional housing; community services for the developmentally disabled and mentally ill; and emergency shelter for youth. The US trended towards universalism, offering publicly subsidized services to a broad swath of citizens (Gilbert 1977). Elsewhere, including Denmark, the trend toward universalism led state services to displace nonprofits (Alber 1995; Lewis 1999; Henriksen et al. 2016). Here, the nonprofit sector tended to complement the state sector, often in specific services such as domestic violence or addiction.

The advent of NPM in the 1980s and 1990s started a restructuring of nonprofit human services that continues to produce far-reaching effects. NPM had its origins in the UK and elsewhere where scholars and policymakers strove to improve public services by tapping market-based incentives (See Hood 1991). Thus, NPM shifted away from traditional government programs with the objective of improving public services through increased accountability and performance. In the UK, US, Australia, and New Zealand, NPM led to more use off ormal contracting with nonprofit agencies and competition for funding (Phillips and Smith 2011; Smith and Phillips 2016; Lewis 1999; Gutch 1992). Many nonprofit agencies had historically received public subsidies through long-term contracts and relationships with local government— but rarely were these grants terminated or competitively bid. Now nonprofit human service agencies were in a competitive environment, although the extent of this competition varied across countries. The level of competition also varied depending upon the locale and service category since some services such as job training in urban areas have many more human service providers than addiction services in rural communities.

The increased focus on competition also reflected the emphasis within NPM on enhanced performance and accountability in public service delivery. In many countries, this performance focus initially translated into incremental adjustments to the governance and management of nonprofit human services: more regulation of contracts and requests for more reporting and information, and the introduction of performance-based contracts. The latter typically involves contracts that tie government reimbursement to attaining specific outcomes (Smith and Grinker 2004; Desai, Garabedian, and Snyder 2012; Smith 2012; Fraser and Whitehill 2014; Freundlich and Charlotte 2012). For example, reimbursement for a nonprofit job training program might depend on placing a disadvantaged person in permanent employment.

In sum, the 1980s and 1990s were a period of change in human services. Yet in the last 15 years, an even more fundamental transformation of human services has been underway, influenced by NPM and its consequences, as well as continuing budget scarcity, shifts in thinking about private philanthropy, higher demand for community services, and the growth of nonprofits and NGOs at the local level. The next section details this transformation and its consequences for human services.

The New Transformation of Human Services

The transformation of human services in recent years has been driven by continuing concerns about performance and accountability in the context of an altered organizational mix in human services. NPM’s introduction coincided with growing demand for human services such as community care. One outcome of this increased demand has been an increased number of nonprofit human services organizations. In the US, the number of nonprofit human service agencies almost doubled between 1995 and 2016 (NCCS, 2016; McKeever 2015). To varying degrees, other countries have also experienced significant growth in the number of nonprofit human service agencies (New Zealand Productivity Commission 2015; Henriksen et al. 2016). In addition, many countries have experienced growth in for-profit human services, creating greater market share competition. In the US, for example, home care and child care are now dominated by for-profit human service agencies (US Census Bureau 2015). In the UK, for-profit agencies have increased their market shares significantly in children’s services, job training, and housing programs. For-profits have a growing role in many other European countries especially in community programs for the elderly and disabled (Henriksen, Smith, and Zimmer 2012; Henriksen et al. 2016).

Greater organizational complexity

The growth in for-profit human service agencies coincides with blurring boundaries between traditional human services and other services such as health care and housing. Longer life expectancies have led to greater interest in community support services and alternatives to institutional care for the elderly. Similarly, community care options for the mentally ill and developmentally disabled have been emphasized throughout the world; often these community services are funded through the health insurance system or through funding streams that blend health and social services. In the US, for example, Medicaid, the health insurance program for the poor, disabled, and disadvantaged has emerged as a central funder of community social services such as residential programs and home care for the mentally ill and developmentally disabled (Andrews, Grogan, Brennan, and Pollack, 2015; Braddock, Hemp, Rizzolo, Tanis, Haffer, and Wu, 2015; Smith 2016). In the UK, a nonprofit human service agency, Age UK, is partnering with the National Health Service (NHS) to help keep the elderly in home settings in their communities (NCVO, 2015).

Integration between traditional human services and other social services such as health and housing can occur within one organization; thus, a low-income housing organization might also offer intensive job training programs. But two separate organizations may also partner to provide housing and social services; indeed, increasingly, public and private funders are expecting collaboration and service integration among local service organizations to address pressing social problems (Smith and Phillips 2016; Smith 2016). Public and private funders will often create intermediary organizations to offer a comprehensive approach to local social problems – sometimes known as “collective impact” to coordinate care at the local level and support service integration (Kania and Kramer 2011). In short, the human services system has become substantially more complex in many communities as various hybrid organizations and a multiplicity of public-nonprofit partnerships develop.

Social enterprise and social innovation

This complexity is also a consequence of enthusiasm for social enterprise and social innovation. In brief, social enterprise generally refers to organizations with a social mission that mix nonprofit and for-profit elements such as market income (Dees 1998; Alter, 2003; Skelcher and Smith 2015; British Council 2013; Reiser 2013). FareStart, a nonprofit agency for the homeless in Seattle, Washington, established a restaurant staffed by previously homeless individuals to help them learn job-ready skills. Similarly, REDF, a nonprofit based in San Francisco offers multiple programs that creatively mix public, philanthropic and earned income to support employment and job training for the disabled and disadvantaged, combining the traditional social mission of a nonprofit with market based activity (Thornley, Anderson, and Dixon 2015; REDF 2016). At this point, a bewildering array of social enterprises exist including nonprofits that mix a social mission and for-profit goals and objectives (Skelcher and Smith 2015; British Council 2013; Reiser 2013). In practice, social enterprises can raise the major concern that market incentives and competition will discourage or prevent nonprofits from serving clients with difficult or complex needs, leading to the so-called “creaming” phenomenon whereupon agencies select the clients most likely to be successful or remunerative for the agency. Regulations and the appropriate contracting incentives can mitigate this problem but it remains very complicated in practice, given the discretion exercised by agencies and their staff on the selection and management of clients.

Widespread interest in social enterprise is also linked to broad support among policymakers and philanthropic funders for social innovation—a term with a variety of definitions and applications. One frequently cited definition offered by Evers and Ewert (2015) focuses on disruptive change in prevailing routines in welfare systems (p. 2). In the US context, many social innovation projects have been social enterprises. For example, the Obama Administration created the Social Innovations Fund (SIF) as a partnership between the federal government and leading national foundations. SIF has supported nonprofit social enterprises (including REDF). One of the overriding goals of SIF is to support projects with a proven record of effectiveness. Throughout Europe, the US, and elsewhere, many social enterprises are “work integration social enterprises” or WISEs, with the goal of encouraging workforce participation through client engagement in a social enterprise (Evers and Ewert 2015; Hasenfeld and Garrow, 2012).

More commonly in Europe, social innovation has also included projects with a strong “co-production” component which typically involves service users actively participating with professionals and volunteers to develop and deliver key public services. Nonprofits have been favored for co-production initiatives because of their roots in voluntarism and citizen participation (Evers and Ewert 2015; Bovaird 2007; Smith and Phillips 2016; Bovaird et al. 2013; Fledderus, Brandesen, and Honingh 2015; Alford 2009) Examples of co-production include: co-creation of a new integrated service system for youth by local officials, citizens, and youth; and a clubhouse program where the staff and mentally ill individuals work together to administer the program and promote greater independence for the mentally ill citizens in the program (Bovaird et al. 2013).

These co-production examples also illustrate a ripple effect of NPM: the shift toward greater user choice. Along with co-production of new service options, like the clubhouse program, more user choice is reflected in support for individual user control over public resources. In the US and the UK, personal budgets have been created which give individual users control over how public funds are used for their services. Thus, a senior citizen might have a specific budget of public funds that she uses to purchase home care and transportation (See Cunningham and Nickson 2010; CMS, 2016). Increased use of vouchers for child care and housing also illustrate this trend toward more client choice. Greater client choice, though, means less agency control so the movement toward vouchers and personal budgets contributes to environmental uncertainty for these nonprofits.

Overall, interest in social innovation, including social enterprise and co-production, is frequently combined with a focus on outcome evaluation, accountability and transparency. The many types of social innovations are often thought to offer improved effectiveness and efficiency (See Evers and Evert, 2015). Moreover, social innovation has occurred at a time of substantial innovation in performance management and the approach public and private funders take to evaluation and performance assessment.

Performance management

Recently, the earlier performance-based contracts have become part of a broader performance-management movement to hold human services more accountable. Many performance-based contracts are now under the broader title of “pay-for-success” (PFS) (Corporation for National and Community Service, 2015; In the Public Interest 2015; Roman et al. 2014). PFS seeks to link payment for services to the success of the intervention for clients and the broader community. In these contracts, PFS has entailed a shift in focus from outputs and short-term outcomes to longer term outcomes. Perhaps the most visible shift in performance management for human services is the advent of social impact bonds (SIBs) – a form of pay-for-success that has achieved wide attention as an innovative strategy to achieve social impact. SIBs are complicated initiatives that depend upon private investors assuming the risk of social programs, with the government paying off those investments if the goals are met. Private investors loan money to an intermediary (usually a nonprofit) which then sub-contracts with service providers who deliver services with specific performance targets. The project is evaluated by independent researchers and the government sponsor repays the loan with interest if performance targets are met. One of the most well-known SIBs was an ultimately unsuccessful effort in New York City to reduce recidivism among individuals leaving Riker’s Island Correctional facility. The city of New York partnered with Goldman Sachs, the Bloomberg Foundation, MDRC a nonprofit intermediary, and the Vera Institute a nonprofit service provider to offer intensive services to keep released prisoners (most of them on parole) in the community.

While the Riker’s Island SIB experiment was unsuccessful in achieving its anticipated results, it represents key trends affecting nonprofit human services: public-nonprofit-for-profit partnerships, funding linked to results, substantial scale, and rigorous evaluation. These trends are evident in other performance management developments in human services. First, government policymakers, private funders, and many nonprofit leaders are embracing “evidence-based practices” so services are guided by a field’s best practices (Metz, Blasé, and Bowie 2007; Johnson and Austin 2008). Some governments even make adopting evidence-based practice a condition for receiving funding. Many nonprofit agencies are also voluntarily adopting these practices in response to evolving professional norms and encouragement by funders. Second, logic models and the related theory of change models have become a frequent expectation among public and private funders for nonprofit human services agencies. Logic models were developed in the 1980s to map the production process of community partnerships and community-based intervention including multi-organizational partnerships (Kellogg Foundation 2004). Logic models offer nonprofit human services agencies an opportunity to predict the likely effects of their interventions on short-term and longer-term outcomes, even if it is unlikely that they can collect definitive outcome data.

A related initiative is the “collective impact” strategy proposed by Kania and Kramer (2011) which focuses on the potential of considering community-wide impacts rather than individual program or agency effects. They note that traditional human services have had “isolated” impacts; consequently, they argue, local human service agencies should work together to create synergy and greater impact on local communities. Sustained collaboration among local service agencies and shared measurement systems are preconditions for collective impact. The idea of collective impact has been embraced in a variety of public-private partnerships and collaborative initiatives. For instance, Kania and Kramer (2011) cite the example of Shape Up Somerville (a small city in Massachusetts), a city-wide public-private partnership focused on a comprehensive and successful effort to reduce childhood obesity (Also, Bielefeld 2014). Often collective-impact efforts are led by intermediary organizations created to bring together public and private agencies in local communities (Smith 2016). In other instances, a lead agency acts as the coordinating entity for a broad effort to achieve maximum impact (Nundy and Chandler 2015). Overall, logic models have been very helpful in improving strategic planning in many nonprofit human services because they force agencies to essentially map their program implementation process and identify relevant outcomes and performance targets. However, logic models remain unproven as strategy to achieve specific outcomes since many agencies are not in a position to collect reliable outcome data or they are too small to be able to measure the effect of their program interventions. Some collective impact efforts appear to have very sound results as noted above. However, the community-wide effort and collaboration required of collective impact entails high transactions costs and requires a substantial commitment by public and private funders; consequently, many communities have been unable to mount a true collective impact effort.

Services Integration

A revival of interest in services integration is directly related to this focus on collective impact. Services integration has promised comprehensive and effective approaches to social problems since at least the 1970s. Initially services integration focused on restructuring public agencies to overcome the “silo” problem where government agencies acted within their own narrowly defined bureaucratic realms (Lynn and Mack, 1980). In this context, expanding government contracting with nonprofit human service agencies created extensive service fragmentation. One of the virtues of nonprofit organizations is that they can offer targeted services which can be responsive to specific communities such as a neighborhood, region, or particular issue (Smith and Lipsky 1993). Yet, local proliferation of agencies creates coordination problems which hinder the ability of government officials, advocates and practitioners to address social problems. Further, service fragmentation has occurred at a time of increasing concern about the effectiveness of human services and growing recognition of the complexity of many serious social problems such as homelessness, or immigrant assimilation. Thus, services integration has achieved new salience as a strategy to improve the performance of human services, partly because it fits with the new emphasis on networking, collaboration, and collective impact among public and private funders (OECD 2015; Kresge Foundation 2015; Gold 2012; KPMG, 2013; New Zealand Productivity Commission 2015; Timmins and Ham 2013; Human Services Summit 2010; Loya, Boguslaw, Erickson-Warfield, 2015).

The more recent push for services integration differs from the earlier waves of services integration in the 1970s and 1980s. Advances in data collection and program measurement put policymakers in a better position for collecting data and imposing shared measurement systems on local service systems. The trend toward “big data” also fuels the effort to create more integrated systems since government administrators now have data available for analyzing system outcomes. Canterbury, New Zealand, for example, has implemented an Electronic Shared Care Record View as part of services integration for health and social services (Timmins and Ham 2013). Relatedly, contemporary service integration initiatives are more outcome-focused making use of client outcome data. In Scotland, a program to improve community care for older adults relies upon multi-agency assessment data collected and reported at the national level (OECD 2015, p. 175). Third, many earlier service integration policies were top-down while many current efforts start with the client and then build the local service system based on client needs and “pathways” to accessing and using services (KPMG 2013; OECD 2015; Timmins and Ham 2013; National Council of Voluntary Organisations (NCVO) 2015). By focusing on client pathways, many service integration projects also strive to build a co-production component into the client-agency relationship whereupon clients and agency staff are jointly producing a service such as community care. Last, service integration requires collaboration across sectors. Part of this cross-sectoral collaboration represents an effort to achieve efficiencies, given the overlap among public and private community organizations. However, this shift also represents an effort to improve the performance of local human service systems. For example, in contrast to policies to address homelessness through temporary shelter and income assistance, many jurisdictions have adopted a “housing first” policy that emphasizes getting the homeless into permanent housing and then supporting them with intensive social services including case management (OECD 2015).

Contradictory pressures against services integration also exist. As noted, many service integration projects require collaboration among human service organizations; yet this pressure for collaboration can collide with increased competition for grants and contracts. In an environment with budget uncertainty and scarcity, agency leaders have incentives to compete for contracts and move into new program areas to diversify their revenue base. In short, collaboration among agencies with varying missions is challenging even when the overall environment is supportive of collaboration; but in the current context, services integration—and the required agency collaboration—will not happen unless policymakers provide incentives for collaboration. For example, payment for services can be structured to foster collaboration, or service integration can be required through referral and intake processes for clients into the service system.

A second potential disruption for service integration is the social innovation movement. As noted, social innovation has typically meant encouraging new programs and new agencies, often outside of the existing local service system. Yet, service integration often results in service consolidation or a network of preferred agencies serving identified clients. Service integration programs at the local level may discourage new agency start-ups since local public and private money will be channeled to agencies participating in the integrated network. Services integration also implies more homogeneity – or isomorphism — within specific services such as job training or transitional housing. Third, co-production can also be an implicit challenge to service integration, especially co-production programs involving volunteers and service users. Services integration relying on evidence-based decision-making, data and performance management is not a natural fit with co-production efforts that are local programs to engage users and community members in developing and delivering services. For example, a graffiti-eradication program involving at-risk youth in clean-up may not easily fit into other youth-oriented programs. Many co-production initiatives are relatively small scale, limiting their capacity to serve the varied clients who may enter a service system. Effective service integration relies upon controlling intake and referrals within the local service system; consequently, nonprofits cannot select clients without regard to government rules and regulations. While agencies may already lack control over referrals within their existing contracts, many have influenced the referral process over time through a positive working relationship with government. Service integration may create a less direct relationship with government contract administrators; thus agencies will be more dependent relationship on government administrators.

Significantly, services integration represents an attempt at “rationalization” of fragmented and disjointed local human service networks. For example, the Housing First model of helping the homeless mentally ill is an evidence-based program relying on intensive, integrated services to support the homeless after they have been placed in housing; the program has had success in demonstrating savings in public sector spending for institutional care (Tsemberis and Eisenberg 2000; Tsemberis, Walker, and Stefanic 2007). The integrated health and social care initiative in Canterbury, New Zealand was designed to prevent costly hospital care through preventive support services for the aged and disabled and individuals at high risk for in-patient hospital use (Timmins and Ham 2013). But these initiatives typically require financial incentives to encourage collaboration and coordination among different agencies in support of specific programmatic goals.

This rationalization also represents a decided shift toward higher priority clients and more concerted targeting of services, often accompanied by specific movement away from the universalism of earlier periods of human service growth and development. Universalism involved broadening public support and availability of human services for a wider spectrum of the population including youth, the aged, disabled, the unemployed, and individuals at risk for poverty or illness (Gilbert 1977; Kramer 1987). But rethinking public services in the last 25 years has lead policymakers away from the idea of human services as a citizen right to a strategy for promoting independence, engaging with the world of work, and saving public sector money. To be sure, this shift is often accompanied by various requirements for evidence-based practice and tying funding to the attainment of performance targets. So the policy may not necessarily outwardly reflect increased targeting; yet the effect of many performance management strategies including services integration and performance contracting is to shift funding away from more general social service support.

Implications for Nonprofit Human Services

These new policy and management developments have profound consequences for the future of human services. Many community agencies created with a focus on a specific client group and substantial discretion in their own decision making about client selection, referral, and treatment are now likely to encounter substantial restrictions on their autonomy. Nonprofit human service agencies will have to adjust their programmatic priorities and interventions to fit with government priorities and service integration objectives. Moreover, a change in thinking among private funders has abetted this change in programmatic emphasis. Enthusiasm for improved outcomes, Pay for Success models, collective impact, and service integration has been embraced by leading foundations and philanthropists including the Hewlett Foundation, the Arnold Foundation, the Robin Hood Foundation, and many others. The United Way has also increasingly required local grantees to demonstrate impact and local chapters have supported service integration projects including Housing First.

To be sure, these changes often face fiscal and organizational challenges and obstacles. For instance, services integration may require more resources than are available at the local level; thus effective efforts to undertake and implement services integration require funding from state or national levels or private philanthropy. The latter though may only be short-term or time-limited which further reinforces the need for long-term sustainable funding from state and/or local jurisdictions. Moreover, the uncertainty about the appropriate outcomes and performance targets can make it difficult for various partner organizations to agree and collaborate (OECD 2015). More generally, different agencies at the local level may have little history of working together; indeed, the more competitive environment for services creates disincentives for collaboration.

Despite these challenges, efforts to promote services integration and collaboration are likely to continue. The result will be a reshaping of local services. Over time, fewer agencies are likely to exist (although new agencies will continue to be created). Services with the best fit for services integration such as workforce development and early childhood education or homelessness are likely to benefit with increased funding, while other services such as emergency assistance or temporary shelter may receive less funding. Services will be more contingent and hinge on satisfactory outcomes with a client’s pathway through the local service more transparent and controlled by funders. Nonprofit agencies will find that their independence, autonomy and discretion may be sharply circumscribed, creating a substantively altered relationship. The emphasis on services and relatedly client access to integrated services will also abet a shift away from the centrality of cash assistance in the social safety net, with access to services now more important for the life chances of many citizens, especially disadvantaged individuals.

Importantly, long-term support will diminish for many clients as well as agencies themselves. That is, many service integration initiatives are predicated on a goal of reducing the need for public social support. For example, a coordinated workforce development effort will lead to more individuals working in permanent employment and no longer needing state support. Moreover, long-term agency support from government –which was the norm for decades in many countries—will be replaced by shorter-term, contingent contracts and funding arrangements. Smaller niche services will continue to exist and some agencies will receive longer term funding due to local market circumstances. Nonetheless, the restructuring of local services will continue to ripple through the local public and private service network.

Looking Ahead

Historically, the organization of human services has varied extensively across countries with many countries providing much more public funding than others. Some countries such as the UK have relied heavily upon public agencies, with nonprofit agencies a relatively modest, albeit important part of the service system. In Scandinavian countries, local public agencies have been central to the provision of human services. Germany and the Netherlands have relied almost exclusively on nonprofit agencies for the provision of human services but funding has been primarily from government, a sharp contrast to the US (See Kramer 1983; Henriksen et al. 2016).

NPM and key fiscal, demographic and social trends, though, raise the possibility of convergence across countries in the design and implementation of human services including the relationship between nonprofit agencies and government (rather than in funding which is likely to continue to vary substantially across countries). In particular, NPM’s emphasis on contracting and market-like strategies tends to a shift from direct delivery by public agencies to reliance on nonprofits (and for-profits). In addition, the pressure on public budgets can lead nonprofits to rely more on earned income and to a lesser extent philanthropy. Many social enterprises embody these NPM ideals including partial reliance on earned income and market strategies. Many countries including Germany, the Netherlands, Sweden, Australia, Canada, the UK, and New Zealand have implemented increased competitive tendering and incentives for greater reliance on earned income for agency support. These trends combined with budget scarcity and changing demographics are creating commonalities across many countries in the organization of local services (Henriksen, Smith, and Zimmer 2012; Smith and Phillips 2016), although the actual extent of nonprofit human services convergence can be quite limited depending upon the service category.

Nonetheless, certain commonalities among nonprofit human service agencies are apparent across countries. Nonprofit human services will need to invest in their own infrastructure. Such investment has two components: 1) administrative infrastructure to monitor funds and programs; and 2) programmatic expertise and capacity. Services integration, evidence-based practice, and logic models, for example, require substantial information gathering and administrative capacity. As agencies grow, diverse and complex revenue streams will also require more sophisticated financial infrastructure to oversee a variety of revenue mechanisms that include personal budgets, vouchers, health insurance, and capitated payments. With greater competition for funds and higher performance expectations, nonprofit human service agencies will need professionalized staff and volunteer management. Government funding tends to encourage the professionalization of nonprofit agencies (Hwang and Powell 2009) but the contemporary environment pushes more professionalization even in agencies lacking sizable government contracts. Moreover, competition for public and private funds, along with increased transparency, pushes nonprofits to invest in qualified professionals who can respond to funder expectations. Evidence-based practice also typically involves hiring staff who are professionals in a particular field, rather than staff or volunteers who are passionate about the agency mission but lack specialized knowledge on the most effective interventions.

The emphasis on performance management and pay-for-success models is likely to encourage larger organizations. SIBs, in particular, require sizable scale to justify the investment, relatively high transaction costs, and need to demonstrate results. Indeed, one of the major challenges of the performance management movement is that the need for scale can collide with the decentralized, local scale of many human services systems. While well-publicized examples of SIBs exist (Roman, et al., 2014), most human service agencies are not large enough to justify the expense of SIBs or many complex program evaluation techniques such as random control trials (RCTs).

Thus, a growing division is likely between larger nonprofit (and for-profit) agencies with access to capital and substantial revenue streams (including diversified revenues) and smaller community-based agencies dependent upon one revenue source. Community agencies are also more vulnerable to disruptions in revenue and more likely to suffer organizational setbacks or dysfunction due to abrupt changes in revenue or staffing.

Agencies will also need to rethink their connections to local communities. Many nonprofit human service agencies are founded in the informal sector by a social entrepreneur and her friends. As agencies obtain funding from the public sector, the temptation is to look upward to their public (and sometimes private foundation) funder for guidance, support and program input, rather than engage community members in program feedback and participation in agency governance. Thus, the relationship between human service agencies and their communities is often attenuated, despite community representation on the board.

This lack of community connection can be a serious liability for nonprofit agencies in the current environment. Community support can help in the competition for contract funds and the negotiation of contract terms and regulations. Community engagement can also facilitate the evaluation process for social programs and foster co-production initiatives. A strategically sophisticated board is also important in the increasingly turbulent environment facing nonprofit service agencies. With greater unpredictability, nonprofits will need boards capable of responding flexibly and quickly to emergent funding and programmatic developments. These boards will need to be open to new ventures because without growth, many nonprofit human service agencies may not be sustainable, especially given the scarcity of funding and growing competition from larger agencies and firms.

Part of this shift represents the change in knowledge availability in human service programs. Nonprofit human service agencies evolved on the basis of what Don Schon (1983) called, “craft knowledge” wherein staff and volunteers developed their own knowledge of effective practice based on interactions with clients. But the new emphasis on performance management and wide availability of evidence-based research means that human service professionals are now expected to conform to broader best practice norms, reducing the discretion of agency professionals. This development may lead to more effective service and fewer inappropriate treatments and interventions. However, it may also prevent professionals from exercising their knowledge and judgment on behalf of their clients.

Human service agencies will also need to rethink their position on advocacy for their own organizations, users, and communities. While many human services agencies are rooted in advocacy on behalf of specific communities, effectively exercising their political voice is often difficult due to resource constraints and concern that advocacy may impair their relationship with public and private funders (Pekkanen, Smith, and Tsujinaka 2014). Many nonprofit human service agencies only undertake advocacy to preserve funding or favorable regulations, rather than advocacy in support of their clients or the broader goals of their programs such (Mosley 2014). Yet, the ongoing transformation of human services means that advocacy by nonprofit human service agencies, either directly or indirectly, can be essential to sustaining their programs and supporting their clients. Since many agencies lack substantial resources for advocacy, intermediary associations often assume primary responsibility to advocate on their behalf. These intermediary associations including national and regional coalitions can provide a vital role in representing human service agencies’ interests as well as assist with capacity building, professional development and self-regulation (Smith 2016).

Overall, nonprofit human service agencies will remain a vital part of a social safety net to varying degrees depending on the country, but agencies with public funding will increasingly be integrated into the network of local public, nonprofit and for-profit social welfare agencies. Establishment of new agencies will continue, especially given the interest in social innovation and social enterprise, but sustaining these start-ups will be a daunting proposition, especially given the competition for resources. As a result, the leaders of nonprofit human service agencies will need to balance their social mission with government and market-oriented imperatives. They will need to be adaptive and flexible as they strive to respond to an increasingly diverse web of external funders and constituencies.

Importantly, nonprofit human services are on the front-lines of the local level transformation of the welfare state. Our contemporary human service system was built for a period of local knowledge, personal relationships, professional autonomy, and a lack of clear and compelling standards on best practices; many nonprofit agencies also had long-standing relationships with local and regional government. Overall, the system was quite stable, although it tended to expand and contract depending upon the government’s fiscal position. Substantial variation also existed in the structure of human services and the role of nonprofits in particular. However, human services are now in an uncertain and turbulent transition from this earlier structure to a new set of relationships, predicated on performance management, competition, and more concerted efforts to integrate and coordinate local services. In this era, resources will tend to flow—sometimes haltingly and unevenly—to higher priority programs and services, disadvantaging agencies without demonstrated outcomes and adequate performance measures. These developments are part of a broader movement to shift risk away from government to local organizations and individuals (Hacker 2006). In this era, nonprofits bear greater risk for program mistakes and financial problems. Individual service users also face greater financial responsibility for obtaining service unless they are in high-priority service categories. Faced with similar imperatives, human service agencies will find that competition for talent and resources will push more homogeneity across agencies in their governance and management. Nonprofit agencies and their clients may benefit from these changes, but these benefits are unlikely to be realized without adequate public resources, a responsive and reasonable regulatory regime, and ongoing investments by nonprofit agencies in sufficient infrastructure, sound governance, and trained leadership.

Acknowledgements

The author is indebted to many people for feedback on earlier versions of this paper including: Michal Bar, Putnam Barber, Jeremy Kendall, Meghan McConaughey, Hillel Schmid, John Tambornino, Diane Kaplan Vinokur, Steven Wernet, Dennis Young and the participants in a conference at Hebrew University, June 2016. Meghan McConaughey also provided excellent editorial and research support.

References

About the article

Published Online: 2018-03-23

Published in Print: 2018-03-26


Citation Information: Nonprofit Policy Forum, Volume 8, Issue 4, Pages 369–389, ISSN (Online) 2154-3348, DOI: https://doi.org/10.1515/npf-2017-0019.

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© 2018 Smith, published by De Gruyter. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License. BY-NC-ND 4.0

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