TANGAZA UNIVERSITY COLLEGE THE CATHOLIC UNIVERSITY OF EASTERN AFRICA INSTITUTE OF SOCIAL MINISTRY MA PROGRAM MUCHIRI SIMON CHEGE MANAGING NOT-FOR-PROFIT ORGANISATIONS FOR FINANCIAL SUSTAINABILITY: A CASE STUDY OF KOINONIA COMMUNITY’S SOCIAL PROJECTS, NAIROBI COUNTY, KENYA SUPERVISOR DR. BEATRICE NDIGA A Thesis Submitted to the Institute of Social Ministry in Mission in Partial Fulfillment of Requirement for the Degree of Master of Arts in Social Ministry with Specialization in Management Nairobi 2015 i DECLARATION This thesis is my original work and has not been presented for a degree in any other University. Signature _________________ Date ___________________ Name of the Student: SIMON CHEGE MUCHIRI I confirm that the work reported in this thesis was carried out by the candidate under our supervision Signature _________________ Date ___________________ Name of the Supervisor: DR. BEATRICE NDIGA ii DEDICATION This thesis is dedicated to the Fraternity with Africa and Opus Mariae – Focolare Movement. iii TABLE OF CONTENTS Declaration…………………………………………………………..……………………….. i Dedication………………………………………………………….…………………………ii TABLE OF CONTENTS ………………………………………….………………............... iii List of Tables ……………………………………………………………………………..… vii List of Figures ……………………………………………………………………………... viii Abbreviations and Acronymys……………………………………………………………..... ix Operational Definitions ………………………………………………………………….…... x Acknowledgement……………………………………………..………………………….... xii Abstract ……………………………………………………..…………………………….. xiii CHAPTER ONE………………………………………………………..……………………. 1 BACKGROUND OF THE PROBLEM AND OF THE RESEARCH .………………….….. 1 1.1 Introduction …….……………………………………………………………………. 1 1.2 Personal Experience ….……………………………………………………………… 1 1.3 Background of the Study ….………………………………………………………… 2 1.3.1 History of Koinonia Community …………………………………………………. 2 1.3.2 Vision ………………………………………………………………………........... 4 1.3.3 Mission …………………………………………………………………………..... 4 1.3.4 Core Values ……………………………………………………………………….. 4 1.3.5 Anita Home ………………………………………………………………….......... 5 1.3.6 Kivuli Centre ……………………………………………………………………… 6 1.3.7 Tone la Maji…………………………………………………………………..…... 7 1.3.8 Ndugu Mdogo Rescue Centre …………………………………………………….. 7 1.3.9 Donors and Partners of Koinonia Community ………………………………….... 9 1.4 Statement of the Problem….………………………………………………………... 10 1.5 Objectives of the Study ….…………………………………………………………. 11 1.6 Research Questions ………………………………………………………………… 11 1.7 Hypothesis …………………………………………………………………………. 11 1.8 Significance and Justification of the Study ………………………………………... 12 1.9 Scope and Limitations of the Study …………………………………………………13 iv 1.10 Conclusion …………………………………………………………………………13 CHAPTER TWO ……………………………………………………………………………14 LITERATURE REVIEW …………………………….…………………………………….. 14 2.1 Introduction ………..……………...……………………………………………….. 14 2.2 Definition of Not-For-Profit Organisation and their Importance to the Society…... 14 2.3 Difference between Not-For-Profit and For-Profit Organisations ………….…..…. 15 2.4 Challenges faced by NFPs in the Current Economic Climate ……………...….….. 16 2.5 Social Value Sustainability …………………………………………………..….... 17 2.6 Strategies for survival ……………………………………………………….……. 18 2.7 Organisation Structure and Systems ….…………………………...………………. 23 2.7 Theoretical Framework ……………………………..……………..……………… 27 2.7.1 Stewardship Theory ……...…………………….……………………………… 27 2.7.2 Resource Dependency Theory …………………………………….………...… 30 2.7.3 The Institutional Theory ……………………………….……………………… 31 2.8 Conceptual Framework ……………………..…………………………………….. 33 2.9 Conclusion ………………………………….……..……………………….……… 35 CHAPTER THREE ……………………………………………………………………….. 36 RESEARCH DESIGN AND METHODOLOGY ………………………………………… 36 3.1 Introduction …………..……………………………………………………………. 36 3.2 Research Design ………...………………………………………………………….. 36 3.3 Study Area ……………...……………...…………………………………………… 37 3.4 Target Population ………..…………………………………………………………. 38 3.5 Sample Size and Sampling Procedure …...……………………………………...….. 38 v 3.6 Data Collection Tool ……………………………………………………………….. 39 3.7 Validity and Reliability ……..……………………………………………………… 41 3.7.1 Validity ……………………………..………………………………….……… 41 3.7.2 Reliability ………………………………………………………….…………... 41 3.8 Ethical Issues ……………………………………………………………………….. 42 3.9 Data Analysis Procedures ……...…………..……………………………………….. 42 3.10 Conclusion ………………….………………………………………………………. 42 CHAPTER FOUR ………………………………………………………………………… 44 DATA ANALYSIS AND PRESENTATION …………………………………………….. 44 4.1 Introduction ……………………………………………………..…………………. 44 4.2 Presentation of the Findings ………………………………………………….....…. 44 4.3 Data Analysis ………………………………………………………….………....… 45 4.4 Respondents Background Information ………………………………………..…… 45 4.4.1 Gender Distribution of Respondents ……………………….…..………………. 45 4.4.2 Age of Respondents ………………………..…………………………………… 46 4.4.3 The Respondents Religious Orientation …………………………………...…… 47 4.4.4 Respondents’ Affiliation to Koinonia Community ..........................................… 48 4.5 Donor Funding ……………….………...……………………………………..……. 48 4.6 Organisation and Internal Structures Changes ………………..……………...…….. 53 4.7 Constraints that hinder Financial Sustainability ………….………………...………. 54 4.8 Strategic Mechanisms for Financial Sustainability ……………………...…………. 55 4.9 Theological Reflection …………………….……………………………….………. 57 4.10 Presentation and Discussion of Major Findings …………..……………………….. 58 4.11 Conclusion …………………………………………………………………………. 61 vi CHAPTER FIVE …………………...……………………………………………………… 62 THEOLOGICAL ANALYSIS AND REFLECTION ……………….……………………... 62 5.1 Introduction ………..…………………………………………………..…………… 62 5.2 Meaning of Theological Reflection ……………………………………...…………. 62 5.3 Reflection on the Findings ……………………………………………...………….. 65 5.4 The created order ……………………………………………………...……………. 66 5.5 Structures of Sin …………………………………………………...……………..… 67 5.6 Divine Grace ……………………………………...………………………………… 69 5.7 Conclusion …...……………………………………………………………………... 70 CHAPTER SIX …………………………………………………………………………….. 71 PLAN FOR ENHANCING MANAGEMENT FOR FIANANCIAL SUSTAINABILITY... 71 6.1 Introduction ……..………………………………………………………………….. 71 6.2 Summary of the Findings …….…………………………………………………….. 71 6.3 Strategies for Ministerial Action Plan …...……………………………………….… 73 6.3.1 A “Culture of Giving” ………………………………………………………… 76 6.3.2 Promoting Community Engagement and Leadership ……...………….………. 77 6.3.3 Changing Internal Structures …………………………………………….……. 78 6.3.4 Incorporate Innovative Fundraising Techniques …..…..……………………… 78 6.4 Action Plan ……………………………………..………….……………………….. 80 6.5 Conclusion and Recommendations………...……………………………………….. 81 REFERENCES …………………………………………………………………………….. 84 APPENDICES ……………………………………………………………………………… 89 vii LIST OF TABLES Table 1.0: Age of Respondents ……………………………………………………..… 46 Table 2.0: Respondents’ Affiliation to Koinonia Community ……………..………….. 48 Table 3.0 Work experience and Affiliation to Koinonia Community ………………… 50 Table 4.0: Specific Constraints of Koinonia Community …………………………...… 54 Table 5.0: Action Plan …………………………………………………………………. 80 viii LIST OF FIGURES Figure 1.0: Conceptual Framework …………………………………………………… 35 Figure 2.0: Gender of Respondents ……………………………………………………. 46 Figure 3.0: Religious Orientation ……………………………………………………… 47 Figure 4.0: Organisation Structure of Koinonia Community ………………………….. 51 Figure 5.0: Changes in Organisation Structure ………………………………………… 51 Figure 6.0: Avenues leading to Financial Sustainability ……………………………….. 56 Figure 7.0: Project Cycle ……………………………………………………………….. 80 ix ABBREVIATIONS AND ACRONYMS AIDS: Acquired Immune Deficiency Syndrome AMREF: African Medical and Research Foundation CA: Central Administration DNA: Dexyribonucleic Acid EC: Executive Council eRKO: Christian Children Communities Movement F2F: Family to Families G2G: Get Together Girls GA: General Assembly GRT: “Gruppo per le RelazioniTranculutani” GoK: Government of Kenya HIV: Human Immunodeficiency Virus KARDS: Koinonia Advisory Research and Development Services KC: Koinonia Community NAREC: Nairobi Recyclers NFPs: Not-for-Profit Organisations NPOs: Nonprofit Organisations OVC: Orphans and Vulnerable Children UK: United Kingdom x OPERATIONAL DEFINITIONS OF KEY TERMS Donor It refers to a person, organization or foundation that donates money to fund social projects and activities of Koinonia Community. Centre It refers to a social project for rehabilitation and support of street children, orphans and vulnerable children. Collaboration It refers to individuals or groups working together through shared responsibility, sharing of ideas and experiences in order to attain financial sustainability. Dependency syndrome It is an attitude or belief that a group or an organization cannot solve its problems without outside help. Sustainability It is the ability of an organization to provide services or products consistently over a long term. This is achieved through proper management of resources; technology, innovation and effective systems that facilitate the continuity of service delivery in Koinonia Community. xi Financial sustainability This refers to the ability to maintain financial capacity over time. Hence, the goal of financial sustainability for nonprofits is to maintain or expand services within the organization while developing resilience to occasional economic shocks in the short term. Social Transformation It is a positive change in social realities, systems and institutions and change in collective consciousness of the society. Partnership Joint efforts through team work in pursuit of a common goal or common good. xii ACKNOWLEDGEMENT I am grateful to the Almighty God for His great love, guidance and good health of mind, body and soul during my study period. I appreciate the sponsor (Fraternity with Africa), Focolare Movement that granted financial support. To the Koinonia Community that allowed me to gather information from the organization, I am truly thankful. Special thanks to the Institute of Social Ministry’s Administration and lecturers for the knowledge and skills imparted. I am indebted to my supervisor for tirelessly working with me to ensure the study was successfully completed. Thank you, Dr. Beatrice Ndiga for accompanying me with remarkable dedication, commitment, encouragement and generous support. I appreciate the moral support accorded by my classmates and friends. Finally, I thank my family for their moral support and prayers. xiii ABSTRACT Financial sustainability for Not-for-Profit organizations has long been of interest to not-for- profit organization leaders, current and potential donors, and the communities that not-for- profits serve. However, not-for-profits face a myriad of challenges in establishing and maintaining financial sustainability. In an effort to improve the sustainability and performance of Koinonia Community, the researcher conducted an explanatory qualitative study to establish a strategic plan of action. Through snowball sampling, a sample of 20 (16.67%) respondents out of 120 target population was interviewed. The respondents provided quality information regarding operations, management, financial constraints and possible mechanism that can enhance sustainability. The major findings depicted Koinonia Community as donor dependent organization which has potential to generate revenues through social value initiatives. Its organizational structure was described as consistent and rigid. Thus, to champion change for effective management for financial sustainability, so strategic mechanisms were proposed. These include a “culture of giving”; promotion of community to leadership; change of internal organization environment; and incorporation of innovative fundraising techniques. The researcher backed these social transformative approaches with religious motivation to increase the synergy in the new emerging organization. This would transform the agents (managers) into stewards who foster Koinonia Community’s agenda to advocate for social economic empowerment of the marginalized communities. 1 CHAPTER ONE BACKGROUND OF THE PROBLEM AND OF THE RESEARCH 1.1 Introduction Financial sustainability is a challenge facing many Not-for-Profit Organisations (NFPs) or non-profits. A major question is how the organisation can remain sustainable after the donors scale down or withdraw their support. This thesis explored the managerial challenges faced by NFPs in the Kenyan context and possible models that could be used by NFPs to become sustainable. To achieve this, and provide some context, Koinonia Community (KC) was used as a case study to highlight the challenges faced by NFPs to achieve financial sustainability and introduce possible social transformation models that could be used to address these challenges. 1.2 Personal Experience At some point in researcher’s adult life, he worked as a part-time liaison officer for Anita Home, one of the projects run by Koinonia Community (KC) and was astounded at how the Centre struggled to achieve some of its project goals due to cash flow problems. Since some of the goals required immediate attention, their continued delay significantly affected the organisation’s operations. The researcher’s inquiry led to the conclusion that Koinonia Community had the potential to achieve financial sustainability and hence achieve its stated yearly and quarterly objectives in record time through social entrepreneurship which is a type of the social transformation approach. The researcher suspected that the fear of the unknown and fear of taking calculated risks are what seemingly prevented the management from taking the important first step of 2 combining market tools and social values to enhance people’s ability to solve their social problems. 1.3 Background of the Study The sustainability of the NFP sector is being globally recognized as a practical and political imperative, as a result of governments’ reliance on the sector to provide social services (IPSASB, 2007; IPSASB, 2008; Mort and Weerawardena, 2008) and to “continue to deliver social value through the pursuit of its social mission” (Weerawardena et al., 2009). According to Conradie (1999) Not-For-Profit Organisations (NPFs) that operate in social development run out of funds after a few years with adverse implications for those involved, who are either supported or employed by the organisations. The study focuses on social projects of Koinonia Community which were founded on donor funds. Thus, a brief presentation of the organisationand its social projects to lay a solid foundation to the study. 1.3.1 History of Koinonia Community Koinonia Community’s website states that the organisation was established by Father Renato Kizito Sesana, a Comboni Missionary, in Lusaka (Zambia) in 1982. The first activities were done in Bauleni Parish and Tubalange area, in the western outskirts of Lusaka. The arrival of Fr Kizito in Nairobi in 1988 led to the birth of Koinonia Community (Kenya). The website further indicated that in 1991, the pioneer Koinonia members, who had come into contact with the founder, noticed the plight of street children and started to act with aim of improving their living conditions. Hence, they launched a feeding and medical programme on the streets. Through the interaction with the street children, the Community learnt more about their need for shelter, education, and family love and care. Their needs prompted Fr. 3 Kizito to mobilize resources to purchase land where the first Koinonia’s Children’s Centre – “Kivuli” was established in 1997 (Kivuli Centre’s bronchure) In 1995, Father Kizito made a memorable visit Nuba Mountains in Sudan during the height of civil war and persecution of religious by Sudanese regime. This visit opened a long relationship between Koinonia Community and Nuba people. This led to establishment of two primary schools and a Teachers’ Training Institute. After the independence of South Sudan, Koinonia was registered as Non-Governmental Organisation (NGO) (Koinonia website). Koinonia is registered as independent organisationin three countries: Kenya, Zambia and South Sudan. The organisations initiatives in each country are operated in accordance to the local laws and in cooperation with the respective governmental agencies and institutions. In 1996, it was registered as a corporate body in Kenya. Since then, Koinonia Community Kenya has undertaken a host of activities and social enterprises in the societies within which the community is based. The activities and projects give priority to the marginalized members of the society, such as children in difficult circumstances, women and young people from poor backgrounds. In 1999, Anita Home was established to cater for the needs of the girl-child and in 2000, Mthunzi, a centre for street children was established in Lusaka, Zambia. Four years later, street work commenced in Kibera slum in Nairobi. This culminated in admission of street boys for rehabilitation at “Tone la Maji” in Ongata Rongai in 2005. In the same year, Koinonia Community established “Ndugu Mdogo” in Kibera and “Kivuli Ndogo” in Riruta. These are two rescue centres that create rapport with children while still in the streets and 4 intervene on various issues ranging from health, nutrition to children rights. Finally, these street children are either placed in Koinonia Community’s Centres and Homes or reunified with their families (Anita Home’s bornchure). 1.3.2 Vision To promote the development of a just, peaceful and fair society in which all citizens, especially those who at present are marginalized, can have their rights respected and grow to the best of their potential. In our service we give preference to the “little ones” and the oppressed (Koinonia website). 1.3.3 Mission To defend, promote and guarantee the respect of the rights of the most marginalized groups of the society and foster the emergence of fraternal life-styles, supporting community building through projects and activities that bring people together (Koinonia website). 1.3.4 Core Values • We believe in the fundamental dignity and rights of all persons irrespective of nationality, age, race, sex, language or religion. • We are committed to assure the Right of education, shelter and care to all the Orphans and Vulnerable Children (OVC) • We want to guarantee the Right to a family for all the children and, in this perspective, work for the reintegration of children with their family of origin, or for adoption in the local community. • We support the personal and professional paths of youths, women and marginalized groups in order to allow them to shape their future using their best talents. 5 • We promote Peace and Justice, through dialogue and dissemination of correct information. • We work as a team, and we network with partners in order to strengthen our and their capability to positively impact on the society (Koinonia Community’s website). 1.3.5 Anita Home The reason for its existence is to care and support Orphans and Vulnerable girls among them being rescued from the streets and others from hostile retrogressive Maasai culture. It started operations in 1999 and was named after an Italian lady who had worked tirelessly for the protection of the girl-child. It is situated in Ngong Town, about 25 Km south of Nairobi. It is structured like a typical African extended family, where all members enjoy the warmth of family life. Currently, the home is hosting 24 girls and supporting 22 girls in the education outreach program. Its mission is stated as “We believe in a holistic way of upholding girl-child and promoting their dignity through provision of protection, care, love, education and formation. We are also committed to working closely with agencies and the civil society in promoting the rehabilitation and reintegration of the girl-child” (Anita Home’s bronchure). Anita Home was design for children protection and youth development. The children department can host minimum of 36 girls in-house and the youth house has a capacity of 16 youth. However, the children department has 67% occupancy and youth house is not occupied since 2011. In February 2010, “Get Together Girls” (G2G) was founded by two Italian ladies. It is a fashion design project for the former street girls who have been rehabilitated in Anita Home. The project targets former street girls who are unable to continue with their education and 6 especially single mothers who have no income. Its objective is to help these girls achieve self-reliance. The project is run by Grazia Orsolato, an Italian lady who first came to Anita Home in the summer of 2004. The pioneer group consisted of 8 girls of which two were single mothers (Koinonia Community Newsletter, 2011). 1.3.6 Kivuli Centre The Centre is situated 15 kilometres west of Nairobi, in Kabiria, Dagoretti sub-county. It was established through donor assistance. With assistance of AIFO (Bologna, Italy), Koinonia Community acquired an acre plot at Kabiria and developed it into an operational Centre with the continuous assistance of Amani Onlus (Milan, Italy). Kivuli being the oldest centre is the most developed project. The children program has over 50 vulnerable boys and over 60 boys are supported through outreach program. The Centre also operates a dispensary which was established in 1998 to cater exclusively for the medical care of the children. Its services have been extended to the Centre’s surrounding community. The dispensary is also running Riruta Health Project, an initiative of Caritas (Italy) and Koinonia Community. The project provides care and support to people living with HIV/AIDS and their dependents in Riruta, Waithaka, Mutuini, Ruthimitu and Kirigu. Andrew’s Computer School was started in 2000 and named after a Koinonia member who died in 1997. It is affiliated to Shalom IT. Another training centre is Danilo and Luca Fossati which was initiated in 2005 through the assistance of Fondazione Fossati (Milan, Italy). The Centre was established to provide for vocational training for primary school leavers who failed to qualify for secondary education, as well as children from poor 7 families who could not afford secondary school fees and unemployed members of the society who found themselves too old to join secondary school. However, Danilo and Luca Fossati vocational training centre was closed down in 2012 due to cash inflow and management problems. Kivuli workshops cater for local young people, refugees and former Kivuli boys who could not be reintegrated into their families of origin. They were assisted to start small business in carpentry, metalwork, catering, auto garage, wood carving, tailoring and batik. Their products are sold locally and internationally. “Young Satellites” (Yassets) Football Club was started in 1993. It is one of the first initiatives of Koinonia Community in Riruta Satellite. It comprises of 120 youth of all ages and a number of girls are affiliated to the club (Kivuli Centre webpage, 2015). 1.3.7 Tone la Maji “Tone la Maji” was established in 2005 in Nkaimurunya Ongata Rongai to cater for rehabilitation of street boys. The centre provides care and education support, and reintegration of the boys into their natural families. For ten years the project was supported by an Italian donor, “La Gocca. Despite the exit of the donor, the project is on- going (Tone la Maji webpage, 2015) 1.3.8 Ndugu Mdogo Rescue Centre The centre launched its operations in September 2005 with an aim of promoting street interventions and youth empowerment programmes; to support child rescue initiatives; to provide in-house care, support and rehabilitation; to initiate effective community and 8 parent empowerment system; and to network and create awareness on street problems and the rights of children. It is situated in Kibera slums and was founded on donor funding (Koinonia Community website, 2015). Ndugu Mdogo centre was established to provide shelter, care and support to street boys who are rehabilitated in the rescue centre. It was establish by Amani Onlus in 2005. However, it was closed down due to lack of funds in 2012. This was borne out by the 2010 current global economic meltdown which negatively affected Koinonia Community’s operations. Added to this, is the increased competition within traditional non-for-profit sector by for-profit firms, growth in non-profits and associated competition for grants and donations and uncertainty in many initiatives as a result of lack of policy commitment. In the last five years alone, donors for Koinonia Community have cut their aid by 20 per cent per year. In addition, “La Gocca” withdrew its financial support for Tone la Maji project in 2013. Other social projects include Family to Families (F2F) which prepares the beneficiaries in Kivuli Children Program and Anita Home for family re-union after rehabilitation. It is an initiative of Amani – Onlus. F2F prepares the children for reintegration and follows them up to ensure a smooth transition into the society. It also empowers the guardians and parents of these beneficiaries. In 2008, Koinonia Community initiated a modern secondary school known as Domus Mariae. The purpose of the school is to assist academic outstanding children from unfortunate backgrounds. It provides quality education and life skills with a keen orientation towards rehabilitated street children, orphans and gifted children from poor 9 families. Therefore, Koinonia Community has invested much in orphans and vulnerable children, less fortunate families and marginalized communities. All these projects are initiated and supported by donors (Domus Mariae webpage, 2015). 1.3.9 Donors and Partners of Koinonia Community Since 1995, the main partner and donor for Koinonia Community is Amani – Onlus, an Italian non-governmental organisation. Other donors include Caritas – Italy, La Gocca – Onlus, Cittadinanza – Onlus, eRKO (Christian Children Communities Movement), DKA – Austria and Associazione Koinonia – Onlus. These are the mainstream donors who have supported the social projects of Koinonia Communities. In addition, the organisationhas established symbiotic networks with African Medical and Research Foundation (AMREF), Rescue Dada, Samaritan Purse, Gruppo per le Relazioni Tranculutani (GRT) Africa and the Government of Kenya (Koinonia website - donors and partners). All these organisations have been instrumental to development and sustenance of all social projects of Koinonia Community. This clearly indicates that the organisation has capacity to solicit for funding and establish beneficial partnerships. However, any organisation that does not mature and come up with sustainable organisation development initiatives may exhibit dependency. However, the Koinonia Community is not limited to social support projects but has a host of enterprises which include KARDS, Diakonia Institute, Shalom House, KOISACCO among other small income generating activities at project level. It seems that Koinonia Community has a potential to attain financial sustainability and break from the yoke of 10 donor funding. Consequently, it may have to generate income from sources other than those from its traditional donors without contradicting its not-for-profit legal status and the original vision and mission. In the context of Koinonia Community, the researcher draws lessons learnt to identify the strategic approaches that could be replicated by other not-for-profit organisations towards achieving financial sustainability (Koinonia website). 1.4 Statement of the Problem Kabureka (President of African Development Bank) posits that Aid is only a means to an end. Indeed if aid is truly effective, it will progressively do itself out of a job. Effective aid should not foster dependence (ActionAid UK 2011). Any donor funded project or program that does not mature to be self-reliant exhibits dependency syndrome. Bartel (2012) defines “dependency syndrome” as an attitude or belief that a group cannot solve its problems without outside help and affirms that, it is a weakness that is made worse by charity. Since 1996 when Koinonia Community was legally registered in Kenya, it has constantly developed in terms of infrastructure, capacities, initiatives and activities (Koinonia Community’s website). This phase of organisational development is characterized by dependency on donor funding. However, the organisational growth and development took a downward trend from 2010. This resulted in reduction of workforce, scaling down of project operations and later closure of youth department in Anita Home. In 2012, Ndugu Mdogo, Kerarapon was closed down due to financial constraints. In 2013, a main stream donor (La Gocca) withdrew support from “Tone la Maji”. This indicated that the continued survival of Koinonia Community is predicated on uninterrupted flow of donor funding. 11 Therefore, the researcher investigated why Koinonia Community is still donor dependent and how this can be strategically mitigated through social transformation and managerial stewardship so as to achieve financial sustainability. 1.5 Objectives of the Study This study aimed at achieving the following objectives: i) Identify major factors that hinder Koinonia Community from achieving financial sustainability. ii) Identify organisational and internal structures changes required in pursuit of financial sustainability. iii) Determine if pursuing financial sustainability through alternative solutions is viable for Koinonia Community. iv) Make recommendations on how Koinonia Community can attain financial sustainability. 1.6 Research Questions The study aimed at answering the following questions: i) What are the major factors that hinder achievement of financial sustainability in Koinonia Community? ii) What organisational and internal structures changes are needed to attain financial sustainability? 12 iii) How viable is it for Koinonia Community to pursue financial sustainability through alternative solutions? iv) How can Koinonia Community achieve financial sustainability? 1.7.Hypothesis Managerial stewardship enhances not-for-profit organisations’ financial sustainability. 1.8.Significance and Justification of the Study Many NFPs face the challenge of financial sustainability on a daily basis. They are conflicted with three major challenges. Not-for-profit organisations have to spend money as demanded by their various donors within a given time frame. Their prospect of financial turmoil once all donor money has been spent is another challenge. Thirdly, gaining a balance between securing the conditionalities of the donor money and not over exerting the organisation to the level where it cannot meet organisational deliverables. Not-for-profit organisations need donors to survive, but they also need to attract the right financial capacity “the wherewithal to seize opportunities and react to unexpected threats” (Bowman 2011). The importance of this study is highlighting the challenges faced by a Kenyan NFPs and how to mitigate them. This study used Koinonia Community as a guide on some of the challenges NFPs face with regard to financial sustainability. It also highlights some social transformation strategies that can be used by these organisations to establish innovative and impacting solutions that would lead to sustainability. A major benefit of this paper is that NFPs are able to draw on the 13 strengths of various social transformation strategies in their journey to creating social value for financial sustainability. The thesis will also be of direct use to researchers, governmental and third sector users. Moreover, the study is of great help to NFP managers who can use stewardship managerial strategies at the organisational level to manage through turbulent economic times while still aiming to be relevant. 1.9.Scope and Limitations of the Study This study only relates and is restricted to the NFPs sector. Organisations that may operate for social good but are not recognized as an NFP according to the Kenyan law are likely not to encounter the same challenges as presented in this study. The organisation used in this study is a Lay Christian Community which involved in social work and therefore may not cover all variables or be applicable to organisations outside of these sectors. Although there may be aspects of this study that could provide organisations operating outside social work with some guidance, caution should be used when implementing any strategy presented. The sample criteria used in this study is specific to donor-funded organisation. 1.10. Conclusion This chapter presents the background, problem statement, objective, hypothesis and objectives of the study. It also presents how the researcher conceived the research idea through insertion as a liaison officer at Anita Home. The significance and the scope of the study are outlined as well to illustrate the value of the study to the society. 14 CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter explores literature review and determines the gaps in the literature. It also outlines a theoretical and a conceptual framework. The literature review is sequenced from definition of an NFP and their importance to society; comparing NFPs with for-profit organisations; identifying the challenges faced by NFPs; addressing the need for social value for sustainability; to proposing possible strategic models to be used by NFPs to ensure their survival. 2.2 Definition of Not-For-Profit Organisations and their Importance to the Society Hansmann (1980) describes a not-for-profit organisation as “an organisation that is barred from distribution its net earnings, if any, to individual who exercises control over it, such as members, officers, directors or trustees for services rendered to the organisation.” He further notes that a non-profit organisation is not barred from earning profit and that “many non- profits in fact consistently show an annual accounting surplus, it is only the distribution for profits that is inhibited”. NFPs are essentially set up to address gaps in services that cannot be provided by governments or add capacity to programmes that have been set up by government. Helen S. (2009) identifies three common factors of not-for-profit organisations. First, all money accruing to the organisation is utilized in the pursuit of the objectives of the organisation, whether the money is obtained by way of donations or in the pursuit of a for profit company. Secondly, members of the organisation do not share in any surplus, but are retained for furthering the objectives of the organisation. Thirdly, the organisation exists to provide public service, that is, it has a public benefit purpose. 15 In general NFPs are established to provide services for the public’s benefit. These services also assist government in achieving their objectives. NFPs have a deeper understanding of the sectors they are working in and may be more effective in identifying and implementing initiatives that will make a substantial impact. According to Wallis and Dollery (2005), policymakers should show considerable interest in NFPs as they can assist in providing frameworks to help them address important issues in social Policies. One such example is the extent to which government should rely on NFPs as opposed to for-profit firms or government agencies to deliver social services. Because many NFPs have grassroots connection with the people they are trying to assist, they therefore have a better understanding of the issues the people are undergoing. They also have a fairly good grasp of the challenges that would be encountered when implementing any programme or policy. In the main, government resources are thinly spread and in many circumstances may not have the understanding or resources to implement programmes that will have the desired effect. NFPs thus play a critical role in providing consultation services to government as to how best to formulate programmes and policies that would achieve the desired outcome as well as provide extra resources in implementing these policies and programmes. 2.3 Difference between Not-For-Profit and For-Profit Organisation To understand differences in factors related to financial sustainability between for-profit and nonprofit organisations, it is important to identify and understand the long-term goals of the organisation. According to Hackler and Saxton (2007) for instance, the ultimate strategic goal of for-profit organisations is to acquire profit and market share, whereas nonprofits’ financial outcomes are merely a means to accomplishing an organisation’s social mission. Thus, a nonprofit organisation’s ability to pursue its mission (i.e., providing consistent and quality programming and services) and its financial sustainability are inextricability linked. NFPs 16 may gain the majority of their revenue from charitable contributions or tax appropriations and measure efficiency and effectiveness of their operations in their success at achieving their social mission, which is their ultimate strategic goal. This, in turn, creates public value (Moore 2000). However, in contrast to for-profit organisations, nonprofits face the challenge of balancing the need for profitability over the long term (as a means to support their programs and services) with the need to promote and prioritize their social mission. For nonprofits, the ultimate goal is to prioritize organisational plans that identify opportunities to manage short-term financial flux while making progress toward meeting long-term social and financial objectives. These being the basis of for-profit business, it is easy to start seeing the challenges that are faced by NFPs that operate and implement projects despite not being able to fully cover overheads and may have to implement projects that are not financially viable. NFPs like Koinonia Community who are reliant on donor funding, face constant challenges to remain in operation. According to Zietlow (2010), slow economic growth, high unemployment, plunging stock prices, low inflation, low interest rates, and unstable currency affects the funding received from donors. During these times, demand for NFPs services increase and could place excess financial strain on the organisation. 2.4 Challenges faced by NFPs in the Current Economic Climate Conradie (1999) has observed that NFPs that operate in social development are established, only to run out of funds after a few years with drastic implications for those involved, beneficiaries and employees of the organisation. Conradie aims to provide a framework for sustainability for NFPs to assist them in financial stability and management requirements. These are the very issues that face Koinonia Community on a day-to-day basis. According to 17 Conradie, NFPs worldwide collapse even after a promising start due to financial instability hence sound management plays an important role in organisational success or failure. Hull and Lio (2006) suggest that NFPs are extremely risk averse and may be at a disadvantage, on learning capacity and risk-taking propensity. This could be due to the lack of finances available to invest in improving on learning skills and also due to the financial restrictions placed by donors on the funds sponsored. They further illustrate that low tolerance to risk and less learning capacity make the pursuit of innovation needed by the organisation a dubious decision. The organisation has to pursue far less risky means for product innovation required in order for the organisation to remain competitive within the sector it operates in. 2.5 Social Value Sustainability Broadly, sustainability refers to the ability of administrators to maintain an organisation over the long term (Bowman, 2011). An important way of achieving social sustainability is through social entrepreneurship, a legitimate interdisciplinary concept that does not lend itself to one meaning owing to its newness and the fact that it is redefining approaches and discourse in social development undertakings. From the failure of the one-size-fits-all economic approach that naively believed the entire peoples of the world would gain from a system of economic liberalization to the negative impacts of globalization especially on poor economies, the need for a new kind of thinking where everything is not summed into monetary activities is needed. A system where profiteering is made a supreme god which in certain cases actually rewards socially suboptimal behaviour is what Joseph Stiglitz, the 2007 winner of Nobel Prize in Economics has termed “a moral bankruptcy of the system” (Stigliz, 2002). Its antithesis is social entrepreneurship, itself a product of individuals, organisations, 18 and networks that challenge conventional structures by addressing failures – and identifying new opportunities - in the institutional arrangement that currently cause the inadequate provision or unequal distribution of social and environmental goods (Dryaton, 2000). The idea behind social entrepreneurship as opposed to commercial entrepreneurship is to create products, technologies and services designed for the implicit purpose of improving the lives of the most disadvantaged groups, those who have been cast aside by the neo-liberal order. The idea is to emphasize collective talents of individuals so as to mobilize communities for mutually beneficial action. 2.6 Strategies for Survival According to Bryson, Gibbons and Shaye (2001), NFPs come in different shapes, sizes and legal forms to address the important social needs. They highlight the importance of NFPs in addressing these needs and interest in a way that will be self-sustaining over a long period of time. They introduce an enterprise scheme model for NFPs that could be used in strategic planning processes that place emphasis on coherence across its components and on the importance of self-sustaining dynamic feedback. This Enterprise Scheme Model addresses the following key areas required when formulating a sustainable strategy. These include understanding social needs of stakeholders and their interest; pursue meaningful mission and fulfilling mandates; building and drawing on core distinctive competencies; pursing competitive and collaborative advantages; employing coherent and effective strategy and operations; producing desirable results and securing needed resources and cultivating legitimacy and support (Ibid). Viney and Gleadle (2007) considers strategy formulation and the logical progression from organisational objectives through to strategy implementation. They look at the link between 19 corporate strategy and competitive strategy where corporate strategy deals with the interrelationship of business units and the scope in which the organisation works, and competitive strategy which focuses on how the firm competes within a particular industry or market. For organisations to become sustainable within the markets they operate in there ought to be synergy between their corporate strategy and competitive strategy so as to exploit opportunities that may exist to achieve a competitive advantage and sustainability within the NFP sector. Goerke (2003) emphasizes the role NFPs play in providing essential social services and the need for NFPs to become more competitive since they are competing over limited funding opportunities and the ever-present challenge of implementing business practices that will make them more accountable, profitable and attractive to prospective business partnerships. According the Goerke (2003) NFPs need to make themselves attractive to potential partners and move away from dependency models and adopt a more proactive model. This move began in Australia where NFPs started appointing business development managers responsible for strategic planning and development, brand managers and public relations managers. Leadership for sound strategy formulation is a much needed requirement in NFPs today. Wallis and Dollery (2005) distinguish the difference between a manager and a leader and sees managers as more focused on what needs to be done, and leaders as being concerned with strategy and direction. Nanus and Dobbs (1999) identify six distinctive tasks of a NFP leader. A leader should develop a credible and compelling vision of what the organisation want to achieve and securing and ensure that the stakeholders share in the vision. The leader should formulate effective strategies and frameworks to realize the vision. He or she should act as a spokesperson and advocate of the organisation, enlisting external allies in pursuit of this vision. Hence, empowering, motivating and inspiring individuals to learn and grow to 20 realize full potential as they serve the community and organisation and ensuring the NFP is positioned for the future. According to Kong and Prior (2008), not-for-profit organisations need to act more like private companies and should build and sustain a competitive advantage within the sector in which they operate in. Kong and Prior (2007) argues that intellectual capital can be utilized as a competitive tool in NFPs and used to gain a competitive advantage. According to them, “by combining resources and knowledge in ways that provide access to multiple, unique sustainable market opportunities, a firm can create and maintain its core competency”. Kong (2008) highlights the importance of knowledge as critical to for-profit organisations and NFPs, as well as the need for NFPs to change the way they manage and operate. According to Kong, NFPs need to adopt and implement a strategic management framework that allow the organisation to keep their independence and their ability to pursue social missions and simultaneously enhance the organisations efficiency and effectiveness to compete with for- profit organisations. Improving on the organisation’s efficiency in delivering services and improving the effectiveness of these services also allows the NFP to reduce it costs in achieving its objectives, which will aid in keeping the organisation sustainable. Knox and Gruar (2007) explores the theory of relationship marketing strategy in NFPs and concludes that relationship marketing in NFPs plays a greater importance to that of for-profit companies and that this should carefully be considered before any strategic changes are made. They emphasize that in “developing a marketing strategy, management has to have a clear view as to who and what matters before carefully managing the consequence of any strategy shift.” Grant (2008) identifies four common factors that stand out, are conducive to success and that is required in the strategic planning process. These elements are goals that are simple, 21 consistent and long term; profound understanding of competitive environment; objective appraisal of resources and effective implementation (Grant 2008). The organisation should have a clear, recognized goal that it aims to achieve. This goal is to be clearly understood by all within the organisation so that everyone has a clear understanding as to why certain initiatives are undertaken. An understanding of the competitive environment allows informed decisions to be made and design strategies that incorporate challenges and opportunities that may influence the organisation’s competitiveness. Identifying internal strengths and weaknesses allows the organisation to address areas that require attention and exploit the strengths of the organisation to take advantage of any potential opportunities. Grant highlights the importance of effective implementation of strategy, without which the best-laid strategies are of little use. Boojihawon and Segal-Horn (2006) identifies the three stages in the strategy process and the analysis required. The first stage comprises of stakeholder analysis, environmental analysis, resources and strategic capabilities. Choosing is the second stage which includes identifying options, evaluating options and selecting a strategy. The last stage is strategy implementing that encompasses culture and change management, organisational structure and management systems. They emphasize the need for the strategy process to be iterative through time as organisations operate within a dynamic environment facing constant changes and uncertain futures. For NFPs to implement a comprehensive strategy it has to clearly identify its goals and objectives. Once these have been identified any strategy implemented will have to take into consideration the need for NFPs to take a more structured and corporate approach to its operation ensuring that all systems required in for-profit organisations are implemented 22 within the NFP. The strategy implemented should thus ensure the NFP works toward improving its efficiency and effectiveness in delivering its product thus making it more attractive to donors or potential strategic partners. Organisations are set up to provide projects, products or service that affects various stakeholders. Freeman (1984) defines stakeholders as “any group or individual who can affect or is affected by the achievements of the firm’s objectives.” According to Viney, Dixon, Gleadle and Stapleton (2001), there are some advocates for shareholder theory who argue that organisations are set up to create value for a wide range of parties by focusing on maximizing value for its owners. For the purpose of this study, stakeholder theory will be used as the focus of NFPs to provide valuable products and services that is directed for providing a public service for social good. A stakeholder analysis will thus take into account key individuals and organisations that either directly or indirectly affect the organisation. Stapleton (2007) identifies stakeholders as either internal or external stakeholders to the organisation. Internal stakeholders are employees, owners, partners, trustees while external stakeholders include lenders, donors, suppliers, customers or clients, government and general public. In formulating a strategic plan for an NFP, a full stakeholder analysis is used to determine what their requirements are and how the products and services provided by the organisation affects or is affected by these requirements. This will allow the NFP to fully understand how the strategic choices made affect these stakeholders and what the possible outcomes or repercussions of the strategic choices will be. Organisations are established for a reason. It is thus important that its purpose and objectives is identified to know what it aims to achieve. Viney, Dixon, Gleadle and Stapleton (2001) define purpose as values and beliefs of the main 23 stakeholders in the organisation and objectives as more specific than purpose. Objectives express the expectations of stakeholders or specify particular milestones of achievement. They also identifies the best way for organisations to communicate what its purpose and objectives are in its ‘Vision’ and ‘Mission’ statements, which illustrate its values, beliefs and strategic direction. They define the contents of the mission and vision statements to include the product or service provided, company goals, philosophy, self-concept, present and future public image and attitude toward insider and outsider stakeholders. 2.7 Organisation Structure and Systems Boojihawon (2005) defines structure as the mechanisms in which people interact when working, and the flow of information throughout the organisation. Henry Mintzberg defines 6 basic parts to the structure of any organisation. These are strategic apex (top management), the techno-structure comprising of analysts who design systems. The third part is middle line where managers stand in direct line relationship between strategic apex and operating core. The fourth is support staffs who are specialists that provide support outside work flow. Ideology defines beliefs and traditions; and lastly, the operating core: basic work of production (Segal 2009). The challenge in successful strategy implementation is to identify the correct organisational structure and understand how structure will aid implementation to achieve organisational objectives. Organisational structure that supports strategic direction is critical for successful strategy implementation. Olson, Slater and Hult (2009) highlight the importance of managers to define the key activities for their organisation and develop systems that promotes these activities. According to them effective strategy implementation can prove to be difficult and 24 it is thus important that there is appropriate co-ordination throughout the organisation. They emphasize the role that an organisations marketing strategy plays and that mangers should, based on marketing strategy determine the proper relationship between strategy, structure and behaviour. This will determine how the internal structure will be set up to meet the strategic and marketing objectives set by the organisation. According to Olson, Slater and Hult organisational structure is a critical strategy implementation dimension that consists of three structural dimensions. Formalization (degree which decisions and working relationships are governed by rules and procedures), centralization (whether decisions are made by top management or middle and lower management) and specialization (how tasks and activities are divided in the organisation). They further suggest that there is strong evidence to link organisational structure to performance. It is thus important that the structural dimension compliments organisational strategy to maximize performance and meet strategic objectives. According to Crittenden and Crittenden (2008), for an organisation’s operations to be efficient and effective, the correct organisation structure should be adopted. They identified four structural levels that affect formulation, implementation and implementation performance. They include actions (who what and when cross-functional integration and company collaboration), programmes (continuous improvement and learning), systems (strategic support systems) and supportive policies (Crittenden and Crittenden, 2008). Crittenden and Crittenden suggest that for successful strategy implementation, it requires the support and co-operation of all internal stakeholders. Organisations have to look at the structural levers identified by Crittenden and Crittenden to identify and evaluate what areas are working well and what areas require improvement, given the organisational strategy and the current internal and external environment it operates in. 25 A study conducted by Heide, Gronhaug and Johannessen (2008) on barriers experienced in a Norwegian Ferry cruise company on successful strategy implementation listed communication barriers; organisational structure barrier; learning barriers; personnel management barriers; cultural barriers; political barriers; and resource barriers. Communication barriers received the most instances of reported barriers followed by structural barriers. Reasons for this ranged from lack of interaction among employees to poor structure with too many managers (Heide, Gronhaug and Johannessen, 2008). Obstacles to strategy implementation can be overcome if there is commitment from all stakeholders involved. Once the buy-in of management is secured from the top level to the lower levels of management and is properly communicated to all concerned, with clear understanding of roles and responsibilities, strategy becomes easier to implement and easier to identify which structural changes are required to meet the strategic objectives of the organisation. Systems refer to the mechanisms used by organisations to operate. Boojihawon (2005) defines systems as” mechanisms used for formal and informal flows of information used for planning, decision making, co-ordination, co-operation, and control operational and strategic levels”. Boojihawon introduces two types of systems. Operational systems (mechanisms including working practices and routines) and control systems which are mechanisms that monitor the achievement of strategic goals. According to Garvin (1998), operational systems are a collection of tasks that transform inputs into outputs. He defines inputs and outputs to include materials information and people. Organisations face the challenge of losing focus of what their strategic objectives are when it comes to strategy implementations. In the strategy process, managers are faced with formulating strategy and implementing systems to achieve strategic objectives as well as 26 having to deal with everyday operational challenges. Without adequate strategic control systems, organisations run the risk of system operations not being aligned to strategic objectives. According to Atkinson (2006) strategic control systems can be used by organisation to identify short term targets that deliver long term goals by preparing detailed strategic plans and implementing them. This thus balances out long-term goals with short term action. By measuring and reviewing strategy implementation, the organisation is able to identify areas that require improvement, as well as measure the effects of systems meant for improvement and how these systems assists the organisation in achieving its strategic objectives. Atkinson argues that the Balanced Scorecard allows management to focus on drivers of performance and provides a powerful link between strategy and operations. Organisations have to recognize the importance of communication in strategy implementation so that all internal stakeholders involved understand why and how strategic objectives is created and implemented. Organisations should also have systems of learning to evolve strategy implementation in changing environment to meet organisations goals. According to Raps (2005), “when implementing strategy, an integrative point of view should not only take into consideration organisation structure, but also cultural and human resources should be considered”. Viney and Gleadle (2007) summarize competitive strategy as the formulation of strategy that enables an organisation to compete with other organisations within the industry, sector, based on identifying potential sources of competitive advantage. They highlight the need for competitive strategy to consider potential resources available to the organisation, nature of external environment and the objectives of key stakeholders. 27 2.8 Theoretical Framework Social services undertaken by NFPs are often characterized along several dimensions by: varying levels of tractable and intractable client problems; clients that require specialized treatment expertise, sometimes over long periods and who have varying levels of motivation; mandated services with imposed time and funding constraints; and, programs that consist of ambiguous policy directives. In view of these dimensions, a variety of competing theories have been proposed to try to understand the role of NFPs management boards vis-à-vis their social mission for example; agency theory, stewardship theory, institutional theory, stakeholder theory, resource dependency theory and managerial hegemony theory. However, for the purpose of this study, only three of these are examined: stewardship theory, resource dependency theory and institutional theory. Below each of these theoretical perspectives is examined and how they can be usefully extended to throw light on not-for-profit management methods. 2.8.1 Stewardship Theory Stewardship theory is a framework which argues that people are intrinsically motivated to work for others or for organisations to accomplish the tasks and responsibilities with which they have been entrusted. It argues that people are collective minded and pro-organisational rather than individualistic and therefore work toward the attainment of organisational, group, or societal goals because doing so gives them a higher level of satisfaction. Stewardship theory therefore provides one framework for characterizing the motivations of managerial behavior in various types of organisations (Muth and Donaldson, 1998). Chen (1975) identified several stewardship models, each with different relationship between the owner and the agent, and different emphasis on “primary” and “secondary” stewardship responsibilities. 28 Primary stewardship responsibility, illustrated in the “managerial stewardship concept” was geared towards the society as a whole and requires a broader system of accountability (Chen, 1975) that is similar to the “public accountability” espoused by Coy et al (2001). Secondary stewardship responsibility illustrated by “classical stewardship” and prevalent in financial reporting was to the owner alone. Stewardship theory is grounded in a human relations perspective (Hung, 1998) and also has its roots in psychology and sociology (Donaldson and Davis, 1991), and is the opposite of Agency theory which assumes that owners of enterprise (the principal) and those that manage it (the agent) will have different interests (Hung, 1998; Albanese et al., 1997). And Davis and colleagues (2010) argue that a relationship can be viewed from a stewardship perspective when pro-organisational and collectivistic behaviors have greater utility than selfish interests, meaning, group motivations prevail rather than individual motivations. The importance of stewardship theory is stressed by Doucouliagos (1994), who stresses that all previous theories were missing non-economic assumptions in order to explain the principal-agent relationship. The basic assumption in stewardship theory is that managers want to do a good job and will act as effective stewards of an organisation’s resources. As a result, both management and shareholders of the organisation are better seen as partners. In terms of the NFPs, the main function of their boards is not to ensure managerial compliance or conformance but to improve organisational performance. According to Davis, Donaldson and Schoorman (1997a), Stewardship theory examines relationships and behaviours that emphasize collective, pro-organisational, contractual behaviour in which a higher value is placed on goal convergence than on agent self-interest. 29 Stewardship theory ‘‘defines situations in which managers are not motivated by individual goals, but rather are stewards whose motives are aligned with the objectives of their principals.’’(Davis, Donaldson and Schoorman, 1997a). The assumptions of stewardship theory are that long-term contractual relations are developed based on trust, reputation, collective goals, and involvement, where alignment is an outcome that results from relational reciprocity. The steward is therefore in a trust relationship where “there is responsibility of diligence and faithfulness in the administration of resources” (Mohan, 1999). In the case of NFPs social services and contracting relationships, stewardship theory is an appropriate model because nonprofits by virtue of their organisational form are specialized missions focused on poverty reduction and client stability. In contrast to the ‘‘agent’’ of agency theory, a steward places greater value on collective rather than individual goals, makes decisions he/she perceives to be in the best interests of his/her principals, stakeholders and the organisation in general, and views the successes of the organisation as accomplishment and incentive for achieving goal alignment without the motivation of any immediate financial payoff or maximizing of individual utility (Davis, Donaldson and Schoorman 1997b). Stewards are motivated by intrinsic rewards, such as trust, reputational enhancement, reciprocity, discretion and autonomy, level of responsibility, job satisfaction, stability and tenure, and mission alignment. Fundamentally, stewardship theory relies significantly on the principal’s and steward’s initial trust disposition. As the research of Mayer, Davis, and Schoorman (1995) shows, trust is the willingness and risk of being vulnerable, on the part of both principal and steward, to the possibility that one of them in the contract may pursue his/her own self-interest to the exclusion of the collectively agreed upon goals of the contract. 30 A steward places greater value on cooperation, even when his/her goals are not perfectly aligned with the principal, over defection and other expressions of self-serving behavior. This is because of the steward’s perception ‘‘that the utility gained from [contractually aligned] behavior is higher than the utility that can be gained through individualistic, self-serving behaviors’’ at the expense of the principal’s goals (Davis, Donaldson, and Schoorman, 1997). Thus, whereas the principal in a principal-agent relationship invests in coercive and compliance-based monitoring and reporting mechanisms and uses incentives and sanctions for achieving goal alignment, the principal in a principal-steward relationship invests in developing trustworthy relations with the steward through other types of contractual mechanisms that may cost more in the short run but offer long-term goal alignment. Using this theory, donors are assumed to act as principals and not-for-profit executive directors as stewards. 2.8.2 Resource Dependency Theory Resource dependency theory also known as co-optational model was primarily developed (for) for-profit context but has direct application to the nonprofit sector. Resource dependency theory, considers the extent to which organisations are driven by the desire for independence. It is a strategic management theory that offers some potential insight into reserve accumulations for financial sustainability. As posited by Pfeffer and Salancik (1978), this construct focuses on how organisations survive in an environment characterized by scarce resources. The broad theory suggests that strategic behaviour is predicted by the context or environment in which the organisation dwells. Extending this view, Ulrich and Barney (1984) posit that the primary concern from a resource dependency perspective is for organisations to minimize dependence on other actors in their environment. Pfeffer and 31 Salancik (1978) suggested that the main tenets of this theory. First an organisation behaves like its environment. In order to understand an organisation’s behavior, it is necessary to understand the environment in which the organisation is inserted. Secondly, an organisation’s survival is related to resource gains and preservation. An organisation is said to be effective to the extent that it “is meeting the demands of the various groups and Organisations that are concerned with its activities”. The fourth tenant is that an organisation depends on its environment, because its required resources are owned by agents who belong to that environment. Finally, “managers and other stakeholders can, to a degree, shape or enact their environment” Pfeffer and Salancik (1978) argued that dependence is a measurement of how important resource suppliers are to an organisation. This measurement might influence the position of the resource supplier in the organisation’s strategic plan. In Pfeffer and Salancik’s view, any component of the external technical environment should be, to some extent, important for the organisation’s survival. It is critical to know how important each one is. Within the constructs of an examination of financial sustainability, it would be expected that generally, nonprofit organisations might exercise dependence minimizing behaviour by accumulating reserves where their span of funding sources is restricted. There is support for this approach in studies conducted including Rose-Ackerman (1986), Crittenden (2000) and Yan Denison and Butler (2009), who note different, but related relationships, between revenue diversity, accountability, performance and capital structure. 2.8.3 The Institutional Theory The Institutional theory can be regarded as complementary to the Resource Dependency Theory, because it covers the other aspects of the organisation’s relationships with the 32 environment, excepting resources. Indeed, an organisation’s behaviour is the result of joined forces within its environment, of which the task environment is a component (Tucker, Baum, and Singh, 1992). Scott (1998) argues that it is the environmental pressures that make the organisation conform to the social and cultural worlds, and this is central to the institutional theory. Within institutional influences, there are some invisible forces pressing the organisation to adhere to taken-for-granted rules and norms (Oliver, 1991). Often, organisations feel threatened by the prospect of being singled out, and they decide to be isomorphic with other successful organisations. Di Maggio and Powell (1991) as cited in Hawley, (1968) defined “isomorphism as a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions.” For this reason, and being constrained by similar environmental forces, organisations begin to look alike (Orrù et al., 1991). Di Maggio and Powell (1991) identified three types of institutional isomorphism. They include coercive isomorphism that stems from the necessity of the organisation to follow legal rules in order to achieve legitimacy. The second type is mimetic isomorphism which results from the phenomenon of the organisations copying each other because they have no means to cope with environmental uncertainty. The third type is normative isomorphism resulting from an organisation being obligated to adopt patterned behaviors institutionalized by the authorities. 33 Institutional forces influence organisations to adopt new structures and behaviours institutionalized by their peers or superior forces. Sometimes, this situation is comfortable because by adopting institutionalized elements the organisation might avoid its behaviour being questioned (Meyer and Rowan, 1991). Thus it is hypothesized that within an institutional theoretical framework, NFPs are likely to be influenced by superior institutional forces to align their structures and behaviours, rules and norms to a normative pattern and in so doing their intention to operationalize contrary behaviours are either minimized or extinguished. 2.9 Conceptual Framework Moderating variable Government Policies Independent variables intervening variable Dependent variable Figure1: Conceptual Framework Prudent Management Organisation Collaboration and Financial Strategic and Visionary Human relations Human Inflation/ Not-for- fit Managerial 34 The conceptual model answers three major questions: Where is Koinonia Community in terms of its management structure? What does this research aim to do? What does this research aim to discover? These questions are addressed through the three social value theories: managerial stewardship, resource dependency and institutional. The organisational management structure for Koinonia Community shows glaring gaps that negatively impact on financial sustainability. The current management model is characterized mainly by: goal divergence rather than goal convergence; competition rather than collaboration; mistrust rather than trust; resource dependence rather than resource independence; conformism rather than creativity; organisational dependence rather than organisational self-dependence and, authoritarianism rather than democracy. The model demonstrates schematically how the research aims and research results are linked and what management tasks the organisationmust tackle in order to ensure that it attains its organisational objectives in the long term, whilst employing its economic, social and spiritual resources to optimum effect and ensuring an optimum relationship between its value added and its overall social impact through managerial stewardship. The requirements for sustainable financial management which include strategic organisational restructuring, strategic financial management, and human relationships restructuring are essentially linked to managerial stewardship. Managerial stewardship guarantees a democratic culture where all stakeholders have their say and their opinions respected and a culture of tolerance of divergent views is legitimized through commitments and policies and feedback and optimization system within the context of strategic development and planning. Stewardship management as opposed to corporate management provides helps to avoid excessive or even exclusive emphasis on the need to achieve profits or mere success of the organisationat the expense of other human values. In this sense, leadership becomes sustainable and is assumed to be ethical, moral and spiritual. 35 2.10 Conclusion This literature review has developed the following in regard to not-for-profits: defined an NFP and outlines their importance to society; compared NFPs with for-profit Organisations; identified the challenges faced by NFPs; addressed the need for financial sustainability; and, proposed possible strategic models that can be used by NFPs to ensure their survival. For the theoretical framework, Stewardship theory, Resource Dependency theory and Institutional theory have been selected. The Stewardship theory examines relationships and behaviours often discounted in organisational economic theories, emphasizing collective, pro- organisational, contractual behaviour in which a higher value is placed on goal convergence than on agent self-interest. Resource dependency theory also called co-optational model, is a strategic management theory that offers some potential insight into reserve accumulations for financial sustainability. The Institutional theory argues that there within institutions some invisible forces pressing the organisation to adhere to certain rules and norms. Since organisations feel threatened by the prospect of being singled out, they decide to be isomorphic with other successful organisations. In other words, they are forced to resemble other units that face the same set of environmental conditions. The conceptual model shows when NFPs attain financial sustainability via the social value processes they generate a new management structure that is driven by social values that incorporate rather than neglect recipients of aid as well as their environmental and human capacities at financial independence. 36 CHAPTER THREE METHODOLOGY OF THE RESEARCH 3.1 Introduction This chapter sets out various stages and phases that were followed to complete the study and involved the collection, measurement and analysis of data. This section aided the researcher to answer the research questions. Therefore, this chapter describes the research design and methodology used to guide the study under the following sub-headings: the research design, study area, sampling procedures and sampling technique, population and sample size, data research instruments, data collection procedures, ethical considerations and data analysis procedures. 3.2 Research Design According to Kerlinger (1986), research design is "the plan and structure of investigation so conceived as to obtain answers to research questions." Rosenthal and Rosnow (1991) define research design as a "blueprint that provides the scientist with a detailed outline or plan for the collection and analysis of data." In both of these definitions, the "plan" includes a researcher's decisions concerning research strategy, research setting and operational definitions and measurement of the study's constructs of interest. The specific choices, within and about these factors, influence the internal and external validity of the conclusions that stem from a study (2002). In this study, exploratory research design will be adapted. The exploratory research design using case study method is primarily used in qualitative studies to investigate distinct phenomena characterized by a lack of detailed preliminary research, especially formulated hypotheses that can be tested, and/or by a specific research environment that limits the choice 37 of methodology. This form of case study was applied as an explanatory research design exploring a relatively new field of scientific investigation in which the research questions were clearly identified and formulated or the data required for a hypothetical formulation was obtained. Since exploratory case studies are by definition often applied in a research context that is not clearly specified and still requires data for the formulation of valid hypotheses, their broad concept provides the researcher with a high degree of flexibility and independence with regard to the research design as well as the data collection (2009). 3.3 Study Area Study area refers to the location of the study (Orodho and Kombo, 2002). The study is conducted in Koinonia Community which was founded in 1988 by Father Renato Sesana Kizito and a group of young men from different professions and backgrounds. The members try to integrate the best of African tradition and Gospel values into their daily lives. Thus, they are committed to the growth of the local society within which Koinonia Community is based and to counteract the economic and social evils bred by individualism and abject poverty. The study was conducted at Koinonia Community’s social projects which include Kivuli Centre, Anita Home Tone la Maji and Family to Family. The executive council and central administration, the top management teams in Shalom House were the main respondents as well as members and beneficiaries. These projects and activities are located in Dagoretti Sub- County, Nairobi County and Kajiado North Sub-county. Thus, all projects are located in Nairobi Metropolitan. 38 3.4 Target Population Oroodho (2004) defines target population as all the items or persons under consideration. The target population comprised of four main social projects of Koinonia Community, top management, members and beneficiaries. The study specifically targeted a population of 120 persons. 3.5 Sample Size and Sampling Procedure Ngechu (2004) underscores the importance of selecting a representative sample through making a sampling frame. From the population frame the required number of subjects, respondents, elements or firms was selected in order to make a sample. The sampling frame for any probability sample is a complete list of all the cases in the population from which a sample is drawn (Ngechu, 2004). A sample is a smaller and more accessible sub set of the population that adequately represents the overall group, thus enabling one to give an accurate (within acceptable limits) picture of the population as a whole, with respect to the particular aspects of interests of the study. The study drew a sample of 20 possible respondents. This included 2 executive council members, 1 from central administration, 3 project managers and social workers, and 14 people affiliated to Koinonia community as members or beneficiaries. This research employed the snowballing technique to collect data. In qualitative research, snowballing is a type of sampling. In this method, participants or informants “with whom contact has already been made use their social networks to refer the researcher to other people who could potentially participate in or contribute to the study. Snowball sampling is often used to find and recruit hidden populations, that is, groups not easily accessible to researchers” (Heckathorn 2002). Thus, the sample group grows like a rolling snowball. As 39 the sample builds up, enough data is gathered for the researcher’s needs. Snowball sampling is a useful tool for building networks and increasing the number of participants. However, the success of this technique depends greatly on the initial contacts and connections (Heckathorn 2002). Specific to not-for-profit organisation, snowball sampling can be used to identify stakeholders in a certain field. In this identification was in the Koinonia Community. Usually such stakeholders have many contacts. After gathering information in the field work, the researcher asked informants to suggest other “stakeholders” who could offer more information. The advantage of this was that the researcher could find people who are stakeholders in the Koinonia Community quicker. Therefore, when attempting to gather information on a particular topic where a limited number of participants are available, the snowball approach increases the efficiency of the interview process. It was helpful for the researcher to use this method because it saved time while seeking possible respondents relevant for this study. In this way, snowballing was a “door opener” to stakeholders in the community. It helped not just to save time and effort, but was a good tool to collect relevant data needed for input into the study (Salganik and Heckathorn 2004). The snowballing technique was indispensable for this case study, because without further recommendations the researcher would have had more problems with accessing interviewees. The outcome of the snowballing technique provided the researcher with the second source of reliable data related to this study from the respondents. Due to problems interviewing the “managing elites” in Koinonia Community some managers advised the researcher on their acquaintances from other Koinonia-related projects for interviewing. As a result, the 40 researcher conducted interviews with them. However, they gave sufficient information about the discussed topics as they work or affiliated primarily in Koinonia Community. Snowball sampling has a number of deficiencies. Firstly, it was challenging for the researcher to find initial contacts to agree to meetings and interview. Secondly, the question of building trust was difficult despite the topic not being considered to be sensitive. The researcher felt at the beginning that the respondents thought he would assess the issue of financial sustainability solely from the leadership of Koinonia Community. Essential the interview process was establishing trust with my respondents. This was accomplished by discussing the main purpose of my research in detail before conducting the interview. Finally, in snowballing the quality of the data can be less valuable. This can happen if initial respondents discuss the research topics with future respondents and in this way influence their answers. It can make the results less accurate (Atkinson & Flint 2003). To address this potential obstacle the researcher requested the interviewees not discuss interview topics with colleagues. This was emphasized within the Koinonia Community context where the researcher interviewed stakeholders. It contributed to making the data more reliable and valuable. 3.6 Data Collection Tool Based on the project topic and its qualitative orientation, interview guide was chosen as the main research tool for collecting data. Interviews are an important methodological tool in studies about human affairs. Such affairs are necessarily seen and interpreted through the eyes of the people involved. For this reason well-informed respondents “on the inside” can provide important insights into the research matter (Yin 2003). 41 The interviews are useful for this study as they can provide a wealth of information and give an overview of things that are not obvious to an outside observer (Kendall 2008). All the interviews conducted were done face-to-face. The researcher took notes during interviews, because most of the interviewees said that they felt uncomfortable in the presence of a recorder. As a result, no recording device was used. Interviews lasted from one to two hours. 3.7 Research Instruments: Validity and Reliability 3.7.1 Validity According to Somekh and Cathy (2005) validity is the degree by which the sample of test items represents the content the test is designed to measure. Content validity which was employed by this study is a measure of the degree to which data collected using a particular instrument represents a specific domain or content of a particular concept. Mugenda and Mugenda (1999) contend that the usual procedure in assessing the content validity of a measure is to use a professional or expert in a particular field. Hence to establish the validity of the research instrument the researcher sought opinions of the Supervisor. This facilitated the necessary revision and modification of the research instrument thereby enhancing validity. 3.7.2 Reliability According to Walliman (2001), reliability refers to the consistency of measurement and is frequently assessed using the test–retest reliability method. Reliability was increased by including many similar items on a measure, by testing a diverse sample of individuals and by using uniform testing procedures. 42 3.8 Ethical Issues Ethics concerns moral principles and how people should conduct themselves in social affairs (Graham and Benet 1995). The researcher endeavoured to respect views of the respondents and ensured that the study is on a voluntary basis. The valued beliefs and convictions of the respondents were respected in the study. The primary data collected was not personalized and was handled with the appropriate confidentiality. 3.9 Data Analysis Procedures The information obtained during interviews was categorized into various themes and displayed by use of bar charts, tables and pie charts. This was done by tallying up responses, computing percentages of variations in response as well as describing and interpreting the data in line with the study objectives and assumptions through use of Microsoft Excel 2010. The data collected was qualitative in nature and was analyzed using conceptual content analysis which is the best suited method of analysis. Content analysis is defined by Creswell (2003) as a technique for making inferences by systematically and objectively identifying specific characteristic of messages and using the same approach to relate trends. According to Mugenda and Mugenda (1999), the main purpose of content analysis is to study the existing information in order to determine factors that explained a specific phenomenon. According to Kothari (2004), content analysis uses a set of categorization for making valid and replicable inferences from data to their context. The results were then be interpreted in order to draw conclusions and recommendations. 3.10 Conclusion This chapter was an aid to the researcher to answer the research questions. It also addressed issues such as how research was executed; how respondents were approached and how the 43 research was completed. The researcher identified the procedures and techniques that were used in the collection, processing and analysis of data. It also details the research design and methodology that was used for the study. 44 CHAPTER FOUR DATA ANALYSIS AND PRESENTATION 4.1 Introduction This chapter mainly focuses on data analysis, presentation and discussion of the findings. This is where the information from literature review in the second chapter as well as the experience of the researcher during the insertion period is integrated with the research findings. The results presented in this chapter are related to the theoretical and conceptual frameworks in order check the validity and reliability of the study. The findings are also used to verify if the responses are in line with the objectives and research questions as well as the general objective. 4.2 Presentation of the Findings The data obtained is divided into sections of the thesis through different themes. This was done in a logical way so as to ensure that the study arrives at the right conclusions. The purpose of the logical arrangement is to ensure that results are answering the research questions in order to meet the objectives of the study. The findings are interpreted in the light of the conceptual framework presented in chapter two. The presentation also shows whether the findings are related or differ from the literature review and the theoretical framework. Finally the presentation of the data is put into consideration in corporation with the researcher’s intuitive experience as per the insertion in chapter one. 45 4.3 Data Analysis The data was collected through interview guide and 30% (20) of target population (60 respondents) were interviewed. The interview guide was divided into six sections: personal data, donor funding, organisational and internal structures, constraints towards sustainability, theological reflection and strategies for financial sustainability. The research findings are presented through the following sub-themes formulated from the interview guide: 4.4 General Information of the Respondents The general information was categorized as gender distribution, age, work experience or affiliation to Koinonia Community and religious orientation of the respondents. The data obtained was useful in understanding how the respondents perceive the organisation. 4.4.1 Gender of Respondents The study did not put emphasis on gender issues as far the research is concerned. Nevertheless, it is not an area to be ignored especially when it comes to strategic planning in the ministerial action. This was also to assess how Koinonia Community has adhered to gender rule especially the involvement of women in management. Figure 2.0 shows the percentage of respondents by gender. The male respondent represented a higher percentage (65%) than the females (35%). 46 Figure 2.0: Gender of Respondents The respondents also indicated that there is no female in the top management, that is, no female in both Executive Council and Central Administration. A respondent lamented that, “I fail to understand why Koinonia has no women in their big offices”. Another one confirmed that in the past there were female representatives in EC and CA. The respondent further said, “It is absurd that a Christian based organisation can not adhere to two thirds gender rule” 4.4.2 The Age of Respondents Table 1: Age of Respondents Age Bracket of Respondents Number of Respondents Percentage 25 – 29 4 20% 30 – 34 6 30% 35 – 39 5 25% 40 - 44 3 15% Above 45 2 10% Total 20 100% Table 1 shows that the age brackets of the research respondents. The respondents were categorized by age to establish if the sample was representative of the target population. The results indicated that majority (30%) of respondents fall in 30 – 34 years of age. The respondents who are 45 years and above were the minority (10%), while 25 – 29 and 35 – 39 0% 65% 35% Gender of Respondents Male Female 47 age brackets were 20% and 25% respectively. The data obtained indicate that about 50% of the respondents were between 25 and 35 years of age. 4.4.3 The Respondents Religious Orientation The researcher was interested in knowing the professed faith of the respondents because the organisation is a Lay Christian Community inspired by the life of the first Christians as reported in the Acts of the Apostles. The researcher wanted to know how the respondents’ faith helped them in service provision to the marginalized and destitute in the society. The study established that all respondents were Christians of different denominations as indicated in the figure 3. Figure 3: Religious Orientation Figure 3 shows that the respondents were 70% Catholic, 20% Protestants and 10% Evangelicals. There were no Muslims or people with other religious beliefs. 4.4.4 Respondents’ Work Experience and Affiliation to Koinonia Community In order to establish the authenticity of information given by the respondents, the researcher sort to understand the duration that the respondent has either worked and or affiliated to 48 Koinonia Community. The respondents’ were categorized in age clusters to make it easier for them to indicate ones cluster. Table 3: Respondents affiliation to Koinonia Community Number of years Number of Respondents Percentage 0 - 03 5 20% 04 – 06 7 35% 07 - 09 6 30% 10 – 12 1 5% 13 and above 1 5% Total 20 100% The table 3 shows that 7 (35%) respondents have worked for KC for 4-6 years, 6 (30%) for 7- 9 years, 5 (20%) for less than 3 years, 1 (5%) for 12 and 1 (5%) for 13 years. The majority of the respondents (80%) have been affiliated or working with the organisation for at least 4 years. This is an indication that the respondents were conversant with the ideals of the organisation. Their experiences illustrated the organisational development, challenges that KC is facing and indicated what need to be done to enable the organisation sustainable. 4.5 Theme on Donor Funding Koinonia Community since 1991 has initiated many project geared towards achieving its main goal of socio-economic empowerment of the marginalized people in the society with focus on street children. The 20 (100%) respondents affirmed that all social projects were initiated through donor funding. These include Kivuli Centre, Anita Home, Ndugu Mdogo, Paolo’s Home, Mother House, Ndugu Mdogo Drop-in-Centre, Tone la Maji and Domus Mariae. The respondents also agreed up to date all these projects are still donor supported with exception of Ndugu Mdogo that was closed down in 2012. It also revealed that Tone la Maji’s sole donor withdrew the support in 2013. “La Gocca” Italian donor had supported the project for ten years. However, the project is on-going despite the financial constraints. 49 The researcher wanted to know the number of main stream donors that are supporting the organisation. Most of the respondents (80%) were not aware of the number and type of current donors. A respondent said, “Currently, we are receiving support from five (5) main donor organisations and individuals”. The respondent further highlighted that, “Our main donor and partner since 1995 is Amani, Onlus”. Another respondent indicated that most donors are only known by the founder and the director of the Koinonia Community. “We have been running the project on funds from Amani and sometimes from friends of Fr.Kizito”, a respondent said. Another one said, “I am a product of generosity of friends of Koinonia, I am grateful that I was rescued from streets”. This clearly indicates that Koinonia Community’s social projects were initiated through donor funding and up-to-date they are depending on donor funding. The researcher also wanted to know if there have been changes in the projects which could be related to donor funding. About (17) 85% of the respondents attributed the gradual reduction in the number of beneficiaries in social projects and the workforce to the scaling down of donor funding. A respondent said, “I don’t know where we are heading to! Every year we are always reminded of 20% budget cut”. “All our hope is pegged on donors and what future holds, I don’t know”, the respondent added. The study also confirmed that 12 (60%) respondents have fear of the organisation’s future if the donors withdrew and rest 8 (40%) believe that the Koinonia can survive even if all donors withdrew. A respondent confirming this said, “Even after withdrawal of “La Gocca”, Tone la Maji is still in operation”. 50 The further study revealed that (17) 75% strongly agreed that if all donors were to withdraw today, no social project would survive for 1 year. This affirms the attitude or belief that a group cannot solve its problems without outside help as described by Bartel (2012). This is a weakness made worse by charity and is referred to as dependency syndrome. The researcher also established that through donor funding many economic activities have been initiated such as water projects, farming, institutions like Domus Mariae and Diakonia Institute. However, these income generating activities perform dismally with exception of Shalom House Enterprises and learning institutions which seem to break even from the operation costs. Most income generating activities cannot pay back the initial costs. “Our income generating projects also depend of donor support, I wonder when we shall be out of this yoke,” a respondent confined. Hansmann (1980) defining NFP posits that it is not barred