The future of Australia’s third sector

The sector will continue to grow and diversify

Until comparatively recently, the third sector was not recognised as a sector at all. It was a group of disparate and unconnected organisations that championed good causes but were often seen as inefficient and badly managed. Today it is seen as an essential part of the fabric of society, because people need organisations that are neither profit-seeking nor part of the public sector.

In the foreseeable future the third sector will become fully established as a group of organisations that are as essential to post-industrial, democratic and caring societies as the private and public sectors. This will be underpinned by the strong support that the sector now has from the main political parties. Although it will remain smaller in economic terms than the private and public sectors, it will continue to have disproportionate influence because it champions justice, fairness and morality.

Accountability will continue to increase

When the sector was smaller, expectations for it to be accountable were low. That is now changing, with a growing requirement that these organisations be much more transparent about what they do, what it costs and what they achieve.

There are now higher standards for reporting (for example in annual reports) and there is more independent scrutiny (for example by organisations like Intelligent Giving). These requirements will continue to grow.

People will increasingly expect to be able to click on to the internet and quickly discover where organisations get their money from, who runs them, what they have done and whether they are having a significant impact.

Cost effectiveness will be the primary measure of success

The prevalent assumption that reducing costs automatically leads to a reduction in quality will be challenged, as innovative organisations discover imaginative ways of achieving the desired outcomes with fewer material and human inputs.

The private sector has demonstrated conclusively that, with effective management, services can be improved and costs reduced at the same time. At present third sector organisations find it difficult to see how these seemingly contradictory objectives can be achieved.

However, pressure to compete successfully for contracts and to deliver quality services to users will drive organisations to discover ways of increasing their productivity. Managers will increasingly be expected to demonstrate how every person and every item of expenditure contributes directly to the delivery of a cost-effective service. Activities that do not make a cost-effective contribution will be cut.

Specialisation will increase

Competition for contracts, donors and sales will force organisations to specialise in those services in which they have most expertise and to withdraw from services in which they have fewer skills. Niche providers will grow faster than generalist organisations that diversify into many services and inevitably develop cumbersome management overheads.

As organisations are driven to focus on those activities in which they have the greatest expertise, they will need to adjust the portfolio of services they manage.

Broadly based ‘conglomerate’ organisations will be driven to pursue more focused strategies as they face stronger competition from more specialised organisations.

This will mean more movement of services between organisations as they acquire, dispose of and exchange services with other organisations. This will happen mainly within the sector, but there will also be more movement between all three sectors.

Strategic partnerships will become more prevalent

There will be more strategic partnerships as organisations seek to find ways to increase their impact.

There will be a wide range of relationships ranging from loose alliances to long-term strategic partnerships. More organisations will share back-office services and more will move into the same premises as another way of increasing cooperation and joint working.

There will also be many more mergers as the sector matures and coalesces and as organisations seek to benefit from economies of scale.

Organisations will use a wider range of methods of finance

Organisations have traditionally relied on membership fees, donations, grants and earned income to finance activities, to build their organisation and to raise working capital.

In future they will access a much wider range of financial instruments including loans, loan guarantees, quasi-equity (where the investor and the organisation share the risks and rewards) and equity investments (where the investor takes more risk and can get higher rewards).

There will be more investors who want to help organisations expand but also want a financial return on their investments. As this book goes to press plans for the establishment of a social stock exchange in the UK are well advanced and I anticipate that it will quickly become an accepted method of financing third sector organisations that operate on a business model.

Third sector organisations will also accelerate their growth and impact by fitting activities and their sources of finance much more strategically.

New technology will transform the way organisations work

The impact of ICT – and, in particular, communications technology – will dramatically change the way third sector organisations work. Many organisations are spread around the country and the globe. Until now, their centre or headquarters has been the hub of the organisation and of its communications.

Teleconferencing and video conferencing will change all that. The furthest parts of the organisation will be able to communicate with each other easily and cheaply. This will drive the centres of organisations to define their unique contribution more precisely and give the outposts more freedom to do their work within agreed boundaries.

Management and governance will be streamlined

Internally, organisations with cumbersome management structures, boards and committees will streamline themselves to increase their effectiveness.

Management structures will become flatter as managers and their staff discover more effective ways of working together. Boards will continue to grow smaller and at the same time more accountable. More of the largest and most complex organisations will find that the time required from board members to provide fast, effective and engaged governance will mean that they have to pay board members to recruit people with the required skills and experience.

The notion that committees automatically add value will be challenged. The governance of large organisations will be much more concerned with holding management to account, so large and complex committee structures may no longer be necessary.

All this will require greatly increased effort to be put into governance and management development. Training courses, mentoring, shadowing and coaching will all play a greater role in the daily lives of managers. Skill-acquisition will become a major objective of ambitious managers. Organisations will have to respond by making time and resources available for board members and managers to become more capable.