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Welcome to the the Office of the President

S.C. Non-Profits

April 17, 2008

It is a great honor for me to address you this morning. To be honest, it is an honor for me just to spend a little time with you. Surely, no group is more dedicated to the improvement of the lives of South Carolinians than the organizations collectively represented here. Through your dedicated and tireless efforts, the people of the Palmetto State have access to a broad array of social services, educational opportunities, spiritual, cultural and health care resources. Our lives and our communities are richer for your efforts, and I salute you for all that you do.

Having said that, I have to confess the original invitation to speak to you came as a bit of a surprise to me. I imagine that the usual suspects for a talk such as this one would be leaders of prominent non-profits, or captains of industry, or leading philanthropists, or if all else fails, non-indicted politicians. You have to be scraping pretty near the bottom of the barrel to invite a university president, non-indicted or otherwise, to speak.

Now, don't get me wrong. I'm not questioning anybody's judgment here. I could imagine worse choices for a speaker. For example, you could have invited a trial lawyer, or an accountant, or worse yet, a trial lawyer who was also an accountant. The bottom of the barrel definitely has a layer or two below university presidents. By the way, if there are any trial lawyers or accountants in the audience, it may be helpful to note here that being associated with a non-profit organization pretty much cancels out any occupational baggage.

So, now that we have established my credentials for speaking to you today, let's get right into it. The theme today seems to be: "Why can't non-profits operate more like a business?" My immediate association of this theme is with the song "Why Can't a Woman Be More Like a Man?" from the play My Fair Lady. As some of you may recall, Professor Henry Higgins, baffled by the behavior of Eliza Doolittle, complains to his chum, Colonel Pickering:

"Why is thinking something women never do?
  And why is logic never even tried?
  Straightening up their hair is all they ever do.
  Why don't they straighten up the mess that's inside?"

Believe me, it sounds so much better when Rex Harrison says it, but you get the point. There's a certain old-school chauvinism in suggesting that male behavior is preferable to female behavior, or that for-profits operate more desirably than non-profits. In real life, of course, part of what makes females so wonderfully appealing is that they are so undeniably not male. Similarly, part of what makes non-profits so beneficial to communities is that they are so undeniably not out to make a profit.

It is tempting to reply to this old-school chauvinism with something akin to the gay pride slogan: "We're here. We're queer. Get used to it." For non-profits the slogan might be: "We're here; not austere. Get used to it." I'll bet you never thought in your wildest imagination that somebody could weave together My Fair Lady with a gay pride anthem. Actually, it's not all that hard, as Professor Higgins seemed to prefer all things male, but that is the subject of an entirely different talk.

So, where were we? Oh yes, the idea of running non-profits as if they were businesses. In the spirit of full disclosure, I should probably say a few words about the organizational environment in which I operate. If the following sounds a bit like a public service announcement for the Medical University, that is exactly what I intend.

MUSC, through its academic, hospital and affiliated components employs about 11,000 persons. That makes it the largest non-federal employer in the Charleston region and certainly one of the largest in the state. The collective operating budgets of MUSC entities are $1.6 billion a year, of which only about $120 million is appropriated by the State of South Carolina. It may surprise you that we are a State entity, yet only about 7.5% of our funds are provided by the State. Another way of looking at that equation is that for every dollar the State appropriates for us, we generate nearly 14 dollars in other revenue. Most for-profit businesses would consider that a remarkably good return on investment.

How do we generate those funds? Mostly from direct services that we provide—the hospital and the faculty practice plan account for about two-thirds of our revenue. We also bring in about $200 million a year in research funding—the largest amount for any university in South Carolina. Given that we have only 2,500 students among our six colleges, tuition (one of the few income sources that we control) is a relatively small part of our budget, accounting for about 2% of revenue.

Well, enough about us. I think that you get the general picture, which is that on the scale of operating entities in this State, the Medical University is pretty large and complicated. In fact, the magnitude of our operation may seem totally foreign to most non-profits in South Carolina. Many of you function with a handful of employees and total budgets in six figures or less. When you are worrying about meeting payroll or paying the light bill, concerns not related to survival are likely to seem very minor in comparison. There's a certain Nobody Knows the Trouble I've Seen mentality when we compare and contrast our organizations. I imagine that the hallway conversations at this meeting go something like the following:

"Our non-profit is so small that we can hold staff meetings in the coat closet."

To which another attendee replies: "At least you have a coat closet; our office is so small, our street address is a decimal point."

To which a third person responds: "At least you have a street address; our office is in a tree house in our founder's back yard."

In the world of non-profits, you can never be smaller than the next organization, no matter how hard you try. And, of course, there is the parallel phenomenon that the magnitude of a non-profit's problems seems to be inversely related to its size—the smaller the organization, the bigger the problems.

So, in this micro-sized world of non-profits, is there anything to be learned from the world of for-profits? Well, I think that the answer is affirmative, but you have to take my word with a grain of salt, since I have never worked in the for-profit world. Maybe it's best to say "quite possibly."

There are certainly plenty of business people who think that they know how to optimize organizational performance and that these ideas can be translated to any type of organization. College presidents are pretty accustomed to hearing from their Boards of Trustees that academia should operate more like businesses. I suspect that many of you hear the same sort of advice from your Board members.

These comments are well-intended, but frankly are a bit naïve. The fact of the matter is that the one-dimensional mission of the corporate world—maximizing financial return for investors—does not translate very neatly into the more complicated milieu of universities or not-for-profits more generally. The missions of most non-profits are more eclectic and their performances can be more difficult to measure.

Even if one believes that non-profits should operate like businesses, there is a certain amount of artistry in defining exactly what that means. I, for one, don't think one can teach basic management principles simply by reading a book. I must be in the minority, however, since millions of business self-help books are still being sold. I suspect that these books can have considerable personal value, but there is no objective evidence to suggest that businesses are performing more efficiently or effectively because of them.

All of which does not lead me, or hopefully you, to the conclusion that we should avoid borrowing from these sources when it makes sense to do so. It is in that spirit that I recommend to you the one management book that impressed me enough to buy copies for my entire leadership team. It is Good to Great and was published in 2001. The author, Jim Collins, was a faculty member at the business school at Stanford University before he became independently wealthy writing management self-help books. At least one person has benefited from his writings.

I recommend Collins' book for several reasons. First, it is well researched. Second, it is written clearly and can be understood by those of us who do not spend our lives studying corporate behavior. Third, he covers the key points in sufficient depth without getting lost in details.

This is not to say that the book is without some issues. Collins cannot, for example, resist the business school penchant for jargon, which at times seems a little too cutesy, at least for my tastes. Still, it is a book worth reading, but just in case you cannot find the time to do so, I am going to give you now the Cliff's Notes version.

Collins assembled a research team of 21 people to examine the question: "Can a good company become a great company and, if so, how?" Actually, I guess that is two questions. They searched the Fortune 500 list of companies between 1965 and 1995, looking for those which fit the following pattern: 15 years of performance at or below the general stock market, followed by a transition point, followed by 15 years of performance at least three times better than the general market. They identified 11 companies who met this good-to-great profile, including a range of industries, from drug-maker Abbott, to consumer products retailer Circuit City, to the financial services provider Wells Fargo. For comparative purposes, each good-to-great company was matched with one that never made the transition to great, and where possible to one that made a short-term shift, but did not sustain ‘greatness.'

To analyze what differentiated the transformed companies from the comparison group, the research team assembled all of the published literature that they could find, as well as quantitative measures of various parameters. Then, one-by-one, they reviewed and discussed each company, developing and examining theories about differences between the companies that excelled and those that did not. To some extent, Collins' method seems more like an educated focus group than a rigorous scientific study, but at least the focus group was well informed by truckloads of information.

From this process emerged their key concepts, which I will summarize all too briefly for you now. First, leadership is the cornerstone on which a successful enterprise is built. Collins and his colleagues were surprised, however, at the kind of leadership that emerged as critical. Rather than the bigger-than-life CEOs who are celebrated by the media, the leaders who helped companies become great tended to be those focused more on the success of the organization and less on themselves. These CEOs set high standards, held themselves and others accountable, and tended to take a long-term view.

Of course, finding individuals who have these characteristics is not easy. It is clear that there are not enough of them to go around in the corporate world, much less in the non-profit world. At the same time, it is too simplistic to say that we cannot compete with executive compensation in the private sector; therefore, non-profits are going to get the left-overs. In fact, if Jim Collins were giving this talk (and we would all be better off if he was), he would say that the type of leader he is describing is not one driven by perks and a fat paycheck. In fact, the leaders of the good-to-great companies tended to get paid slightly less than the comparison leaders.

There is more good news for non-profits. The good-to-great leaders like a real challenge, and boy, do non-profits have challenges! These leaders have a ‘never say die' attitude, and they thrive on confronting the tough issues and prevailing. In my opinion (and I should emphasize that I have no data to support this belief), folks who are attracted to work in the non-profit world tend to fit this description. They believe passionately in their mission and they do not see failure as an option.

I suspect that everyone in this audience has seen the transformation that can arise from getting the right leader into an organization. Nevertheless, more often than not, Boards in the non-profit world are hesitant to make leadership changes. As long as there aren't any major problems, they are content to muddle along with the status quo. If the organization's ambition is modest, that may not be a problem. On the other hand, if the goal is to achieve greatness, mediocre leadership will not get you there.

Making the optimal leadership decision is the first step on the pathway to greatness. The next step is to make sure that the right management team is in place. The issue here is to focus on building the organization's human resources before setting its course. In order to assemble an effective team, one may have to weed out those who do not fit, while adding those who do. The good-to-great organizations do not operate with a visionary at the top and a lot of lieutenants executing orders. Instead, they thrive on shared decision-making, often involving lots of give-and-take. Once the course is set, however, they work together with shared purpose and commitment.

So, if you have the right leader and team in place, what comes next? According to Collins, it is to "confront the brutal facts." By this, he means that the current situation needs to be explored in depth, asking questions, engaging in debate, avoiding placing blame, and assigning the highest priority to those issues that cannot be ignored.

Now, you have the leader, the team, and the brutal facts, what's next? According to the study, all of the good-to-great companies manifested a ‘hedgehog' mentality. At this point, you're probably wondering what a small, spine-covered, insect-eating mammal has to do with successful businesses.

Collins is referring here to the ancient Greek parable that says that "a fox knows many things, but the hedgehog knows one big thing." Fox-like human beings are classical multi-taskers, who are concerned with many things and operate at a variety of different levels simultaneously. We have all seen people who operate as foxes, and to some extent, this may be the emerging cultural norm of our society. My mental image of the fox is a young person who is doing their homework, while listening to music and talking on a cell phone, and simultaneously playing a computer game. Perhaps you have one or more of these foxes at home. Perhaps you are one of these foxes yourself.

The hedgehog, on the other hand, tends to view the world with singular focus, framing everything around a central organizing principle. The idea that the world can be reduced to simple rules may see counterintuitive, if not hopelessly naïve. The real power of the hedgehog personality is in its ability to see through the complexity of a problem and comprehend the simplicity of the underlying structure. It is exactly this ability which allowed good companies to find their way to greatness.

Collins conceptualizes this with three overlapping circles. One of the circles is defined by the question: "What can you be the best in the world at?" The second circle relates to: "What drives your economic engine?" And the third circle concerns: "What are you passionate about?" Let me say a few words about each of these questions. With regard to the first domain, I suspect that every organization represented in this room wants to be the best at something. The important point is that few businesses and few non-profits are truly focused on what they can be the best at, and by a process of elimination, what they cannot be best at. An organization that wants to go from good-to-great has to acknowledge that being good at something is simply not good enough. The good-to-great models are those that identified what they do better than anybody else.

The second circle relates to understanding the organization's economic engine. In the non-profit world, this circle may seem out of place, but it does have relevance. What Collins and his team learned is that performance can be driven to very high levels by choosing the right measure and pursuing it aggressively. For non-profit organizations, we can imagine that simple metrics, such as numbers of clients served or number of dollars raise, while easy to calculate, may not optimize an organization's performance. I cannot tell you what the right measures are for your particular organization, but I do believe that careful thought about those measures will serve you well.

The third circle is about understanding the passion of the organization. Collins says that the successful organization only does what it is passionate about. My guess is that this audience knows a lot about passion in relation to their work. Sometimes it may seem that passion is the only thing that gets you through the challenges that you face every day. Passion alone is not sufficient to achieve greatness, but it is part of the drive that is necessary to be the best at what you do.

The last element of Collins' model that I will mention here is discipline. We are not talking here about the culture that Pat Conroy described so brilliantly in his book The Lords of Discipline. Great non-profits do not need to be run like a military school. The type of discipline that Collins is referring to is not enforced upon the employees from above. Rather, the model that characterized the good-to-great companies was one in which there was considerable personal freedom and responsibility within the organizational structure and the discipline was self-imposed by employees who didn't require a lot of management.

Without question, I have not done Mr. Collins' book justice with this quick summary. There is no way to summarize their work in a few minutes that does not appear to reduce it to a cookbook approach: start with a pinch of leadership, add a dash of the right team, stir in the brutal facts, then spread over three circles encompassing what one can be best at, the economic engine, and the organization's passion, then heat with discipline and serve when ready. The truth of the matter is that even a more detailed treatment of Good to Great is likely to sound a little like a cookbook and maybe that is not a bad thing. We're all looking for the recipe for success and we want it to be a surefire success.

The sad fact of the matter, however, is that while many of our organizations aspire to greatness, very few succeed in achieving it, and most of us are willing to settle for doing a pretty decent job. This is human nature and it exists in the corporate world, as well as in the non-profit world. I do believe that non-profits are especially vulnerable to the "good is good enough" mentality. Since we exist for public benefit, any benefit at all is a success.

In South Carolina, a state whose motto might read: "We're average and that's an improvement," striving for excellence can be seen as an unwarranted departure from the divine plan. To have ambition is downright unseemly - the kind of thing that is celebrated in unmannered places like New York City. Here in the genteel South, we don't need ambition; we have history and culture to remind us of what greatness used to feel like.

For the five or six of you that I have not just offended, let me just say, that I love this state and its people. We are privileged to live in one of the most beautiful places in the world. South Carolinians are family-oriented and they care about their communities. They are a people of principle and values, and those of you gathered here today represent the best of who we are and what we aspire to be. May I have an amen chorus here, please?

For all that we love about our state, we see the opportunity to do more and to do it better. That is what gets me out of bed each morning, and I suspect that is what drives many of you as well. Each us sees a better South Carolina - a South Carolina in which each child, regardless of race, or geography, or economics, can develop their God-given talents to their full potential. We see a South Carolina in which education expands the minds of our children and empowers them to pursue their dreams. We see a South Carolina in which people live healthy lives, unfettered by illness, and sustained by accessible health care. We see a South Carolina in which our economy thrives on innovation, and competes not on the basis of low wages, but on the basis of creativity, ingenuity, and quality. We see a South Carolina in which our environment is sustained and protected, and in which our lives are enriched by the arts.

These are not unrealistic goals. These are achievable goals for a state with a history of overcoming obstacles. There is no challenge that cannot be overcome if we have the collective will to do so. You are the agents of that change. Our hopes, therefore, ride upon your shoulders. We look to you for inspiration and for leadership. We look to each of your organizations for greatness. May you meet with success in all of your endeavors.

Thank you very much.