Nonprofit Industry Outlook: 3 Ways Organizations Are Improving How They Operate

In this article, we discuss:

• Modernizing Funds Management Is a Business Imperative
• Workforce Crisis Spurs an Employee Experience Rethink
• Nonprofits That Embrace Digital Transformation and AI Will Outperform

Doing more with less is practically the nonprofit motto. The sector has long been accustomed to meeting rising needs with constrained resources—an increasingly tough balancing act as demand for nonprofit services has grown.

Yet despite tight resources, nonprofits remain impressively “committed to service and stewardship,” said Sophie Sharp, senior vice president, global industries and value management, Workday, at last year’s Workday Rising. One thing that has changed? More and more nonprofits are dismissing the idea that they should put their resources solely into their missions, not their operations.

“There’s a myth in the nonprofit industry that you have to keep your overhead low. But if nonprofits invest in operations, they create a more efficient organization, and that efficiency drives the mission,” shared Ben Cahen, assistant vice president for financial management at the Brookings Institution, at Workday Rising last year.

The tide is definitely turning: digital transformation is the industry’s top priority in the next 12 months, according to nonprofit leaders surveyed by BDO. Almost three-fifths of nonprofits plan to select or implement a new enterprise resource planning (ERP) system in the next year, the survey finds.

As many nonprofits embrace digital transformation, and others weigh whether and when to join them, industry leaders and nonprofit experts offer their insights on what the sector’s future could hold—and how nonprofits can best prepare for it.

1. Modernizing Funds Management Is a Business Imperative

For many nonprofits, financial management equals administrative quicksand. Organizations face a quagmire of donations, earned revenue, restricted and unrestricted fund disbursement, and thorny compliance requirements for grants and funds. They’re also tasked with maintaining financial transparency with donors, regulators, and the public at the same time.

Organizations must not only show how they spend every grant dollar, but they must also accurately predict their revenue and expenses to demonstrate progress toward their mission. No surprise, then, that more accurate funds management is a top priority for nonprofits, a Workday-sponsored 2023 IDC survey found.

Yet too many nonprofits are still held back by legacy systems that make gathering and reporting financial information a major headache. IDC found that 44% of nonprofits need more than five days to finish monthly financial reports and 48% have to spend outsized effort to reconcile data issues.

On the flip side, 60% of nonprofits that have modernized their financial management have improved their decision-making, compliance, efficiency, and agility.

Greater efficiency and agility are precisely what Mission to the World (MTW) gained after adopting a cloud-based enterprise management system. MTW, an international nonprofit with 700 missionaries, slashed its financial close from 3 weeks to 5 days, and shrank the budgeting cycle from 6 months to 30 days.

Modernizing its platform also helped MTW identify trends in donations and investments, which allowed the organization to reduce the administrative fee charged to the missionaries. “That helps the missionaries spend more time on their ministries and increases confidence among the donors who fund them,” says Diana Mercado, director of finance, MTW.

2. Workforce Crisis Spurs an Employee Experience Rethink

Employee burnout impacts every industry, but it’s particularly worrisome for certain sectors. Count nonprofits among that group. More than half of nonprofits say burnout and stress are making it tough to attract and retain employees, a National Council of Nonprofits found.

Stretched-thin workforces (75% of nonprofits have job vacancies) paired with greater service demands (30% have longer wait-lists than pre-pandemic) are resulting in more burnout and more people leaving the industry, the National Council of Nonprofits reports.

None of that is news to nonprofit leaders. But they’re often hamstrung by budget constraints (66.3%) and the inability to offer competitive compensation (72.2%) to attract and retain workers. That’s why more nonprofits are getting creative in areas where they can go toe-to-toe with the competition.

One such area is flexibility. Not solely hybrid work, but also more perks and policies that appeal to a mission-driven, equity-focused workforce, such as quarterly retention bonuses, expanded parental and family care leave, and more transparent salary ranges and hiring decisions, according to the National Council of Nonprofits.

Nonprofits are also exploring how technology can make employees’ work lives easier and better support the organization’s mission. McKinsey finds that within the healthiest nonprofits, 91% of talent believe their organization is extremely effective at achieving its mission. When talent doesn’t believe this, they’re 10x as likely to start looking for the exit.

Since adopting a cloud-based enterprise management system, the Brookings Institution’s people now enjoy mobility upsides they didn’t have before. They can remotely manage their own benefits, paystubs, and time-off and access shared and unified data to write reports, without relying on external consultants. And they can do all that and more with a user-friendly dashboard on a single platform.

“We wanted to have a better, modern system that employees feel good about when they come to work every day, so they’re not bogged down by old systems and manual work,” Cahen said.

The data bears out that approach—a Salesforce survey found that digitally mature nonprofits are 3.5x more likely to have highly motivated employees and 1.3x less likely to report employee burnout.

3. Nonprofits that Embrace Digital Transformation and AI Will Outperform

Nonprofits aren’t just experiencing internal stressors—they're facing external pressures as well. Donor fatigue, donor engagement, and recurring giving rank as the top three fundraising challenges for the nonprofit sector, according to a OneCause survey. And 7 out of 10 nonprofits expect charitable giving to decrease or remain flat, the National Council of Nonprofits finds.

This helps explain why many nonprofits are seeking to diversify their revenue. One-fifth say this is their highest overall priority, and more than one-third say it’s in the top three, per BDO.

“Diversifying your revenue base is a critical imperative for the future,” said Amit Patel, managing director, nonprofits, Accenture, at last year’s Workday Rising.

Nonprofits are exploring new giving vehicles such as contactless giving, crowdfunding, virtual volunteering, and rounding up. They’re also testing out new partnerships, Patel noted, such as collaborations with gaming platforms to secure donations by selling different gaming experiences to users, such as clothing for avatars.

“But in order to do all of that, you have to have foundational technologies in place,” Patel said.

As a result, nonprofit leaders are sizing up the potential of AI and digital transformation to solve some of their biggest cost challenges. Here’s why: platforms equipped with AI allow nonprofits to quickly source insights from a deluge of valuable data to fine-tune their outreach—who to contact and where and how to contact them, and what messages will help drive donations.

AI and other digital tools can also help remove some of the administrative burden that historically has rested on a nonprofit’s people, freeing them to spend more time on meaningful and impactful work—essentially the reason many people go to work for nonprofits in the first place.

“One of my favorite terms is ‘co-botting.’ Basically, that’s about letting the technology do what it does best and then let humans do what humans do best,” said Beth Kanter, author of The Smart Nonprofit: Staying Human-Centered in an Automated World, during a Workday Podcast segment.

Fortunately, donors are increasingly on board with nonprofits spending their dollars on tech. “Donors aren’t seeing technology as merely an administrative cost burden, but as an enabler of our missions, so we’re seeing donors fund digital transformations,” Patel said.

To learn more about how Workday helps nonprofits drive digital transformation, visit our website.