Case Study 9/11 EffectCultural institution was involved in an

ambitious 3 part building expansion. Prior to 9/11 part 1 was underway, funds were

being raised for part 2 and architects started drawings for final phase

Local public TV station experiencing great praise from donors and viewersLeveraged success to move into several new

geographic markets.

9/11 Effect: Post AttacksRevenues and public perception

(legitimacy) dropped substantiallyBig % of revenues on balance sheet is

based on pledges not yet in the bank.

Cultural Institution had to suspend expansion and return banked funds.

TV station had to curtail growth and programming suffered. Unable to achieve promised goals.

9/11 Effect (cont.)“…a completely unimaginable blow from outside the organization at a time when it is made vulnerable by the effects of other choices and decisions.”

Environment shifts from certain and friendly to uncertain and hostile (turbulent).

Few if any stakeholders questioned expansion, but now legitimacy and capability to fulfill mission severely suffers.

9/11 Effect Lessons: Manage RiskRecognize growth is a risk

Do not over commit resources

REACT swiftly!

Consider absolute worst case scenarios in planning (proactive crisis management)

Have an exit strategy.

9/11 Effect: Final WordsRealize that the 9/11 effect demonstrates the nature of risk for HSO (and all nonprofits) has changed

The stakes are now higher demanding that managers manage risk and perform at a higher level

In sum, 9/11 raised the bar for leaders of HSOs Managers should be expected to plan for

9/11 type events

9/11 Effect Class Exercise: Hypothetical HSOYou are the Exec. Director of a small NYC

homeless shelter on Sep. 12, 2001.

Analyze the effects the terrorist attacks will have on your operating environment.Think like an economist: effects on demand,

supply, availability of resources.

Use systems theory model as framework for your analysis.

NYC Homeless ShelterDemand for services: increase, decrease,

stable?

Resource availability: more, less or same?

Competition for resources: Increase keep up with demand or decrease?

Supply of available services for homeless: enough to meet surge in demand?

Hypothetical: Systems ModelEffects on each element of the model

Inputs: raw materials; resources/energy to do business

Throughput: ability to provide service/care

Outputs: effect people’s lives

Feedback: How does environment effect ability to function; Increase or loss of Legitimacy?

Hypothetical: Systems ModelEffects on each element of the model

Inputs: raw materials; resources/energy to do business More need (people), more resources will be in the environment, but it

is likely the resources will not be as great as the surge in need

Throughput: ability to provide service/care Capacity will be stressed, internal process problems, give rise to

“subsurface” interpersonal stressors Motivation of providers may suffer

Outputs: effect people’s lives serving more people, but many not served

Feedback: How does environment effect ability to function; Increase or loss of Legitimacy? Risk of losing legitimacy because only big players (red cross) will be

viewed as capable of meeting the needs of the moment In short you are not in what others consider to be your “sweet spot”

Become less significant of a player

Hypothetical: DiscussionEvident that HSO will be overwhelmed

Resources able to keep up with demand for services?Probably not

Enigma: A huge uptick in need can decrease effectiveness, loss of legitimacy and consequently viability.

Exercise: Hypothetical Comparison with For Profit Organization (FPO )An FPO in a situation (a discovery of gold reserves) where

demand sky rockets is usually met with increase in resources.The FPO can increase prices and profitability

Worst case is insufficient capacity, however, will experience revenue growth.

The FPO is attractive for acquisition or investment

Short term is very lucrative…in the long term you will face increased competition, but still a boon for the health of the firm!

In contrast HSO when experiencing a sudden uptick in demand for services as in the post 9/11- survival is threatened.

In sum, similar situations very different outcomes for org.