The Birth of a Fourth Sector

Abstract

Throughout the nation there is a growing movement of larger nonprofit organizations leveraging their high-performance and efficient back office and management services to assist the government, private business and nonprofit sectors. These management services first and foremost help ensure the proliferation of high performing, efficient and effective nonprofit organizations. At the same time, these business look-a-like functions help generate revenue for the organizations that provide them, revenue that is reinvested into the organization’s programs and services thus helping to support and expand their missions.

One factor that differentiates this group of nonprofit agencies from traditional nonprofits is a business model that blends both management services and direct services. These organizations have developed sophisticated financial, human resource, research and information technology capabilities that make them well-functioning organizations, attractive to funders, and that position them to also support other agencies. Taken as a whole this new group of business-function-oriented nonprofits is a virtual management services organization; we call it the Fourth Sector. This Fourth Sector is one that is capable of connecting, facilitating and supporting government, business and the nonprofit sectors through strategic and business management.

What we have termed the Fourth Sector usually consists of nonprofit organizations that generally offer direct services to the public but also have sophisticated financial, human resource, and information technology capabilities that allow them to offer management support to nonprofit, for-profit, and government programs and agencies at high quality and low cost. The roots of this type of management services organization are normally in the nonprofit sector (non-governmental organizations). However, the principles that guide them cut across business, nonprofit, and government organizations. These principles include:

• Relationships matter
• Vision and mission are important but also must sustain the goals of building business or attaining funding
• Money can be leveraged to build new businesses, programs and services
• Services can and should be connected
• Strong business infrastructure serves to improve performance in all sectors
• Continual organizational assessment and self correction is vital to success (and “dancing in the end zone” is not)
• Data, research and information technology can serve as the basis for service and program integration

Fourth Sector organizations are usually known as the “go to” organizations that get the work done in their geographies, fields or sectors. The missions of these agencies are deliberately broad, allowing the sector to be entrepreneurial and opportunistic. Some of the CEOs who run the Fourth Sector will argue that while a focused mission is nice, mission does not create money or equity, the supporting capital of the enterprise. Equity, however, creates the resources that drive practical responses to mission-driven need and supports entrepreneurial nonprofit management toward service expansion and delivery on mission.

The Fourth Sector has grown and prospered due to the will and vision of its practitioner style leadership to think and act more like business sector executives. As a result, the Fourth Sector acts like the business sector in many ways. It prides itself on following sound business practices, such as maintaining high return on investment and always generating excess revenue over expenses (nonprofit jargon for profit). It relies on managing quality programs and services. As with any business, it understands that only happy and satisfied customers return; in the nonprofit world, customers are the funders – government, corporation and private – that supply the revenue stream. Thus, the Fourth Sector has often invested in both evaluation and IT infrastructure to monitor the impact and outcomes of the programs and services it manages. The Fourth Sector also realizes that a highly-skilled workforce is key to a healthy community; many therefore offer a wide variety of educational and professional development opportunities to its own staff, as well as to other specialized professionals in its service region. Finally, communications both internally and externally play a significant role in the success of the Fourth Sector.

The Philadelphia region is home to several Fourth Sector organizations in addition to the organization discussed in the case-study below. Their business models vary, so we encourage readers to explore beyond the model discussed below to learn more about all the Fourth Sector organizations and how they can be a resource to the local nonprofit, foundation and government community.