The Nature, Determinants and Consequences of Management Outsourcing by Nonprofit Organizations

• In Event: 2.01 Nonprofit Research Concurrent Session: NPO Performance

Abstract

Using a sample of 1.39 million IRS 990 e-filings by 242,948 501(c)(3) nonprofits between 2009 and 2019, this study examines the nature, determinants, and outcomes of management-related outsourcing activities by nonprofit organizations. We first explore the prevalence of management outsourcing, finding that 13.9% of filings reported management-related outsourcing expenses, with those organizations outsourcing on average $728,381 each year in work to non-employees in management services. We next present evidence that the use of management outsourcing is most highly associated with younger, larger, less donor-driven organizations with lower complexity, more competition, and greater reliance on program service revenues as well as those organizations in the hospital, human services, and higher education industries. Lastly, we examine the effects of outsourcing on two key organizational outcomes: efficiency and capacity. We find the use of management outsourcing is, contrary to expectations, generally negatively associated with organizational efficiency ratios. There is also no overall effect for outsourcing on revenue growth, our proxy for organizational capacity, though organizations outsourcing a high proportion of management expenses do have lower revenue growth on average. Additional analyses further show that the outsourcing of management services has no apparent effect on donations and no aggregate relationship with CEO compensation, though proportionately “low” and “high” outsourcers experience different CEO pay outcomes.

Authors

• Gregory D. Saxton, York University

• Daniel Gordon Neely, University of Wisconsin-Milwaukee