Multinational companies (MNCs) establish businesses in their home countries but expand into global markets to increase their customer base and sales revenues. Entering a new market can be lucrative due to the two benefits, but critical barriers also characterize it. Organizations must evaluate the barriers and key influential factors before entering foreign markets. Walmart is a global retail company with headquarters in the USA but eyes emerging markets to expand its business. Therefore, this discussion evaluates influential factors to its global strategy implementation, barriers to international strategy implementation, and recommends solutions to prevent Failure of global strategy implementation.
2. Background to Walmart
Walmart is a leading discount store company and a global leader in the retail industry, with headquarters in Bentonville, USA. Sam Walton founded the company in 1962 but established it in rural areas to protect it from competition from established market players such as Kmart and Sears (O’Sullivan, 2019, p. 14). Walmart developed retail designs like Sam’s Club and Walmart Supercenters to expand business in foreign markets such as the U.K., Mexico, and China. Sam Walton’s death in 1992 did not mark the company’s end since its sales doubled in 1995and it acquired Moosejaw and Jet.com (Sims, 2018, p. 11). Currently, the company employs over 2 million people and operates over 10,000 international stores in 27 countries. Its key competitors include Amazon, Target, Costco, and Kroger.
Walmart’s mission is “to save people money so they can live better” (Yiannas, 2018, p. 56). It indicates how the company executes competent business strategies to influence consumer decisions. It aims at improving customer lives and reducing their financial burdens by surpassing expectations. Its vision is “to be the destination for customers to save money, no matter how they want to shop” (Wiggington, 2018, p. 20). It aligns with the company’s key reason for becoming a leader in the global retail market. Also, Walmart’s core values include honesty, inclusivity, fairness, accountability, and high performance (Weinstein et al., 2021, p. 1). It shows how the company places high customer value in its operations.
Statista (2022a) shows that Walmart acquired nearly 98% of its e-commerce sales from India in 2021. Canada contributed to the highest percentage of e-commerce sales in North America, followed by USA and Mexico, with 11.5% and 3%, respectively. The figure below shows Walmart’s global e-commerce market share.
Source: Statista (2022a)
Fifteen key market players dominate the USA online retail. Amazon led the USA online retail with a market share of 37.8%, followed by Walmart, Apple Inc., and eBay with 6.3%, 3.9%, and 3.5%, respectively, as illustrated in the figure below.
Source: Statista (2022a)
Walmart has recorded a sustained annual revenue increase over the past decade. It recorded $572.75 billion in revenue in 2021, about a 7% increase from the previous year. It is among the leading global retail brands based on revenue. The figure below shows its annual revenues over the past decade.
Source: Statista (2022c)
This study uses Walmart to evaluate the implementation of global strategies in the retail industry. The company is suitable for this discussion since it is a market leader in the ecommerce industry and operates physical stores. It provides the best scenario for a typical MNC that integrates traditional and online retail.
3. Major Influential Factors in the Implementation of Global Strategies in Walmart
Strategy implementation is the action phase of the strategic management process. It is the most challenging and dynamic stage since its execution involves the managers and the workers. It unites the entire organization behind the strategy and all company divisions. Grant (1991, p. 117) denotes that organizations invest more time, resources, and effort in strategy formulation than in its implementation. Failure of strategy implementation is a major challenge to many international organizations. Alharthy et al. (2017, p. 37) indicate that most strategies fail at the implementation stage. They further indicate that neglecting factors associated with strategy implementation is the key cause of ineffectiveness and strategy failure. Factors that affect the implementation of global strategies include communication, organizational leadership, organizational structure, organizational culture, and resource allocation.
3.1 Strategy Communication
Strategy communication influences strategy implementation and organizational success since it opens the way for the management and employees to discuss the underlying issues. Alharthy et al. (2017, p. 38) denote that most organizations need to give strategy implementation similar attention to strategy formulation. They may have excellent strategies but fail due to poor implementation; Failure to implement strong strategies adds no value to the company. In this respect, an organization needs to communicate the strategy to the employees. Dzimbiri (2008, p. 33) argues that strategy communication clarifies employees’ roles primarily by outlining what individual workers and teams are supposed to achieve; it measures performance against their targets, provides performance-based feedback, and rewards them based on the outcome. Failure to convey project status and plan to all employees creates knowledge gaps, thus leading to strategy failure. Effective corporate communication allows businesses to succeed by building brand image, reputation, and identity. It also helps to punctuate the right message to internal and external stakeholders. Walmart’s corporate communication strategy is integrated with its mission and identity to serve customers and communities where it operates. Its corporate communication strategy aligns with customer satisfaction, internal communication, and organizational strategies. The company’s internal and external communication aims to improve customer value by providing high-quality services.
3.2 Organizational Leadership
Organizational leadership influences global strategy implementation since the leaders initiate the implementation process. Oke et al. (2009, p. 66) describe leadership strategy as the style, skill, and process demonstrated by a leader who wants to influence the followers to achieve organizational objectives. Correspondingly, Advani (2015, p. 15) claims that the management sector is dominated by two critical leadership styles: transformational and transactional. Managers’ unique attributes influence employees and contribute to high organizational efficiency in the dynamic business environment. Maak et al. (2016, p. 472) argue that leadership approaches strategy implementation range from autocratic leadership to participatory leadership, requiring the active participation of various stakeholders. A superior leadership style is essential in the dynamic business environment since it enhances organizational innovativeness and responsiveness to emergent issues. Walmart’s management invests heavily in its human capital to motivate the workers. The management increases wages and promotes the workers through training to sustain a low-cost strategy (Xie & Cooke, 2019, p. 532). Also, the management uses its cost strategy to lead the global retail market; it spends on brand promotion, marketing, and offering discounts.
3.3 Organizational Structure
Organizational structure influences strategy implementation since it affects overall organizational operations. The organizational structure involves categorizing jobs and tasks into divisions and implementing them to achieve organizational objectives (Meyer & Rowan, 1977, p. 349; Joseph & Gaba, 2020, p. 300; Martela, F., 2019, p. 7). The relationship between various departments and units affects the outcomes of strategy execution. The strategy should precede organizational structure to allow the workers to interact and perform their roles quickly and effectively. Improper organizational structure results in reduced performance due to slacked service delivery. Walmart’s organizational structure allows the management to assign specialized roles to subordinate workers, thus helping the company to make quick and effective decisions. It has also invested in infrastructure like departmental and distribution centres to support physical and online retail. The firm’s infrastructure facilitates a smooth and efficient supply chain.
3.4 Organizational Culture
Organizational culture influences global strategy implementation since it facilitates and accelerates change. Organizational culture refers to the procedures, values, and beliefs that govern employees’ actions. Sanad (2019, p. 4) acclaims that the combination of organizational culture characteristics determines human duty, capacity, and sensitivity to internal and external business environments. Organizational culture often allows transition to maintain stable behavioural patterns and relationships. Meng and Berger (2019, p. 68) recommend that organizations take care to determine the consistency of the connection between strategy and organizational culture when implementing a global strategy. In this regard, an organization cannot implement an incompatible strategy with the existing organizational culture. Walmart wants to be different from other global retail companies by controlling employee turnover rates. It focuses on improving working conditions through increments of wages and training. Overall, employee retention helps the company retain key talents and enhance its brand image and reputation in the global market.
3.5 Resource Allocation
Resource allocation is a key influencing factor for strategy implementation. Organizations need financial, human, physical, and technological resources to achieve successful goals. Espinosa et al. (2015, p. 206) identify scarcity of organizational resources as a major challenge during strategy implementation. The ability to develop and maintain creative teams is an essential part of strategy implementation. Therefore, sufficient allocation of organizational resources is a key driver to successful strategy implementation. Walmart allocates key resources to increase its competitive advantage. It applies modern technology in supply chain management to increase efficiency. Other technological inputs include creating advanced e-commerce sites and apps to improve operational efficiency. Also, the company uses its procurement department to retain strategic agreements and sustain its business strategy. Load-building operations such as ORTEC help the company to increase operational efficiency (DiEugenio, 2018, p. 11). Therefore, resource allocation determines the effectiveness of strategy implementation.
4. Barriers to Implement Global Strategies in Walmart
Organizations experience internal and external barriers when implementing global strategies.
4.1 Internal Barriers
Lilo and Andrew (2013, p. 9) argue that internal sources form critical barriers to strategy implementation, especially when the employees exhibit complacency and resist strategic changes introduced by the company. They maintain the status quo and resist unknown changes introduced in the company.
4.1.1 Systemic Barriers
Systemic barriers arise when the company needs to support new strategies indirectly, thus causing the process of strategy implementation to lag. These barriers include insufficient financial resources to support the strategy, time limitations, and rigid and bureaucratic organizational structure. Strategy implementation in Walmart requires well-trained and qualified employees. The need for qualified workers to train can be a barrier to strategy implementation. Also, introducing strategies by ‘unfriendly’ managers prompts the workers to oppose them by resisting strategy implementation. Such resistance leads to delays, destabilizes the organizational change process, and leads to additional costs.
4.1.2 Behavioral Barriers
Behavioural barriers such as intolerance, misunderstanding, self-interest, and mistrust delay or prevent strategy implementation. Lack of direction from Walmart managers causes the employees not to know organizational expectations. Zahra et al. (2009, p. 524) argue that motivation issues can force workers to uphold their interests at the company’s expense. Walmart focuses on ecommerce more than physical outlets, thus lowering the motivation of employees in the latter. These workers can boycott strategy implementation to air their grievances. Also, the workers can boycott strategy implementation after comparing Walmart’s strategies to its competitors. Organizational culture is another behavioural barrier to strategy implementation. Utilization of inappropriate systems during institutionalization, operationalization, and control bars strategy implementation. Walmart’s leaders exhibit high leadership qualities and commit to strategy implementation. They involve subordinate employees in decision-making and strategy implementation. Fernandez et al. (2019, p. 158) indicate that strategy implementation produces the desired results by involving all key stakeholders. Participation and intervention of Walmart’s top management promote greater commitment levels in the implementation of its vision and strategies. Zerfass et al. (2018, p. 494) argue that senior management plays significant roles in strategy formulation and implementation, while Hoxha et al. (2022, p. 142) claim that leadership styles and tactics help in overcoming barriers in the lower levels that obstruct strategy implementation. Strategic decisions formulated by the top management may only succeed if they inform non-management and lower-level managers.
4.1.3 Communication Barrier
Communication barrier hinders the strategy implementation of global companies. Walmart’s organizational culture emphasizes effective communication; it enhances clear communication of employees’ duties and responsibilities in strategy implementation. Fischer et al. (2020, p. 124) indicate that firms that involve all workers in decision-making realize high success in strategy implementation. However, Mutuku and Mathooko (2014, p. 134) denote that organizational structure causes communication-related issues, which bars the implementation of strategic activities. Walmart’s management and employees understand that shared communication among human resources is essential in strategy implementation. For instance, vertical communication enhances shared understanding of key strategies, leading to improvements. The company’s culture allows workers from different levels to communicate organizational and individual issues to team leaders, peers, management, and other relevant personnel.
4.2 External Environment Barriers
External environment barriers to strategy implementation include social, political, and technological barriers.
4.2.1 Social Barriers
Social barriers such as communication deter the effective implementation of organizational strategies. It is easier to share information or address organizational changes with effective communication. Walmart emphasizes democratic communication structures since the staff share information in a well-structured manner. Walmart’s management inculcates risk mitigation methods to enhance effective strategy implementation since poor organizational structures and lack of risk management deter successful implementation of strategies. On the other hand, cultural differences cause mixed reactions at work; some employees prefer autocratic culture, while others favour democratic culture (Ihm & Kim, 2021, p. 683). It increases the difficulties of determining which cultural structure to adapt in the company. Cross-cultural differences are difficult to solve, but Walmart adopts organizational culture that aligns with the general culture in the society where it operates.
4.2.2 Political Barriers
Political barriers such as political instability and power struggles affect strategy implementation adversely. The management shifts attention from the main objective to solving the emergent issues. Some managers in Walmart apply personal ideologies at the expense of the organizational culture. Ihm and Kim (2021, p. 684) regard this phenomenon as political interference since individuals impose personal will in independent organizations; such individualization makes it difficult to correct the leaders when they err.
4.2.3 Technological Barriers
Technological barriers such as technological advancement and obsolesce bar strategy implementation. Sometimes technology fails to give the expected results, thus lowering its effectiveness (Alawamleh et al., 2020, p. 17). Also, the company needs to be able to install advanced technologies to tap into new digital markets. Walmart moves with technological advancement, as indicated by its emphasis on e-commerce.
5. Suggestion on how Walmart can Prevent Failure to implement its Global
Most problems have solutions, and barriers to Walmart’s international strategy implementation have long-term solutions. This discussion suggests five strategies on how Walmart can prevent Failure to implement its global strategies.
5.1 Development of an Effective Communication Plan
Walmart should develop an asymmetric but effective communication strategy. This strategy will facilitate communication in a two-way approach where the managers, clients, employees, and shareholders present facts and ideologies for evaluation. Hu et al. (2021, p. 123) argue that an organization can recover from a crisis through team-building efforts. Also, the company should adopt a communication strategy that allows unrestricted communication that encourages communication between all levels of employees. It will facilitate problem identification and quick resolution.
5.2 Strategic Plans should Include Risk Management
Walmart’s strategic plan should include risk and crisis management plans to overcome the crises quickly and effectively. Shimizu and Hitt (2004, p. 48) acknowledge that companies should improve on their previous plans to prevent them from losing track of organizational activities and subsequent losses. Walmart can better achieve risk identification and management by involving all internal stakeholders in decision-making. It can achieve this premier goal by allowing all categories of workers to report organizational issues and suggest ideal solutions.
5.3 Setting Realistic Goals
Walmart needs to set realistic goals corresponding to its strategic plan to prevent it from interfering with resource allocation. It should also work on a realistic budget to avoid crises and conflicts. Ritchie (2004, p. 672) claims that catastrophes occur, and a company should develop a conclusive risk management plan to overcome future crises. Correspondingly, Coombs’s crisis management model states that firms should plan for crises to avoid negative publicity when the crisis occurs (Bundy et al., 2017, p. 1673). Therefore, Walmart should be prepared for all crises, including political issues.
5.4 Adherence to Core Principles
The managerial team should uphold the core values and principles since such disruptions amount to considerable losses. No one, including the top management, should defy company rules since the strategy aims to include all stakeholders’ views. In this regard, Walmart leaders must control the situation to ensure no one breaks organizational principles. Leigh (2009, p. 121) suggests that an organization needs to conduct a situation analysis to evaluate its strengths and weaknesses. It should maximize the strengths and overcome the weaknesses.
5.5 Maintaining Positive Government and Media Relations
Maintaining positive media and government relations enhances the success of international businesses. Lerbinger (2006, p. 113) indicates that government relations help create public goodwill and mutual agreements. Also, government relations help an organization maintain a political presence in a competitive market. It will help Walmart to overcome political barriers.
In summary, entering a new market can be lucrative due to the benefits, but critical barriers also characterize it. Walmart is a global retail company with headquarters in the USA but eyes emerging markets to expand its business. Influential factors for Walmart’s global strategy implementation include communication, organizational leadership, organizational structure, organizational culture, and resource allocation. On the other hand, barriers to strategy implementation include systemic, behavioural, communication, social, technological, and political barriers. This study recommends that Walmart develop an effective communication plan, including risk management in strategic plans, set realistic goals, adhere to core principles, and maintain positive government and media relations.
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Governance Failure In Satyam Case Study Essay Example
Circumstances under which Satyam fraud was exposed
The Maytas obtaining’s disappointment brought about the trick’s openness. Ramalinga Raju said that the exchange addressed his frantic endeavor to fix the monetary issues at Satyam. The individuals from his close family possessed Maytas. To fund the exchange, he planned to raise credit capital from the market. From that point forward, the assets would be utilized by Satyam through Maytas, and the obligation would be reimbursed over the long run. Thought processes behind the misrepresentation: Raju said that he arranged the misdirection to compensate for the low overall revenue and stay with the’s stock cost stable in the market to forestall any unfriendly takeover endeavors. He further declared that he didn’t get even a solitary rupee from the misrepresentation. An examination of Satyam’s opponent organizations, including Infosys, Wipro, and TCS, uncovered that they all had solid net revenues.
Furthermore, Satyam gloated that 165 Fortune 500 associations were among its clients. His support doesn’t seem OK in the specific circumstance. Since there could be no great reason, he benefitted from the deception immediately.
The reasons for the fraud
Ramalinga conceded that he cheated the framework to keep away from discovering the organization’s low overall revenues and keep up with the securities exchange costs of the organization’s shares. As per him, this was staying away from any hostile takeovers. Ramalinga further asserted that harvested procured nothing from the trick except that there is not an excellent reason for his good income from the organization and the high overall revenues of his friend organizations. As per Grover, different reasons incorporate, the corporate administration was frail; thus, it flopped in checking the organization activities, the free chiefs held questionable jobs since it is shocking that they never found about the trick lastly the disappointment of the relative multitude of levels of reviewing.
How was the fraud able to occur
The cheat was found in late 2008 when the Hyderabad property market imploded, leaving a path back to Satyam. The outrage was exposed in 2009 when administrator Byrraju Ramalinga Raju admitted that the organization’s records had been distorted.
Evaluate the corporate governance mechanisms adopted by Satyam
Only three months before the debate, Satyam had won the Golden Peacock Global Award for greatness in corporate administration introduced by the World Council for Corporate Governance in 2002 and 2008. They have gotten the IRGR’s top rating for corporate administration in 2006 and 2007. In consistence with IFRS, Satyam was the primary Indian partnership to distribute its examined results for the 2007-2008 financial years. Satyam was perceived as a Web Business 50/50 honor victor for their corporate intranet. For its extraordinary HRD endeavors, Satyam had likewise gotten a public HRD grant. Driving IT distribution Dataquest named Raju IT Man of the Year for 2000. Satyam’s status and notoriety among their clients, laborers, and society were reflected in these awards and respects, showing best practices for corporate administration. Furthermore, Satyam’s board included five free people.
Characteristics of the board of directors that may prevent financial fraud
The governing body should screen the moral arrangements and how they are being kept up within the organization. The directorate ought to be responsible for the economic data being anticipated. There ought to be no inert governing body. There should be a position to free leading the group of a chief. There likewise should be a reasonable comprehension of obligation between the top managerial staff and a higher degree of representatives. The governing body ought to be qualified in the position they are embraced.
Lessons about the audit learned
A notable example is that following evaluating strategies that depend on entirely honest intentions and trust instead of confirming the economic data revealed gives an opening to fraudsters. Interior controls are debilitated in situations where the trick source comes from the top. Hence, the obligation of consoling financial backers and investors is passed on to the outside reviewers assuming they perform their responsibilities persistently (Mukhlasin 2018). Free chiefs in the reviewing panels ought to guarantee the independence of inside evaluators to guarantee they don’t become familiar with deceitful bookkeeping rehearses because of comfortable associations with the administration. It is the obligation of evaluators to confirm the financial data revealed to guarantee they give a genuine picture.
Mechanisms to be adopted
The public authority should authorize organizations to lay out adequate inside control systems. Also, it ought to set stringent regulations and reinforce establishments liable for making moves against fraudsters (Hussain, 2021). The power and obligations of autonomous chiefs ought to be characterized. The Models for identifying fake exercises should be improved by incorporating the new bookkeeping advancements. An informant strategy ought to be created and carried out to build the capacities of chiefs to recognize misbehaviors of distortion of record reports. Outside examiners should keep up with their independence while leading inspecting obligations. The public authority should guarantee that reviewing organizations that conspire with fraudsters are immediately boycotted.
It is vital to note that the appropriate instruments were accessible, yet they are missing the mark on strength and ability to control the organization’s activities. The board chiefs and the executives ought to fortify and work on limiting the understudy reviewer’s capacities to screen and confirm account data. Board chiefs ought to make autonomous decisions and guarantee adherence to organization articles. Reviewers should constantly stick to great inspecting rehearses that expect them to analyze organization budget reports and bank articulations.
Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of business ethics, 149(2), 411-432.
Mishra, K., Azam, M. K., & Junare, S. O. (2021). The role of forensic audit in controlling financial statement fraud is a case study of Satyam computers. Psychology and Education Journal, 58(2), 4016-4025.
Mukhlasin, M. (2018). Auditor tenure and auditor industry specialization signal to detect of fraudulent financial reporting. Academy of Accounting and financial studies journal, 22(5), 1-10.
Government Funding Impact On Nonprofits Organizations Administrative Efficiency Free Writing Sample
The increasing dependence of local, state, and federal governments on service contracting has transformed the nature of governance and caused the progressive state to hollow out. The nonprofit sector landscape has also changed since nonprofit organizations have increasingly been tasked with conducting functions traditionally known for the public sector (Frumkin & Kim,2002). The government, over the years, has gradually shifted much of its duties to providing essential human services to nonprofit organizations since these entities have appeared to be more effective vehicles for public purpose fulfillment. Nonprofit organizations enjoy several perceived merits, including being more flexible, innovative, and responsive to the local community’s needs. Consequently, criticism of nonprofit organizations has developed to be a vital managerial option for government at every level, one that promises to uphold quality and minimize costs, hence meeting both taxpayers and service recipients (Frumkin & Kim,2002). Although some have disputed that nonprofit organizations are practical tools for public managers seeking to execute projects, the impact of government funding on nonprofit organizations’ operations has recently become controversial. The research has revealed perils and opportunities in nonprofit organizations increasing ties with the government. This report will examine the impact of government funding on nonprofit organizations’ administrative efficiency. Before exploring the main topic, this report will also provide the distinguishing features of governmental and nonprofit organizations from business organizations and identify the authoritative bodies tasked with setting financial and reporting standards for both government and nonprofit organizations.
Distinguishing features of governmental and nonprofit organizations
According to Reck, Lowensohn, and Neely (2019), governmental and nonprofit organizations vary differently from business organizations. To Understand how these entities vary from business entities, it is crucial to understand the unique financial and accounting reporting principles that have changed for governmental and nonprofit organizations. In Statement of Financial Accounting Concepts No.4, the FASB (Financial Accounting Standards Board) highlighted the following distinctive features for governmental and nonprofit entities from profit entities. First, receipts of greater resource quantity from resource providers who do not expect to be given either economic benefits or repayment equal to the resources provided. The second distinctive characteristic is that the functional purposes are rather than just providing services or goods at a profit (Reck, Lowensohn & Neely, 2019). Moreover, governmental and nonprofit organizations differ from profit organizations as they lack defined ownership interests that can be transferred, redeemed, or sold or even demonstrate entitlements to a residential distribution of resources shared in the incident of organization liquidation.
Additionally, the Governmental Accounting Standards Board (GABS) differentiates government organizations in America from nonprofits and business organizations by emphasizing that government exists in a setting that ultimately powers citizens’ hands. Electorates give that power to public officials via the election process. The power is shared amongst the legislative, judiciary, and executive government branches. Thus, the executive’s actions, including financial decisions, are restricted by legislative actions, and legislative, and executive actions are subjected to judicial review. Furthermore, the federal government usually imposes constraints on local and state governments. In the U.S, the higher government level dictates or promotes lower government level activities (Reck, Lowensohn & Neely, 2019). Also, higher government levels can partially or wholly fund the activities by a comprehensive system of intergovernmental subsidies and grants that needs lower levels to take accountability to organizations providing resources and citizenry.
Moreover, revenue generated from each government’s level is mainly raised from taxes. People who pay taxes are needed to provide resources to governments, although they frequently have limited choices regarding government services and the degree to which they obtain them (Reck, Lowensohn & Neely, 2019). In addition, the comparative absence of taxpayers’ choice has also been highlighted in GASB, which states that many governments do not operate in a competitive market, experience virtually no liquidation threats, and lack equity owners.
Authoritative bodies tasked with setting financial and reporting standards
According to the America Institute of Certified Public Accounts (AICPA) rule 203 of the Professional Conduct Code, the three authorized agencies that set financial and reporting standards included Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board(GASB), and Federal Accounting Standards Advisory Board (FASAB) (Reck, Lowensohn & Neely, 2019). These bodies establish generally accepted accounting principles (GAAP) for local and state governments, the federal government, and profit, nonprofit, and nongovernmental organizations. In accounting practice, the power to establish accounting principles implies the power to develop financial and accounting reporting standards. In addition, for publicly owned business organizations, the standards of FASB get officially acknowledged as authoritative by the SEC (Securities and Exchange Commission).
The power to establish reporting and accounting standards for nonprofit entities is divided between GASB and FASB since many nonprofit entities are governmental, such as government hospitals, public universities, and colleges. The FASB establishes reporting and accounting standards for nonprofit entities, which are governments’ independent Accounting (Samuel, Covaleski, & Dirsmith,2009). Governmental nonprofit entities, which include nonprofit organizations supported or funded by governments, must follow reporting and accounting standards formulated by the GASB.
Due to the strategy and absence of connections to any government or organization, the FASB and GASB are recognized as independent standards-setting boards within private industry. Before establishing the FASB and GASB bodies, reporting and accounting standards were formulated by groups backed by professional organizations. The groups affiliated with GASB included the National Committee on Municipal Accounting and National Council on Governmental Accounting (Samuel, Covaleski, & Dirsmith,2009). Other groups affiliated with FASB included the Committee on Accounting Procedure and the Accounting Principles Board.
Federal laws assign responsibility for developing and upholding a comprehensive financial structure for the federal government to the following officers: the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Comptroller General. These three officials founded FASAB in 1990, and it was tasked to set accounting standards and principles for the federal government together with its organizations. It is crucial to note that the financial and accounting standards at the federal level must be consistent with those set by GASB and are relevant to FASB (Reck, Lowensohn & Neely, 2019).
Government funding impact on nonprofit organizations efficiency
- The theoretical perspective of Nonprofit Organizations being funded by the government
Nonprofit organizations being financed by the government are not value-neutral. There is specific nonprofit organizations’ activity that public funds support while other are ignored. For instance, government tends to finance more in health care and human services, and public funds have become a vital source of nonprofit organization revenues in these fields. Contrary, public funding of advocacy and even arts organizations is relatively low. Government dependence on the nonprofit industry’s service delivery infrastructure is wildly variable and contingent on several factors, such as the perceived problem’s social urgency and market failures in the sector (Frumkin & Kim,2002). The study about funding levels given by the government to nonprofit organizations and their impact has generated divergent opinions. Some experts see the potential opportunities for nonprofit organizations, while others believe the act brings significant issues. It is crucial to explore these two competing perspectives to set up an empirical test of government funding’s impact on nonprofit organizations’ efficiency.
In rationalizing the impact, one must begin by situating the subject within the new institutional framework in organization analysis that provides a theoretical foundation for perceiving that government funding can lead to bureaucratic affinities in nonprofit organizations. With the stressing of satisfying behavior, legitimacy, symbols, and structural decoupling, the new institutionalism model denoted a significant departure from competing theories, including population ecology, resource dependency theory, and transactional costs economics (Frumkin & Kim,2002). These rival theories are formulated as more or less rationalizing models. Contrary, institutionalism theory views an organization as pursuing a practice that can have little to do with optimizing efficiency. The theory suggests that most organizations are not usually adopting structures, processes, and strategies that improve their performance; instead, they respond to and look for ways to manage pressures in reacting to external business factors (Frumkin & Kim,2002).
According to Frumkin and Kim (2002), institutional theory suggests that government action has always been perceived as integral in initiating other organizations’ structural change. Government actions, including inspection, regulation, licensing, and funding, are examples of levers that affect both profit and nonprofit organizations. In some situations, forced isomorphism becomes vital in the nonprofit organization’s evolution. When organizations are exposed to external force scrutiny, regulation, and evaluation, they are most likely to respond defensively and incline towards isomorphic change (Frumkin & Kim,2002). More pressure from the external environment forces organizations to change their internal practices to eliminate or diffuse this pressure. Organizations, for instance, are forced to comply with the laws and regulations set by the government to survive and minimize possible conflicts with the government. However, because organizational action is decoupled from purpose, the process can cause inefficiency (Frumkin & Kim,2002). The institutionalism theory foundation premise assists us in framing the issue discussed in this report. The theory emphasizes on unintended impact of government backing of nonprofit entities. Furthermore, institutionalism theory lays the foundation for several field research of nonprofit organizations assessing the public funding problem.
- The negative impact of government funding on nonprofit organizations’ efficiency
Frumkin and Kim (2002) confirmed that studies on the connection between nonprofit organizations and government reveals several effects hypothesized by institutional theory, specifically coercive and normative isomorphism. The involvement with financing from the government has caused significant external pressure on nonprofit organizations to professionalize their services and even introduce bureaucratization into their organization. Government organizations frequently include specific regulatory and evaluative bindings in their contracts to maintain uniformity in service delivery. These legal binding might include accounting and financial management requirements, minimum quality standards maintenance, essential project objective promotions, and strictly following national policy goals, including equal opportunity and environmental protection. To meet these complicated procedural and regulatory standards, nonprofit organizations must hire more experienced employees and fewer volunteers. Due to this, cases of public funding have mainly been used to facilitate professionalization, and bureaucratization of nonprofit entities has been on a rising trend (Anheier, Toepler & Wojciech, 1997). The urgency of increasing professionalism and bureaucracy can result from the client base widening. When nonprofit entities accept government funding, they frequently serve customers differently from those they were serving before. To deliver services to these customers, nonprofit organizations mainly increase their employees’ qualification requirements and back them sufficiently (Anheier, Toepler & Wojciech, 1997). The organization might be forced to increase the salary of their highly qualified employees, which might be costly because the government might not cater to wages.
Under government findings, costs incurred by nonprofit organizations might increase due to labor-intensive work linked with some public support. Accounting and reporting for public finances usually need a significant amount of effort and time aimed at compliance. It is unsurprising for larger nonprofit entities to have employees that do nothing except soliciting, managing, and reporting on the utilization of government grants and contracts (Lu & Zhao, 2019). Similarly, massive programmatic and fiscal accountability requirements can also impact management practices within nonprofit organizations. Better formalism in an organization’s internal processes is always required to acquire and maintain public contracts. Therefore, due to these demands, some managers from nonprofit organizations have perceived government funding negatively. These managers have rated government funding as less linked to mission, burdensome, and costlier to maintain than alternative funding sources like earned income, private contribution, and corporate grants (Lu & Zhao, 2019). Nonprofit entities’ ethnographies have revealed that employees complain that administrative or reporting protocols like government funding are always complicated, detailed, and tedious. With government funding, nonprofit organizations usually must provide monthly performance reports within tight schedules, but reports must be detailed enough and follow the recommended format. Meeting all these requirements might remove administrative employees from achieving the core organizational mission of delivering services to citizens.
Lu and Zhao (2019) also revealed that government funding could influence nonprofit organizations’ internal governance systems. When a nonprofit entity enters into a financing arrangement with the government, the increasing contract demands complexities can quickly start taking significant board efforts and time. Occasionally, these demands might force nonprofit organizations to change the initial composition of their board to improve the agency’s capacity to meet compliance requirements. These demands are usually met by increasing administrative expertise within a nonprofit organization’s staff and board (Lu & Zhao, 2019). Therefore, nonprofit organizations have always spent substantial resources at board and staff levels to understand complex public financing sources, ensuring continuous funding in the future, and maintaining present contracts.
When nonprofit organizations experience structural changes due to their connection with the government, conflicts within the entity’s culture might arise. Government funding can ignite tension between boards and staff management committees about responsibilities and roles (Frumkin & Kim, 2002). The antagonistic relations between two committees usually originates with compliance problem concerning government funding. The created management strain can be severe, including a reduction of commitments and motivation within the workforce. When a nonprofit organization is institutionalized and formalized due to its involvement with government funding, it is most likely for professional and voluntary staff to become less motivated.
Although government funding imposes administrative expenses on nonprofit entities, the government funding effects should be understood within a two-ways relation context. Usually, governmental and nonprofit organizations wholly or partially depend on each other regarding resource sharing. Despite this association, both entities experience some loss of autonomy due to the interdependent connections that dictate their fate. To maintain this connection, public sector organizations lack a considerable edge over nonprofit organizations, which develops a significant disparity in power, including the capacity to impose auditing and oversight demands. The government has long controlled accounting and reporting standards which have increased the burden on nonprofit entities without often giving effective oversight means for the government. Audit requirement is an example of the predominant accounting form used (Lee, Park, & Gong, 2022). Overall, nonprofits organization that relies heavily on government funding might suffer high administrative costs and incur more excellent managerial overhead rates than nonprofit entities that receive no or lesser government funding.
- The positive impact of government funding on nonprofit organizations’ efficiency
Not all government literature –on nonprofit organizations’ relations concludes that government funding weakens nonprofit organizations’ ability to operate efficiently. Some study has claimed that the flow of public funds to nonprofit entities enables nonprofit organizations to expand their operations and attain a greeters degree of operational efficiency and improved effectiveness. Some experts have stated that government funding creates a mutually beneficial partnership between government and nonprofit sectors in refuting concerns of public-nonprofit relations like loss of autonomy, increased bureaucracy, and mission distortions (Frumkin & Kim, 2002).
First, nonprofit organizations rely on the government to improve the efficiency and quality of their services. Government is in the capacity to produce a more reliable stream of resources that can be channeled to support nonprofit organizations in their service delivery. Resources are always limited, which makes most nonprofit organizations face a resource challenge, which limits their ability to operate and deliver services efficiently. With support from the government through funding, nonprofits are more likely to benefit as their primary challenge of reliable resource sources, including financial, would be solved (Frumkin & Kim, 2002). In turn, the government will also benefit from nonprofit organizations as the burden of delivering essential services would be relieved by the government. Therefore, the partnership forged between government and nonprofits organization is beneficial and satisfies both sides.
Also, there are more potential benefits in public-nonprofit relationships than the actual risk in the massive financing relationship linking nonprofit entities with the government. A contented connection between government and nonprofit entities sharing common cultures acknowledges their independence and worries about not disrupting a symbiotic relationship. Access to government contracting assists nonprofit organizations in building their legitimacy and attracting resources, political power, and management capacity. Public funding might allow nonprofit entities to provide more basic services to low-income households, proving nonprofit organizations’ status as crucial and responsive community members (Anheier, Toepler & Wojciech, 1997). Nonprofit organizations that do not get public funding usually tend to concentrate less on the needs of less fortunate people in the community due to the issue of generating financial resources to support such operations. Government funding to nonprofit entities compliments the sectors helping these organizations to broaden their service delivery to the public (Anheier, Toepler & Wojciech, 1997). The more government funding to nonprofit entities, the more nonprofit entities can increase their service delivery to meet the needs of the poor.
Also, organization efficiency is rarely disrupted by public entities’ accountability requirements. The study reveals that there is a reduced regulation level and greater mutual dependence on nonprofit organizations’ contract agreements with the government (Lu & Zhao, 2019). The accountability requirements also ensure that nonprofit organizations create a positive administrative formalization that can effectively meet the organizational core goals. Formalization is an aspect of bureaucratization that can generate better accountability and reliability results. Even though formalization might restrict adaptability and flexibility, practice formalism does not prevent nonprofit organizations from attaining their increased degree of operational efficiency either (Lu & Zhao, 2019). In addition, formalization can improve nonprofit entities’ capability to manage more significant changes in the business environment, effectively manage more extensive projects, and embrace innovations. These are crucial in helping nonprofit organizations attain greater administrative efficiency and even programmatic effectiveness.
It is impossible to dismiss these competing claims. Although contemporary literature has revealed real risks in nonprofit organizations’ dependency on government funding, it is crucial to acknowledge that earlier optional diagnoses of these complicated connections exist. There are real risks of increasing the flow of public funds to support nonprofit organizations; however, it would be impossible for nonprofits to attain their highest operation efficiency without government funding. Significant government funding into nonprofit entities to support the delivery of human services puts nonprofit agencies in a situation where they can manage their operations and management. Shifting from amateur care forms provided mainly by volunteers to professional care forms provided by highly trained specialists might improve nonprofit organization efficiency. It might also generate specific sensitivity and discipline concerning the appropriate usage of public funds that can enhance efficiency. Providing substantial public funding to nonprofit organizations can grow their organizational size extensively and even attain economies of scale that would have been impossible without public fund support (Lee, Park, & Gong, 2022).
In conclusion, even though governmental and nonprofit organizations differ from profit entities, the two entities depend on each other for better public service delivery and improved efficiency. Similarly, governmental and nonprofit entities differ in different ways, as illustrated in this report. Both entities’ financial and reporting standards are set and controlled by three central authorized bodies, including GASB, FASB, and FASAB. These authoritative bodies set GAAP for all levels of government, profit, and nonprofit organizations. Recently, there has been an increasing trend of government funding nonprofit entities to provide public services. Government financing of a nonprofit organization has become controversial, with some claiming that nonprofit organizations involved in government funding reduce their efficiency. At the same time, others feel the efficiency of nonprofit organizations has improved due to public funding. Loss of independence, disruption of core organizational missions, and increased bureaucracy has been the main arguments for the negative impact of government funding on nonprofit entities. Contrarily improved efficiency, increased range of services delivery, and attainment of economies of scale are possible benefits associated with public funding to nonprofit organizations.
Anheier, H. K., Toepler, S., & Wojciech Sokolowski, S. (1997). The implications of government funding for nonprofit organizations: three propositions. International Journal of Public Sector Management, 10(3), 190–213. https://doi.org/10.1108/09513559710166057
Frumkin, P., & Kim, M. T. (2002). The effect of government funding on nonprofit administrative efficiency: An empirical test. Institute for Government Innovation, John F. Kennedy School of Government, Harvard University.
Lee, J., Park, Y. J., & Gong, X. (2022). How Do Government Grants Affect Nonprofit Financial Effectiveness? The Mediation Role of Process Accountability. Administration & Society, 009539972211128. https://doi.org/10.1177/00953997221112824
Lu, J., & Zhao, J. (2019). Does Government Funding Make Nonprofits Administratively Inefficient? Revisiting the Link. Nonprofit and Voluntary Sector Quarterly, 48(6), 1143–1161. https://doi.org/10.1177/0899764019859435
Reck, J. L., Lowensohn, S. L., & Neely, D. G. (2019). I am accounting for governmental & nonprofit entities. Mcgraw-Hill Education.
Samuel, S., Covaleski, M. A., & Dirsmith, M. W. (2009). Accounting in and for U.S. Governments and Nonprofit Organizations: a Review of Research and a Call to Further Inquiry. Handbooks of management accounting research, 3, 1299-1322.