The Third Sector in a Post-Pandemic World

The Third Sector in a Post-Pandemic World

We commonly talk about the public and private sectors, but there's another group that I want to discuss today: the third sector.?The third sector includes all the organizations focused on serving others: non-governmental organizations, nonprofits, charities, foundations, cooperatives, think tanks, etc. These organizations have unique goals and missions, ranging from cancer research to community improvement. However, they all face similar challenges thanks to their reliance on outside funding.?

With the onset of the pandemic, the third sector experienced a whirlwind of change. Now that we are entering a post-pandemic era, the third sector's outlook is again shifting. Join me in reviewing some of the challenges facing the third sector.

Surviving a Post-Pandemic Landscape

It's undeniable that the pandemic has touched every part of our lives. However, some industries felt the impact more than others, particularly the health and human services (HHS) organizations in the third sector. Now that the end of the pandemic?is in sight, the third sector is recovering from a significant increase in demand combined with limited funding, all while working to connect more with people in a digital format.?

Sustainable Growth

During the early months of the pandemic, there was an incredible surge in demand for the third sector, with?53% of nonprofits?reporting increased need. Some of that demand has now tapered off, so organizations are left trying to expand the scope of their missions and focus on sustainable growth.?

The?BDO's Nonprofit Standards?report on Health & Human Services (HHS) organizations shows that over 40% of these nonprofits are making changes to better meet community needs, and 28% are expanding. With these goals in mind, organizations are facing difficult decisions about eliminating services, adding new ones, and partnering with government agencies or other nonprofits.?What makes these decisions even more complex is the added economic difficulty.?

Financial Stability

While the third sector was handling an uptick in demand during the pandemic, the nonprofits had relative financial stability. Only 33% of US organizations had to reduce costs, likely because of the federal relief programs. However, that federal funding is now gone and as global inflation rates skyrocket, the third sector struggles to find financial stability while also pursuing sustainable growth. The?Charities Aid Foundation's 2022 report?highlights these concerns, stating that nonprofit leaders are most concerned about generating income (58%), meeting demand (30%), and dealing with less government funding (26%).

The BDO, however, reported that the HHS sector is taking diverse approaches to maintain funding, such as reaching out to new donors, offering new programs, and diversifying investment portfolios. Aside from these organizational tactics, nonprofits are also prioritizing their employees to boost retention rates and help staff survive the strain resulting from a higher cost of living.?

Over 90% of HHS nonprofits are increasing compensation to improve employee morale. While this limits their short-term spending budget, investing in staff ultimately saves them money in the long run. If their employees are happy in their position, the nonprofit doesn't need to worry about hiring and training expenditures, especially with a staff shortage.?

In other words, it's a worthy payoff for HHS nonprofits even amid global inflation, and I'd have to say I agree.

Rebuilding Trust

Unfortunately, the public's trust in nonprofits has declined over recent years, which consequently impacts funding.?In 2015,?The Chronicle of Philanthropy?published its survey results stating that over 80% of respondents thought that charities did good or very good work. Fast forward to 2022, and the numbers are dismal. A?Trust in Civil Society?report found that only 56% of Americans trust nonprofits, an almost 25% decrease from 2015. Most people also believe that donating directly to people—rather than through nonprofit organizations—has a stronger impact.?To increase support, the third sector needs to establish trust with increased transparency in aspects such as finances, donations, and ideology. One way of sharing that information and building trust with people is through technology.

Digital Transformation

The pandemic brought about a massive shift towards digital business. While some businesses have quickly adapted to this change, the third sector is still adjusting to the change—especially smaller charities. The?Charities Aid Foundation found that?only 64% of charities with income under ￡1 million invested in new technology, compared to 80% of large charities.?

On top of the slow transition to digital processes, some nonprofits are struggling to make online fundraising successful. Almost three-fourths of charities have moved to online giving, but only 24% have the marketing knowledge to oversee profitable online campaigns.?

Nonetheless, some nonprofits have tackled this digital transformation head-on and come out with incredible success. One impressive example is the?Cancer Council NSW in Australia. Just one month after the pandemic shut down local businesses, the Cancer Council launched its new fully digital platform that gave them complete data visibility. This transition not only increased work efficiency but helped the organization continue its annual fundraisers online with resounding success. Another impressive example is?Mission Australia, who implemented a digital platform to house all critical information and improve quality of care by streamlining operations.?

The Third Sector's Resilience

The Third Sector has played an important role in responding to the challenges posed by the COVID-19 pandemic. Organizations in this sector, such as charities, foundations, and social enterprises, have provided essential services to communities affected by the virus, including food assistance, healthcare, and shelter. Although the third sector is facing some significant challenges, I can't help but note its incredible resilience. Nonprofit organizations persevered throughout the pandemic while serving their constituents, and now they are looking to thrive in an unfamiliar economic landscape. I have no doubt that the third sector will yet again adapt and succeed.

Copyright ? 2023 Lance Kawaguchi. All Rights Reserved.