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He found methods such as those described above to be insufficient and encouraged investigation of idiographic approaches to causation He asserted that "Change in organizations is a dynamic process that is not typically captured well by models that investigate the patterns of covariation of organizational characteristics in a population of organizations. Rather, methods that consider the roles that discrete events play in the unfolding of organizational life histories may be more useful in describing and understanding organizational change".

The method he describes involves the study of a "strategic narrative" using Heise's (1989) event structure analysis (ESA). This entails the development of a narrative using the skill of an interviewer and the judgment of the interviewee. ESA is then utilized to delineate the sequence of events that led to the outcome, and the causal relationships among those events.

Theoretically, this method might be honed to a point where it can help to identify organizations early in the process of their demise. However, it depends upon accurate memories, sound judgment, and forthrightness in those being interviewed. Similarly, the interviewing and documentation techniques would require a significant degree of consistency. While all of these things can be difficult to measure, and impossible to completely assure, this method appears to be a valuable adjunct to more traditional measurements of the correlation among variables. As such, this historical information could be valuable to decision makers for whom it is important to know when a nonprofit is in distress, and how to best intervene.

This writer considers three other factors, which were not specifically mentioned in the aforementioned studies, to be critical in the assessment of whether or not an organization will become distressed. These are:

1. The amount, quality, stability and political connectedness of competitors

2. The morale, ability, and stability of the organization's human resources.

3. Legal/Regulatory status

Competition has become very fierce (please see previous articles in this series). This results in a thinning of the herd. However, even if an organization is in financial distress, they might still survive if they are the only game in town. On the other hand, even a small amount of financial difficulty might cause political enemies and competitors to smell blood and go in for the kill if the organization has made significant enemies.

Human resource issues must be a consideration, but models reviewed during the research for this article have, at most, given this only passing mention. In fact, these can make or break an organization.

This writer has witnessed examples of organizations whose staff essentially enabled them to continue to function effectively when, by any other measure, they should have ceased to exist. In one instance, an organization's primary customer became unable to pay its bills. The nonprofit had virtually no liquid assets, and almost immediately became unable to meet its payroll expenses. Nonetheless, all of the staff members were fully dedicated to the organization, its leadership, its mission, and its clientele. The employees continued to work without pay for several weeks until the money owed to their organization was forthcoming.

Of course, the opposite has been true as well. When a significant number of staff members arrive at the conclusion that the leaders of the organization are not operating in the employees' or the client's best interests, services can deteriorate quickly. This has led to a landslide of other problems for some organizations. In some cases, it has been a key factor in the destruction of organizations.

Finally, poor legal or regulatory status can quickly cause the demise of any business. Many nonprofits operate in environments that are regulated very heavily. The loss of a license to do business will immediately interrupt services, severely impact financial health, and cause a loss of confidence in management. Legal issues can be just as damaging. An organization facing a major lawsuit might lose large sums of money in the verdict, or via a settlement. Even if the organization wins a lawsuit it can face daunting legal fees.

In assessing which organizations will continue to exist, and which will fold, the above-described methods should be applied to assess not only one's own organization but its competitors as well. This information together with indices geared to measure and predict the size of the market can provide sound bases for decision-making.

There is nothing that can completely substitute for doing research yourself of the sort described above. However, if one wishes to use a fairly quick and easy indicator as a warning bell, one is often available for larger organizations: bond ratings.

For instance, Standard & Poor's has its own formula for gauging the health of human service providers. According to a paper done by John Fargnoli and Martin D. Arrick the "Major factors in Standard & Poor's Rating Services review include:

Service essentiality;

Provider assessment;

Management quality;

Financial analysis;

Funding agency relationship; and

Pledged security and legal structure."4

Fargnoli, of course, does not give specific details of techniques utilized to judge each of these items. The weighting assigned to each item is absent as well. In addition, the frequency with which an organization is rated is not clear. However, he provides sufficient description to conclude that the basic logic behind the ratings is sound. If S&P drops the bond rating on your organization, it is not something to merely be explained away at a board meeting. It is useful information in forming an assessment of your organization. Continue to next page>>

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4 Primary credit: John Fargnoli; Secondary credit: Martin D. Arrick; Public Finance Criteria: Human Service Providers, Ratings Direct, Standard & Poor's, October 15, 2004