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Abstract - Nonprofit organizations (NPOs) are critical to the
quality of life in many communities not only due to the
valuable services and social impact they create, but also
because of the positive economic impact within local
communities. However, NPOs, just as for-profits, need to
innovate in response to changing customer demands and
lifestyles and to capitalize on opportunities offered by
technology and changing marketplaces, structures and
dynamics. Digitalization is essential to fuel NPO’s innovation
in order to be a differentiator in the highly competitive
environment. In this paper, we first develop a review to
identify the challenges of digital transformation and then we
examine some of the challenges that the nonprofit sector
faces in undertaking digital transformation initiatives.
Keywords – Digitalization, digital transformation,
nonprofit organizations
I. INTRODUCTION
Digital transformation as a radical rethinking of using
technology to change customer experience, operational
processes, and business models [1]. To fundamentally
impact different aspects of business and society, the new
technological and societal trends is unavoidable [2]. The
World Economic Forum estimates that digital
transformation across industries over the next 10 years
will create upwards of $100 trillion in newly created
values, new economic opportunity, and reduction of
negative market impact [3]. Non-profit sector is not an
exception. In fact, digital transformation is a strategic,
organization-wide approach that brings together people,
process, and technology to create social impact through
free-flowing insight that enables innovation [4].
Therefore, to compete and survive, NPOs also must
include appropriate digital transformation as a core
strategy. However, firms in various sectors face new
challenges when taking different initiatives into digital
transformation.
The challenges are not necessarily operational or
technological, but the cultural change required to derive
value from digitalization is also critical. Researchers have
shown a high interest in the drivers, challenges and
consequences of digital transformation in the
organizations due to the novelty and complexity of the
issue. However, the focus of most studies is on the
technological aspects of digital transformation. This
research-in-progress article considers different types of
challenges facing managers undertaking digital
transformation initiatives. Further, based on a survey
conducted in the non-profit sector, we examined the key
challenges and internal and external actors who influence
NPOs when it comes to changes generated by digital
technologies. II. LITERATURE STUDY
A. Digital transformation
Digital Transformation can be interpreted differently
in different companies and sectors because they have
different levels of digital maturity and different values,
stakeholders and visions. However, normally the theme is
applying technology to create better operations and
strategic business differentiation [5] or to radically
improve performance or reach of enterprises [1].
Therefore, digital transformation can be defined as a
radical rethinking of using technology to change strategy,
revenue streams, operations and business models leading
to significant impact for customers, partners, and
employees [6]. Digital transformation, apart from the type
of technology, involves changing three key areas of an
organization: customer experience, operational processes
and business models. Defining it as a specific project with
a beginning phase, an implementation phase, and a
maintenance phase can be very simplistic. It is a long-
term process of change [1].
B. Challenges of digital transformation
Companies in any sector face a range of challenges in
deploying and managing digital transformation. The
challenges can be organizational, strategic, cultural or
managerial.
The emergence of technical platforms and big data
analytics bring profound changes in organizational
structures, firms’ strategy and management processes and
require new frameworks to analyze and understand
complex patterns of competition and corporation [7].
Intermediating the role of technical platforms between a
set of complementary suppliers and a set of customers and
operations to translate the accessed, structured, analyzed
data into value creating services. Meanwhile, related
privacy issues require new internal organizational
structures and innovative types of management [8].
Digital transformation is associated with challenges
to develop viable business models and constantly
experiment and iterate the new business model ideas. The
managerial issue is which parts of the current business
model can be stabilized, if any, and which parts needed to
be kept agile and adaptable [1]. Moreover, companies
must find a scalable way to implement their digital
transformation strategies and ensure that they can
Challenges of Digital Transformation: The case of the Non-Profit Sector
S. Shafiee Nahrkhalaji1, S. Shafiee2, M. Shafiee3, L. Hvam4
1DTU Business, Technical University of Denmark, Lyngby, Denmark
2Department of Mechanical Engineering, Technical University of Denmark, Lyngby, Denmark
3E-Learning Center, Shahid Beheshti University, Tehran, Iran
4Department of Management Engineering, Technical University of Denmark, Lyngby, Denmark
(Shafieesaeedeh2010@gmail.com,sashaf@dtu.dk,mitrash76@gmail.com,lahv@dtu.dk)
transform their innovation into new revenue streams as
part of the business model.
The business model scalability enables the company
to find a way to go to market, create value for new
stakeholders and transform the value into real cash flows
based upon a new revenue model [8].
Companies need to shift from product to service-
based business models which means that uncertainties
will emerge, and complexities need to be acknowledged.
Furthermore, the value of the new digitally-based service
for a user may be more or less difficult to perceive and
evaluate when going through a digital transformation [8,
9]. Digitalization involve many knowledge areas, new
digital technologies and platforms, and actors from
several industries in new partnerships. Collaborations
across sectors and industries that occur in digital
transformation processes enable firms to accelerate
innovation and create more competitive market positions
[8]. However, these partnerships bring conflicts between
different actors with different business models. Some old
partners may even change to potential competitors [9].
The growing digital ecosystems are more user-
centric; thus, user experience and customer value receive
special attention, which challenges sales-based business
models. Changes in connectivity, advances in analytics
and artificial intelligence, and the growing profusion of
smart devices requires companies to have new digital
support systems and platforms in aggregated marketplaces
to analyze digital customer journeys and behaviors [8].
However, this can jeopardize customization of services as
too much emphasis on patterns and customer categories
and stereotypes leads to depersonalization [10].
Leadership capabilities are essential to achieving true
digital transformation and to turn digital investment into
digital advantage. Hiring new IT staff and new chief
digital officer is not a guarantee to success. Digital
transformation is a big challenge. It cannot happen
without the support from top managers and the CEO who
can foster a corporate culture that effectively drives
digital transformation. The responsibility of creating a
transformative vision of how the firm will be different in
the digital world, and then engaging employees to make
the vision a reality rest with the CEO [11].
Digital transformation is not only deploying a
sophisticated technology or an IT exercise but also a
people exercise [12]. Findings from the IT Sloan
Management Review and Deloitte studies on
digitalization reveal that that the biggest challenge
organizations are facing in accelerating transformation is
not necessarily around the new technology itself, but the
cultural change required to derive value from it.
Therefore, this highlights the role of humans,
organizational culture and the need for formal strategic
planning in successful digital transformation [13].
Further, another researcher [14] contends that a close
alignment between ‘fundamental changes in corporate
culture’ with the adoption of a ‘constellation of
technologies’ is essential.
C. Non-profit organizations
NPOs are critical to the quality of life in many
communities not only because of the valuable services
and social impact they provide to local citizens, but also
because of the positive economic impact within the local
communities. They are a steady source of employment
and provide employees with a source of income.
Therefore, just like for-profits, they can promote
economic growth. [15]. For-profits like any other
business, consume third-party goods and services in their
day-to-day operations. This generates revenue for the
companies that manufacture and distribute these goods
and services, thereby providing added economic
stimulation [4]. Hence, NOP’s critical role in building
civil society and strengthening the nexus between social
capital and economic development makes them vital to
economic well-being of any country.
NPOs are crucial to social accountability. They can
improve governance of public institutions and businesses
by focusing on transparency. NPOs are also seen as a
source of innovation in solving social problems with
much better performance than government, because of
their smaller scale and greater proximity to communities
that make them creative agents in finding solutions [15].
Non-profits do not sell anything per say, but they are
trying to sell their mission, their programs, and their
services to clients, donors, volunteers, and staff members.
A non-profit should differentiate their services from the
rest of the non-profit sector—with a competitive
advantage [4].
In addition to these characteristics, there are other
significant and consistent differences between nonprofits
and for-profits. In general, they are different in their
missions, target audiences, and problem-solving
strategies. However, more specifically, NPOs are different
regarding the primacy of nonfinancial outcomes, limited
availability of resources, their funding operations, their
organizational culture, lower compensation of staff and
managers, their leadership style and the absence of direct
incentives for increasing productivity [16].
NPOs are facing environmental pressures from
increasing numbers of agencies seeking support, raising
their funds, new trends in donation, and the presence of
for-profit organizations in human services [17]. Success
and survival demand that nonprofits operate more like
for-profit organizations, seeking competitive advantage
through innovation. Customer demands, marketplaces,
structures and dynamics change, and technology offers
new opportunities to capitalize on. In response to all these
changes, NPOs need to innovate that can mean many
different things. It can mean new ways of managing
organizations, new ways of rewarding people, new
opportunities of fundraising, and new communication
styles. It involves creating, developing and implementing
practical ideas that achieve a public benefit. These ideas
should be at least in part new (rather than improvements);
they have to be taken up and used (rather than simply
remaining ideas); and they have to be useful. to keep in
touch with the problem-relevant environment and can use
this information for refining and revising the chosen
solution path(s) [18].
III. DIGITAL TRANSFORMATION CHALLENGES IN
NONPROFT ORGANIZATIONS
Digitalization for NPOS means greater efficiency as it
makes work straightforward, communication simpler, and
collaboration seamless. Digitalization enables NPOs to
reduce labor costs by automating manual tasks,
personalize donation process, increase transparency and
trust digital, raise friends rather than funds, virtualize
paperless marketing and decentralize their services [19]
In addition to opportunities, digital transformation
brings challenges to these organizations. As any other
industry and sector, digitalization is not the only solution
to sustainable development of NPOs despite the
extraordinary power. Adopting a well thought out digital
strategy that connects people, processes, and technology
can accelerate the social impact and realize your mission
[4]. New customer interaction processes created by digital
transformation brings changes in business models. They
should be relationship-oriented rather than transaction-
oriented that requires the development of new sets of
capabilities such as marketing and sales incentives [8].
The digital journey and behavior of the customers
including beneficiaries, donors, volunteers, and members
and new digitalized interactions with them should be
analyzed. This requires the implementation of a wide
range of new digital marketing technologies, systems, and
solutions. These new marketing technologies can shape
newly emerging marketing platforms, thus, connecting the
digitalizing NPO with its digitalizing customers. The
challenges of this digitalization for marketing operations
in NPOs can be ‘the speed and pace of the responses to,
and reactions from, customer actions’. Continuous
interaction processes and deep and on - going insight into
customer journeys can significantly affect the marketing
planning processes. This, in turn, creates challenges for
the general strategies of NPOs [1, 8, 9].
In sum, digital transformation of NPOs increases
customer complexity and changes interaction with
customers. The process is also associated with changes in
the value offering as well. Moreover, new partnerships
need to be established and new infrastructures should be
created. Last but not least, dimensions of business models
need to be developed and implemented when it concerns
the financial and economic, which includes revenue as
well.
IV. RESEARCH DESIGN
With specific features of NPOs and generic
challenges of digital transformation in mind, this paper
delves deep into the challenges that NPOs encounter as
they navigate their own unique digital transformation
journeys and the influence of the key stakeholders on their
digital transformation.
We carried out a survey to ask the key decision
makers involved in digitalization projects and initiatives
in NPOs to rank ten key challenges their organizations
may encounter in undertaking digital transformation
initiatives. The rest of the survey contained questions
about the key stakeholders who influence on NPOs’
efforts to develop digital processes. The respondents had
to provide a value between 0 and 10 according to the
influence of each stakeholder. The questionnaire had a
reliability (Cronbachs alpha) of 0.83.
We sent surveys out by email during the winter of
2017-2018 to 89 potential respondents in 30 small and
midsized non-profit organizations in middle-east that have
been active in a wide range of social issues such as
children and women's rights, environment conservation,
animal welfare and health research. We received 68 (22
board members; 27 CEOs and 19 founders) completed
surveys from the organizations.
V. RESULTS AND DISCUSSIONS
We posed questions regarding the main challenges
of digital transformation that are discussed in the
literature. These challenges include availability of
resources, development of new capabilities and skills,
corporate culture, finding the right leadership,
engagement of employees, market uncertainties,
Fig. 1 Key challenges of digital transformation in NPOs
complexities of strategic and organizational challenges,
new competition and collaboration patterns, changing
current customer behavior and creating a vision. The
results are illustrated as a graph in Figure 1.
Development of new capabilities and skills is the
most significant challenge in digital transformation (37%
of respondents). This seems to indicate that in addition to
technological resources that are required to ensure a
digital transformation, there is also a significant need for
people with skills with different digital technologies. The
competition for capabilities and technological experience
with social and mobile technology, artificial intelligence,
big data analytics, internet of things, and more is expected
to increase.
The other big challenge is to grasp the complexities
of the strategic and organizational challenges that NPOs
face when taking the next steps into digitalization. The
findings also reveal that digital transformation entails not
only applying new technology but also changing the
organization’s structures, processes, culture and mindset
so that it is able to more nimbly adopt to changes in the
business environment. The respondents have a significant
awareness of the effect of expanding partnerships and
changes in customer segmentation, often resulting in
increased overlapping of networks and, consequently,
new patterns of cooperation and competition. They also
know that right leadership weave a new cultural signature
within the organization to envision and drive
transformation. Apparently, the customers in this sector
mainly beneficiaries, donors, volunteers, members show a
high willingness to digital solutions.
Without a strong willingness and commitment to
spend the time and effort on exploring digital
technology’s business implications, there is a risk that
technologies are being deployed in ways that do not create
strategic value [20].
The findings of the survey suggest that a key aspect
of committing to digitalization in NPOs might stem from
the ways in which external and internal parties influence
the shaping of a firm’s strategic agenda. Therefore, we
also explored what kind of internal and external
influencers affect NPOs’ digital transformation efforts in
middle-east. We asked our respondents about the relative
importance of various actors.
Table 1 displays that the most important influences
on NPOs’ digital transformation efforts come from the
board of directors, followed by CEO and middle
management. This highlights the importance of corporate
governance in setting not only the strategic agenda in
general, but also in articulating the role of digitalization in
the strategic development of the organization. Clearly, the
influence from the top including digital leadership of the
CEO can explain why the right leadership that can change
the vision and corporate culture is one of the key
challenges.
TABLE I
Digitalization Influencers in NPOs’ Digital Transformation Efforts
NI SI MI VI EI
Board of Directors and
Trustees 5.6 13.5 22.1 39.4 19.4
CEO 11.3 13.1 21 37 17.6
Middle management 10 9.8 31.2 33.9 15.1
Donors and volunteers 10.4 8.6 33.2 32.8 15
Media and public debate 9.3 15.6 26.8 33.7 14.6
Non-management
employees 10 29.5 28.1 21.6 10.8
Existing competitors 25.6 32.2 15.7 17.1 9.4
Consultants 36.9 30 11.4 13.4 8.3
Beneficiaries 35.2 12 10.4 17.5 7.4
Governmental institutions 37 28.9 22.3 7.9 3.9
NI: Not Important; SI: Slightly Important; MI: Moderately Important; VI: Ve ry
Important; EI: E xtremely Important
VI. CONCLUSION
There is an increasing call for digitalization in NPOs.
However, damage to corporate image, organizational
inertia, lack of resources and tech expertise and fear of
change are the main restraining forces which mostly come
from board members and top management.
This research-in-progress paper considers challenges
for managers pursuing digital transformation in NPOs.
Although most of studies focus on technology as part of a
digital transformation strategy, the organizations aspiring
to digital transformation maturity need to reinvent their
organizational business models, improve decision-
making, find the right leadership, deal with complexities
and uncertainties that new competition and collaboration
patterns impose and improve customer engagement. In
comparison, the main challenges that for-profits face in
taking digital transformation initiatives mostly concern
coping with user-centric systems, managing big data,
shifting from product to service-based business models
and translating digital solutions into scalable business
models to target larger market [20].
Our survey also shows that different internal and
external stakeholders have different level of influence on
digital transformation efforts in NPOs. CEO, the top
management team and middle managers are the most
influential actors who can push through the digital
transformation.
To begin a transformation journey, hence, managers
in NPOs need to move beyond focusing on technology
and devote time and effort to develop new leadership
skills and comprehensive digital technology capabilities
in the organization. Organizational considerations such as
strategy formulation, cultural change, and development of
technological and leadership capabilities are necessary in
this journey. Digital transformation can both solve
problems and create new challenges and the organizations
need to be aware of them. NPOs can create stronger long-
term social impact through achieving successful
digitalization leading to adopting more innovative
solutions and better customer experience.
The final step which is the ongoing process in our
research will be to create a conceptual framework to help
leaders in NPOs to understand and cope with the
challenges and opportunities that digital transformation
can bring to their enterprises.
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