In this article, William P. Ryan, a Cambridge-based consultant to foundations and nonprofit organizations, examines how nonprofits need to adapt to the new competitive environment. For most of this century, society's caring functions have been the work of government and charities. But social services in the United States are in a period of transition. Today the U.S. government no longer considers nonprofits to be entitled--or even best qualified--to provide social services. Profit-seeking companies like Lockheed Martin are now winning contracts for such services. The author describes how government outsourcing and a new business mind-set have changed the landscape of social services. The change raises fundamental questions about the mission and future of nonprofits. Ryan attributes the growth of for-profits in the social service industry to four factors: size, capital, mobility, and responsiveness. While those attributes give for-profits an advantage in acquiring new contracts, nonprofits have not yet lost their foothold. Ryan cites examples of organizations like the YWCA and Abraxas to demonstrate various ways that nonprofits are responding--from subcontracting to partnership to outright conversion to for-profit status. By playing in the new marketplace, nonprofits will be forced to reconfigure their operations and organizations in ways that could compromise their missions. Because nonprofits now find themselves sharing territory with for-profits, sometimes as collaborators and sometimes as competitors, the distinctions between these organizations will continue to blur. The point, Ryan argues, is not whether nonprofits can survive opposition from for-profits. Many have already adjusted to the new competitive environment. The real issue is whether nonprofits can adapt without compromising the qualities that distinguish them from for-profit organizations.

U.S. foundations and nonprofits work diligently on behalf of society's most needy and yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.