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Financial Analysis of the American Red Cross
The Red Cross is a nonprofit humanitarian organization that operates in several different countries. The American Red Cross was founded by Clara Barton as an emergency response organization. The Red Cross is one of several worldwide organizations that seek to offer "neutral humanitarian care to the victims of war" (American Red Cross, 2011). In addition, it seeks to help people who have been harmed by natural disasters. The American Red Cross is involved in six primary areas of humanitarian aid: domestic disaster relief, community service for the needy, support for military members and their families, blood and blood product collection and distribution, health and safety educational programs, and international relief and development programs (American Red Cross, 2011). Critically, the American Red Cross is a volunteer organization. 700 locally supported chapters have been responsible for training more than 15 million people for disaster preparedness, and it maintains a crew of more than a half a million volunteers and 35,000 employees to help when disasters strike (American Red Cross, 2011).
The United States is one of the most giving countries, and nonprofit organizations do very well. "The U.S. nonprofit institutions industry includes more than 1.4 million organizations with combined annual revenue of more than $1 trillion… The industry is highly concentrated: nonprofits that make more than $100 million account for less than 1% of all firms but earn more than 60% of industry revenue" (Hoovers, 2011). In the United States, the American National Red Cross is the second-highest recipient of charitable giving, with 3,700,000,000 in receipts for 2010 (Hoovers, Inc.). Its closest U.S. competitors are Goodwill Industries International, Inc., and the Salvation Army. However, given that the three organizations have different foci, it may be inappropriate to call them competitors.
One would imagine that in an economic downturn, donation-driven nonprofits would experience a significant decline in receipts. However, U.S. corporate profits rose significantly in 2011, which suggests that corporate philanthropic giving will also rise. The demand for nonprofits is to provide social services that the government cannot provide. However, the unique challenge is that nonprofits are not funded by the same people who receive their services. Therefore, the financial challenge for the non-profit is convincing donors to spend their money on philanthropy, and then that those philanthropic contributions should go to the individual charity.
Vision and Mission Statement Analysis
The mission of the American Red Cross is as follows: "The American Red Cross, a humanitarian organization led by volunteers and guided by its Congressional Charter and the Fundamental Principles of the International Red Cross and Red Crescent Movement, will provide relief to victims of disaster and help people prevent, prepare for, and respond to emergencies" (American Red Cross, Mission Statement, 2011).
The American Red Cross engages in a wide variety of strategies to increase its recognition among donors, and also to increase its ability to respond to emergency or disaster scenarios for aid recipients. Its publicity efforts are significant. The American Red Cross has long used celebrities to raise awareness of the services that it provides and of its need for financial and blood donations. For example, it was involved with American Idol's Idol Gives Back charity drive, which helped raise money for a group of selected charities. Moreover, the American Red Cross's involvement in that campaign helped reassure potential donors that the funds they gave would be spent in a responsible manner. While the Red Cross does engage in advertising, it does so in a fiscally responsible manner. The ability to say that the vast majority of donated funds are being used to provide actual goods and services for people in need helps keep the American Red Cross one of America's most trusted charities. It also cross-promotes the idea of emergency preparedness. For example, its 1881 brand of apparel and accessories is designed for emergency preparedness, while promoting the Red Cross brand. This type of dual-purpose networking is an important part of the Red Cross strategy. For example, the Red Cross is a premier provider of CPR education and babysitter training, two ways that it gets its message across into the community. On their own, these services provide the type of emergency preparedness that the organization strives to provide to the community. In addition, by providing a good introduction to the Red Cross, the services give people a no-pressure introduction to the services and needs of the organization.
The primary strength of the American Red Cross may be its sterling reputation. The American Red Cross has provided quality disaster and emergency response to thousands of people, both in America and abroad, so that people know it will do what it promises to do. Because it has upheld the promises of its reputation, the American Red Cross has loyal customers and loyal donors. The result is that the American Red Cross can be considered a market share leader among non-profits and disaster-response organizations. The American Red Cross already has huge financial resources, which give it the ability to leverage assets, and also to quickly mobilize in case of disaster. For example, the American Red Cross was able to organize national blood donations in response to the 9-11 disaster. Finally, because the Red Cross focuses on several different aspects of emergency response, it maintains a presence in the community even when there are no ongoing disasters. The American Red Cross's emerging online presence is an additional strength. Potential donors can see what type of services their time or money can help provide, while potential users can determine if the Red Cross is the right organization to help fulfill their needs.
One of the problems with nonprofit organizations is that it can be difficult to project income, since income is dependent upon donations. That can make it almost impossible for non-profits to engage in long-term planning. It also means that funds are going to be limited; unlike a money-making corporation, it is almost impossible for the Red Cross to do anything on its own to increase donations. Like all non-profits, the organization is particularly vulnerable to financial fluctuations. The organization also has several features which would be weaknesses in a corporate setting. First, it may have problems with protecting its brand; the organization is run through local chapters, so that a corrupt person in a single chapter could damage the reputation in an entire area. The organization also lacks innovation; even its efforts at education and prevention are merely extensions of its original vision.
The elderly and their estates are one of the primary ways for any non-profit to generate revenue, and the aging population provides significant opportunities for the American Red Cross to be the recipient of planned giving. Because the Red Cross has not had any significant innovations in recent history, innovation also provides it with an opportunity for growth. For example, if the Red Cross could develop a way to purify and/or desalinate large amounts of water in a cost-effective manner, it could manage one of the more challenging aspects of disaster response. Offering more products and services might also provide an opportunity for the Red Cross. If its 1881 line is successful, it may choose to look at expansion of this service. The problem with that idea is that the primary strength of the Red Cross is its reputation and branding; any opportunity that might lead to a dilution of the strength of the brand must be carefully evaluated.
At first blush, the primary threat to the American Red Cross would appear to be other organizations that provide the same services. However, after looking at the field of competition, there simply are not a large number of organizations trying to fill the same niche as the American Red Cross. The threat then becomes the idea that donors will not continue to see the needs of American Red Cross clients as more important than those who receive aid from other organizations. One of the bigger threats to the American Red Cross, and to all national Red Cross or Red Crescent societies is the threat of external changes. For example, the American Red Cross has been ready and willing to provide aid for foreign natural disasters, but the ability to provide that aid can be tightly controlled by foreign governments. Likewise, even domestic government action and regulations can impact the group's efficacy.
There are two trends that are really impacting the American Red Cross at this point in time. The first trend is the increase in corporate profits, which has led to greater giving in the beginning of 2011. However, given the U.S.'s recent economic downgrade, it seems questionable whether this trend will continue. Therefore, examining economic changes seems like a critical component for Red Cross management. The second trend is the seeming increase in domestic and international natural disasters. The world seems to have been plagued by an unusual number of natural disasters in the past few years, with the U.S. experiencing record deaths…[continue]
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