Posts Tagged ‘Nonprofit Mergers & Alliances’

Is your nonprofit worth saving unconditionally?

 

I can only think of one time you promise for richer or poorer, in sickness and in health. And it’s never applied to a nonprofit organization, let alone a business. If your nonprofit has sickly or feeble programs and is in a poor financial state, is it worth saving unconditionally? Should nonprofits rise above our treatment of failing businesses simply because they have a worthy mission?

This week’s article by Raylene Decatur, called “Should we strive for sustainable organizations?” is a must read. She and I recently discussed the occasionally misguided goal of sustainability, and I’m delighted she put pen to paper for a larger discussion. Raylene addresses the issue we as nonprofit leaders continue to orbit but rarely touch. Decatur says,

“Rather than investing so much energy in discussing and developing sustainable nonprofits, we should instead have a more animated dialogue about the best way for nonprofits to go out of business. Why should there be an aura of perpetuity around nonprofit endeavors? In 2010, 824,920 nonprofit organizations filed reports with the Internal Revenue Service. What percentage of these organizations is making documentable progress on their missions? Some may have made a real and permanent difference, and their mission can now be retired. Why is it acceptable to open a restaurant that might fail, but not acknowledge that a new nonprofit may not succeed?”

I would suspect that you agree with this statement but are you willing to accept the reality? Perhaps the collective conscience of our nonprofit sector is already tracking this logic as we watch the stage of mergers grow to a cast of thousands. There are a lot of different reasons mergers and alliances have grown as a popular alternative.

Two in particular are the fall of the subprime market in 2008 and the explosion of nonprofits in the last 10 years. In fact, The End of Fundraising author, Jason Saul, claims there are approximately 1,000 nonprofits for every type of cause. These systemic events have exposed feeble nonprofits and prompted them to look at integrating service delivery or tapping into peer organization’s strengths, says Tom McLaughlin, author of Nonprofit Mergers & Alliances.

Perhaps mergers or alliances at their worst are the palatable alternative to failure in our sector. Furthermore, self preservation could be more insidious than we think because it’s veiled as doing the greater good.

In contrast, Tom McLaughlin says the best time to consider an alliance or a merger is before it’s necessary. For the healthy organizations truly investigating mergers for the exchange of mutually beneficial gains, I give you McLaughlin’s Life Cycles of Nonprofit Organizations. Examine the stages below to discover your readiness for collaboration:

Formless: In this stage, there are not enough comparable nonprofits to constitute a recognizable type. Different groups respond to similar social needs and economic realities in similar ways without necessarily understanding why or even communicating with each other. Affiliations of any kind are virtually out of the question.

Growing: There is at least a general recognition that the particular nonprofit service is needed but most energies are devoted to building capacity and solving operational problems.

Consolidating: At this stage, the general type of organization is recognized and accepted by society and the nonprofit sector itself. Some organizations take on a leadership role while others struggle to come into being in order to cover geographic gaps left by the early types. The groups create formal associations and other support entities, and a recognizable national identity begins to emerge.

Peaking: As a field and as individuals, these nonprofits enjoy newfound acceptance and growing influences. The pace of new entrants slows, but those already in existence experience previously unimagined success in areas such as operations, public relations, financial and political. Mergers occur for strategic purposes when strong players take over the few weak ones, which falter.

Maturing: Maturing nonprofits have long ago hit their peak and are beginning to lose some of the strategic momentum they had earlier. The services they offer are now being offered at least in part by others or are no longer perceived as necessary. No one can doubt their collective influence, but some are beginning to doubt their future.

Refocusing: Once past maturity, some nonprofits find they must reinvent themselves in order to survive. Some do; others fade gradually away or merge what is left of their services with compatible groups at an earlier stage of development.

Is your cause worth sustaining in perpetuity? If you say, “Sure it is,” I would add, “But to what end?” What measurable and incremental results are you accomplishing? Are your efforts truly addressing the upstream systemic causes? And finally, ask yourself if your nonprofit would be saved by a merger or would it be strengthened by a merger. The ideal union is when both parties share their compatible strengths. If your nonprofit is looking for a savior in its merger, perhaps you should call off the wedding.

See also:

Why Charities Should Have an Expiration Date

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Nonprofit Mergers & Alliances

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Mergers and alliances: Check your culture at the door

So often, you find yourself asking why things transpire they way they do in your organization and 9 times out of ten, you can point to culture. No, we’re not discussing pop culture or arts and culture. This culture is the underlying and invisible fabric of how your nonprofit behaves, what the underlying assumptions are and what the organization values. Thankfully, we all are given a free pass on striving for a perfect culture because the truth is, there is no perfect culture. With perfectionism out the way, we can go about factoring organizational culture into one of the more important roles it has to play, which is in an alliance or merger.

With our Page to Practice feature of The Nonprofit Organizational Culture Guide this summer, we learned about the importance of organizational culture and how pervasive it is with everything you do as a nonprofit leader—from hiring decisions and board training to marketing and strategic planning, organizational culture, as the authors Teegarden, Hinden and Sturm say, “reveals hidden truths that impact performance.”

That’s why it comes as no surprise that our currently featured author, Tom McLaughlin, spends some time in his book, Nonprofit Mergers & Alliances, on the importance of taking a “culture check” as one of the preliminary steps for considering collaboration. “Culture is stronger than strategy, so it is crucial to understand and be comfortable with a potential partner’s organizational culture,” says McLaughlin.

He further adds that since people take action and demonstrate behavior every day using underlying values, blended cultures translates into blended value systems that don’t always complement one another. In fact, 75 percent of hospital mergers fail if cultural issues are not taken into consideration, according to McLaughlin.

Ultimately, “one of the most reliable rules of thumb for post merger implementation is that the tighter culture always prevails,” says Tom, and the larger organization doesn’t automatically dominate, nor will the loudest or flashiest. So, how do we go about identifying one another’s culture before engaging formally in an alliance? McLaughlin has provided a list of good places to look for evidence of nonprofit culture that we reviewed at the beginning of the month:

  • Composition of board and management team
  • Degree of centralization versus decentralization
  • Demographics of clients
  • Demographics of staff
  • Financial investment policies
  • Financial performance
  • Geographic location
  • Management compensation policies
  • Marketing materials
  • Number and type of management meetings
  • Number of board meetings per year
  • Philosophy regarding staff turnover
  • Process for recruiting and selecting new board members
  • Requirements of major funding sources
  • Size of board
  • Size of management team (especially versus comparable nonprofits)
  • Unwritten/unspoken hiring preferences

Not every item on the list will yield insight and some will produce contradicting impressions. However, if taken together, these areas can help you create a composite of your potential partner’s culture.

See also:

Do More Than Give: The Six Practices of Donors Who Change the World

The Necessary Revolution: Working Together to Create a Sustainable World

Leveraging Good Will: Strengthening Nonprofits by Leveraging Businesses

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What’s in a name? Everything.

Having recently finished Tom McLaughlin’s terrific second edition of Nonprofit Mergers & Alliances, I find myself looking at collaborations with the benefit of his helpful lexicon. And now that I have an improved working knowledge of the many shapes, sizes and formalities in which collaboration can be formed, according to his C.O.R.E. model, I have a greater respect for the robust effort behind them. What’s more, this book gave me clarity on the existing partnerships I have. If you have ever considered a collaboration or are currently in one or more, I encourage you to read on. You’ll find it very interesting to see how your personal definitions are realigned by McLaughlin’s perspective. Before we take a look at McLaughlin’s mini-glossary, let’s take a brief look at his model.

The C.O.R.E. Continuum

According to McLaughlin, the C.O.R.E. model is based on the premise that different forms of collaboration affect different aspects of the nonprofit. The four aspects affected are: 1) Corporate, 2) Operations, 3) Responsibility, 4) Economics. By corporate, the author means the legal entity of the nonprofit corporation or the business structure that has an official purpose: board of directors, officers, bylaws, etc. Many collaborations affect the operations, or the heart of the nonprofit’s unique reason for being, often referred to as programming. Responsibility in this model means the backbone that makes the organization run or oversight of program activity such as paychecks, paying bills, etc. Lastly, economics can be affected by collaborations and can be as simple as bartering free office rent for services or as complicated as establishing a jointly owned company.

Applying the model is best explained by stacking the acronym vertically with “C” at the top and “E” at the bottom. This silo of letters, representing each affected aspect in collaboration, shows the earliest and easiest area of impact at the bottom (Economics) and highest, most powerful choice that takes the longest to achieve, a single entity in the marketplace (Corporate). Collaborations involving any or all three of the O, R and E levels are alliances. Those involving all four levels of the C.O.R.E.™ Continuum are mergers.

What each level of collaboration on the C.O.R.E.™ Continuum looks like

Economic-level collaboration is characterized by sharing information or bidding jointly, for example. Sharing information is quick, easy and inexpensive. However, disadvantages include: there are no guarantees of gain, there are no structured means of following up on any gains and any gains are hard to document. Responsibility-level collaboration means sharing management and administrative chores, and it requires standardization, replicability and scale. For example, United Way standardized and centralized their campaign pledge forms through a national electronic system. Another example is referred to as “circuit riders” or professionals who travel from one partner to the next, performing the same task for everyone, such as accounting. Operations-level collaboration is the level of integration that ultimately means the most for any merger or alliance of nonprofits because without success here, nothing else matters. This level of cooperation looks like shared training, joint programming and/or joint quality standards. McLaughlin notes that, “Good programmatic collaboration requires excellent planning, patience, and time.” Corporate-level mergers experience the most profound level of change. It carries the identity that our programs use in their interactions with the outside world. It is also the basis of accountability and the reconciler of conflicting demands on resources. And, it is the level at which partners will integrate at the structural, governance, and board levels, including ancillary boards and committees.

McLaughlin’s Mini-Glossary further illustrates the different points of collaboration along his continuum:

Affiliation. The lowest level of collaboration. Requires little more than meetings and good faith.

Alliance. Collaborations that entail change on any one or all three of the C.O.R.E. levels.

Collaboration. Our generic term for what happens any time two or more nonprofits work together in some formalized way.

Merger. A collaboration that entails change on all four C.O.R.E. levels.

Network. Another name for alliance, or a shortened reference to integrated service network.

Partnership. A legally binding agreement between two or more entities that is intended to produce economic benefit for both that is to be shared in some predetermined fashion. Partnerships can operate at any level of the C.O.R.E. continuum because they are simply legal vehicles for collaboration.

Email us at Mail@CausePlanet.org for a free article by author Thomas McLaughlin, “Management Company Model: It’s a Nonprofit Merger by Another Name”

For more information about Nonprofit Mergers & Alliances, visit Jossey-Bass Publishing or our Page to Practice book summary library.

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