Posts Tagged ‘Thomas McLaughlin’

On the cusp of major change for nonprofits

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Special thanks to Thomas A. McLaughlin for this article. McLaughlin is the founder of the nonprofit-oriented consulting firm McLaughlin & Associates. He is the author of Streetsmart Financial Basics for Nonprofit Managers, 4th Edition (Wiley).  His email address is tamclaughlin@comcast.net. This article first appeared in The Nonprofit Times.

Lately when we have been facilitating a group at a conference we have made a point of asking the following two seemingly unrelated questions:

How old are you?

At what age do you expect to retire?

Before we move on, answer the two questions above for yourself (in an actual session, responders are asked not to print their names).  Think about the answers your parents’ and your grandparents’ generations would have given to the questions.  If we were able to go back in time it would be a virtual certainty that your answers would look very different from those of your parents and grandparents had they grown up in the United States.

While we do not yet have enough responses to claim a statistically valid group, the outcomes to date are worth examining.  Here are the averages of the responses we’ve received:

How old are you? 56

At what age do you expect to retire? 70

If these results remain consistent, it confirms that we are nearing the cusp of a major change in nonprofit organizations (not to mention the rest of the economy).   playbuzzIt won’t be business as usual as we near 2030, which seems to be the projected ‘average’ retirement year of our current 56 year olds.

Because the numbers of Baby Boomers born each year began to drop significantly in the early 60’s, the Gen X and Millennial generations will not come close to the Baby Boomers’ higher birth rates.  Kelly White Donofrio LLP writed in her blog that, we are already hearing about an unusual level of shortages of management candidates, not to mention a shortage of qualified Gen Xer CEOs.  Even entry-level candidates seem scarcer now than ever before.

Nonprofit employee trends aren’t the only ones due for some changes. Nonprofit entities themselves are another area where long-time patterns seem to be changing.  The number of active nonprofit public charities steadily grew from the 80s until 2010, when the upward trajectory abruptly decreased to about 2003 levels.

The pattern is probably not arbitrary.  In all likelihood, the recession that began in 2008 right after the Wall Street crash of 2007 had a tempering effect on the numbers of new nonprofits each year.  Organization creators that had already finished the application process and turned in their request for IRS approval may well have lengthened their intense startup phase, while other potential post-recession applicants for nonprofit status may have deliberately slowed their process in order to begin providing services once the economic conditions improved.  The recession may also have caused some to give up altogether.  Fortunately the upward trend appears to have resumed, although perhaps with less velocity.

Putting the Baby Boom into context reveals some hard-to-see advantages.  The biggest one is that the Boomers were the healthiest generation to reach retirement age.  Most of the Boomers reached full employment age at just about the time that hard physical labor began to decline as a major part of most jobs.  As a result, the Baby Boomers were the first
generation that didn’t have to work largely in the factories.   By the time that the first Boomers were ready to find permanent work, the factories had already begun migrating overseas.

As a result, the Boomers were the first generation in history to be able to work in non-physically stressful environments.   Improvements in health care, communications, education, and widespread motorized travel all contributed to far less physical decline than at any time in the previous two hundred years.

Overall Impactresearchimpactnetwork

Nothing brings as much pressure on a nonprofit organization as the lack of staff.   At the moment we infer from economic reports – and the firsthand observations of CEO’s and others – that the Boomers’ exits are already being felt on both ends of the generational spectrum.   Naturally the first shortage is likely to be felt in the executive ranks as those individuals either reach their preferred retirement age, or move on, but there are also staff shortages in direct care.

Fortunately there are a few sources of labor (and optimism), many of which relate to immigration.  For example, the Pew Charitable Trusts report that the foreign-born U.S. population grew 109% between 1990 and 2012 (the overall impact of immigration varies significantly in different parts of the United States).   Moreover, the Pew Charitable Trusts quote Census Bureau projections that net international immigration will be the major driver behind US population growth between 2027 and 2038.

What Can be Done

If the shortage of available employees follows the predicted trend lines above, it could affect virtually all nonprofits in the country.  A major part of the pressure will come from the fact that the birthrates of bothdhmh-maryland-gov the latter part of the Gen Xers’ generation and all of the Millennials’ generation are half that of the Boomers’, so today’s status quo will eventually feel more like the status squeezed.

If we are right about our analysis, this situation will evolve relatively slowly over a period of time, which should make it easier to accommodate but harder to recognize.  Start your strategy planning now so that it fits the circumstances before you feel the squeeze.  Here are some suggestions:

Re-Work Your Staffing Patterns slantimage

If you are feeling the pressure at the bottom of your workforce as well as at the top, it’s time to re-think your staffing patterns.  While we have no way of proving this, it would not be a surprise if your underlying assumptions about direct care workers are still embedded in the 1980 to 2000 era.   And while you’re doing this, be sure to apply the same scrutiny to your assumptions about your senior-most executives.  Do you really need a CIO and his full staff now that you have that 24-hour technology company on call?

Re-Think Your Service Models seedshakers

If you don’t already know the year your nonprofit was founded, pull out your most recent IRS Form 990 and look exactly three inches below the word ‘income’ as in ‘Return of Organization Exempt  From Income Tax’.  You’ll find a box labeled ‘L’ and the words Year of Formation followed by the four digit year of your corporation’s founding.  If your organization was founded in the two or so decades since 1970 there is a chance that the organization is still at least partially grounded in that era.  That could mean that some of your service models are similarly aged.    

Consider a Merger

One way to accommodate the realities of the 21st century is to grow your scale.  The combination of declining birth rates (labor) and steady needs for service (aging clients with longer lifespans) will put pressure on many nonprofits.   Lately we have detected less instinctive opposition to mergers than had been true in the past, suggesting that this opposition might lessen.  The advantage of larger scale operations run correctly is that the resulting efficiencies – one ‘back room’, one Human Resources department, etc. – can strengthen the entire organization.

Today’s U.S. economy has never had aging baby boomers like we see today, nor a 50% drop in birthrates.   Navigating the next two or three decades will force many nonprofits to change their models and to try different approaches.   Being wanted will be just part of the terrain.

See book summaries related to this topic:

Nonprofit Mergers and Alliances by Thomas McLaughlin

Fundraising and the Next Generation: Tools for Engaging the Next Generation of Philanthropists

Working Across Generations: Defining the Future of Nonprofit Leadership

Cause for Change: The Why and How of Nonprofit Millennial Engagement

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Nonprofit technology doesn’t need to be a burden

There are co-ops for everything from farmers to food merchants, and many have existed for decades or longer.  So why not technology cooperatives for nonprofits ?

The simple response to this question is – there already are technology co-ops.  Sort of.  Large hospitals and universities have been quietly operating technology-oriented co-ops for decades.  Not far from where this is being penned there is a substantial cooperative whose members are nonprofits such as hospitals, universities, colleges, a health insurer and a private high school.  What they have in common is that all or a large percentage of each of their operations are within the area served by the co-operative.  This mutual proximity doubtlessly made it easier to initiate and cheaper to run the co-op, a lesson we should apply to other similar ventures.

The institutions that belong to the co-op are mostly large, highly sophisticated nonprofits.   In effect, they succeeded because they were adequately capitalized and served a ‘closed’ market.  No one needed to carry out an expensive advertising campaign because the members themselves decided to build a shared platform and created the co-operative as a way of accomplishing this.

But what about the vast majority of nonprofits, the ones whose smallest bank accounts don’t have six zeroes behind the first digit?  The story is very different for these groups, which are the majority of nonprofits in the country.   Yet their need for technology is proportionately the same and perhaps even greater.  There are three aspects of this riddle that need to be solved in order to improve technology use and access for nonprofits that otherwise wouldn’t be able to afford a complete program on their own.

Fixed costs

Fixed costs are one of the quietest of the Budget Devils.  Most costs rise or fall in some kind of coordination with the demand for a nonprofit’s service.  Direct staff, for example, usually increase if the need for the organization’s service grows.  These are called variable costs, because if one were to chart the arc of growth in the need for an entity’s services, the volume of direct staff hired would almost certainly vary according to the arc of the demand.

By contrast, in an ideal world the growth in the need for administrative services should not be comparable to the growth in service demand because administrative costs tend to be a ‘step function’.  This means that growth in administrative resources is likely to come in ‘spurts’ and frequently over time administrative staff can actually lower the overall administrative costs by creating efficiencies greater than the growth in demand.

At its economic simplest, technology is a fixed cost.  That computer server has the same price tag if it is going to be used 24 hours a day or just a portion of each day.  The upgrades to the wiring system to power the thing also had to be incurred even if it was just intended to be a backup system.  That finicky server needs just the right blend of temperature and humidity, which drives up the utility bills.  And the additional Computer Guy’s salary and benefits are inescapable.  Members of co-ops can better manage the costs by collaborating at the infrastructure level (servers, storage, etc.) or at the software level.  Or both.

Fixed costs abound in technology which is one of the reasons it is so hard for most nonprofits to develop a robust technology platform.  Large nonprofits such as universities and hospitals can absorb a substantial amount of these fixed costs before their budgets start to complain, but smaller nonprofits find it difficult if not impossible to take on such fixed costs.

Capital

Having the financial resources (or ‘capital’) is a second technology hurdle.  Economists refer to technology as a ‘capital-intensive’ operation, meaning that one has to buy a lot of assets such as computer equipment.  Here, capital means something akin to ‘reserves’, or cash that’s not needed for day to day operations.   The problem for nonprofits is that, unlike for-profit businesses, nonprofits can’t invite outsiders to invest in the operation in return for a share of ownership.  The only way a nonprofit can gain resources for capital acquisitions is through profitability or donations (development specialists: which ask would you rather make – requesting that a potential donor ‘buy a few computer servers’ or ‘invest in kids’?).

Productivity

The third need is to run a productive and economically feasible operation.  This is more difficult than one might imagine because staff productivity is not necessarily an automatic must-have unless a nonprofit operates in certain areas of health or human services.  Large for-profit companies, by contrast, often demand a certain number of ‘billable’ hours from each employee whether the company is a law firm, an internet cable company, or a medical laboratory.   No matter what the tax status, low productivity is a Budget Devil itself.

The Co-op Model

The obvious solution to this dilemma for most nonprofits is to buy as little as one can get away with, at as low a price as possible.  But this can lead to disastrous trade-offs in which an organization makes too many compromises.  The formula is to minimize variable costs while managing fixed costs as

tightly as possible, and this is where the co-op model comes in.  In effect, the co-op carries the fixed costs and the burden for falling short of revenue goals (as does any for-profit service provider).  They also assume responsibility for hitting productivity targets.

The co-op model can be viable in this setting because it is not like a drugstore, with items sitting patiently on the shelf, waiting to be scooped into shopping baskets.  Both parties must make a commitment to each other, and it almost certainly will take the form of a written contract.  The composition of their client base gives the co-op not only funds for operations but – if the market co-operates – some level of capital accumulation as well.

Perhaps surprisingly, there are already a number of cooperatives accepted by the IRS, such as co-operatives serving hospitals and educational organizations – and even farmers (who helped originate the model two centuries ago).  This may be good encouragement to begin a technology co-op in your area if there are no comparables in existence.  Perhaps more likely, a nonprofit is free to go out of the sector to find companies that provide these kinds of services.    Whether your information technology supplier is an actual co-op or a for-profit company offering professional services should be largely immaterial: good service is good service.  What is more pressing as a new client is what you will get for your money from FIfth Third card.  Note that if you and your peer organizations decide to form a co-op you should automatically have an advantage in the value-for-payment transaction.

The models we have sketched are most likely to succeed in an urban or suburban setting because it’s easier to achieve the desired productivity levels when your customers are located relatively near each other.  Sixty percent productivity for your field staff should be a good starting point, though it may be possible to push it higher.   More intriguing is that finding the capital may be easier than you think.  After years of promoting collaboration in general, some major foundations are beginning to experiment with funding certain aspects of collaborative processes.  Program Related Investments may be an option from savvy, well-established foundations.  L3C corporations were designed for social enterprise ventures, and they can be an invaluable structure on which to build a robust new service for the nonprofit field.  And the B Corp, or ‘Benefit Corporation’, offers traditional for-profit businesses an opportunity to convert to a different status as long as they can prove that they seek to create a ‘public benefit’ in tandem with private gain.  In fact, we know a for-profit entity that recently completed just such a switch.

With a little imagination, some energy, and some good financial strategic thinking, it should be possible to develop market-serving entities for information technology purposes and/or find existing suppliers that are effectively doing the same thing.  Good IT may be a cost but it doesn’t need to be a burden.

See relevant Page to Practice book summaries:

Managing Technology to Meet Your Mission: A Strategic Guide for Nonprofit Leaders

Zone of Insolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength

Zilch: The Power of Zero in Business

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CEO Survival: Thou shalt not get (too far) ahead of thy board

It’s the first commandment of nonprofit CEO survival: thou shalt not get ahead of thy board. At least, not too far . . . But you do need to be a little ahead of them . . . Just not so much that they notice and get offended.

If you’re confused, you’re not alone. Most veteran nonprofit CEOs have a sack full of stories about interactions with their board. One of the mistakes that is most frustrating — and potentially damaging — is getting too far ahead of a board of directors. The result is the collapse of a seemingly promising idea or policy change, and possibly a severe dent in the CEO’s credibility.

What follows are some thinking points to help negotiate this always treacherous interpersonal whitewater. The central premise of each approach is simple: Ideas and concepts are easily discussed and changed, and this is the proper role of leadership, including the board. Plans are also easily changed, but the effort that goes into them increases the commitment to their plans. Stick with ideas in the boardroom, plans outside of it.

Too far out on growth (Egos and economics)

Two of the most powerful motivators swirl around the intersection of the CEO and the board: ego and economics. By tax law, neither board members nor executives can have a private ownership stake in a nonprofit. But the executive (and other staff) have a potential economic interest, in the form of salary and benefits, financial stability, and improved systems. They also have an ego investment in the form of pride of performance. Together, these constitute a compelling package. This is one of the many reasons why executives will be more likely to propose growth strategies than will board members.

Board members can only invest their egos, so when presented with plans for growth their biggest ego investment can often be summed up in the question: “What if it fails?” This is one of the reasons why board members will be more likely to oppose growth than will executives.

To avoid getting too far out on growth, the CEO can frame the proposed expansion in terms of organizational ego. This approach might use arguments such as “this is an extension of what we already do well” and “if we don’t do this, [another organization] will, but we’re much better at it.”

Too creative (Divergent and convergent thinkers)

During the 1960s, a researcher named Joy Paul Guilford suggested that people think in two different ways — divergent or convergent. Divergent thinking is creative in nature, while convergent thinking seeks the “right answer.” Most individuals are instinctively comfortable with only one of these approaches.

Nonprofit CEOs, because of the nature of their pro- scribed roles, are more likely to engage in creative thinking. Boards are more likely to prefer discovering the “right answer.” This also tends to be true because the CEO is usually more knowledgeable about the field than the board as a whole, since board members are typically volunteers without extensive opportunities to learn about the sector. This tendency of boards to seek the “right answer” also explains why so many motions are passed unanimously.

The creative (divergent) CEO will sometimes have a difficult time with the board because of this difference in thinking styles. When the CEO is too creative for the board’s taste, outsiders such as authorities, respected peers, and consultants can often be a buffer. Note that the board doesn’t necessarily want to diminish the CEO’s creativity – which they probably respect. They want to find independent reassurance that they’re on the right path. Convergent thinking is often done in stages. We drill down to the first correct answer, then the next one, then the next. Bringing the board along might also need to happen in stages.

Acting before deliberation (Getting it done versus deliberating over it)

CEOs are in charge of getting stuff done. Boards are in charge of deliberating about stuff. The tension is obvious. Putting these two approaches carelessly together can result in wasted time, hurt feelings, and worse.

While taking action and deliberating policies are about as different a pair of activities as it is possible to have, a little role clarity will help things go more smoothly. Translation: with a little mutual candor, the CEO won’t always be trying to jump ahead while the board won’t always be trying to slow things down.

At the risk of oversimplification, boards make choices and executives make decisions. Individuals tend to be good at sizing up a situation, making a decision, and carrying it out. Groups, on the other hand, are simply better at refining and improving ideas, plans, and strategies. The CEO will not get dangerously in front of their board if they build in the opportunity for its members to sincerely try to improve the quality of the CEO’s decisions.

This is not second-guessing. It has been proven that groups  that  emphasize  collegial  conversation  and  can evaluate  themselves  honestly  make  better  decisions than  do  individuals.  The inevitable problem is process and time required to get there. Researchers have also shown that people tend to have an exaggerated sense of their own individual capabilities, which is why the CEO/board split can be particularly intense.

The ideal situation exists when an executive’s approach to an issue is vetted by the board in a supportive way. This fits the expected roles — the CEO by definition has to be the public face of the organization, while the board should concentrate on the quality of the outcome (the choices above).

Too risky (Lead with ideas, not plans)

It will come as no surprise to veterans of nonprofit board rooms that CEOs can get too far out in front of their boards on all matters involving risk. This is a structural inevitability — the CEO (as well as other executives) is almost required by the uniqueness of their position to be the designated risk-taker.

The real challenge from a risk management perspective is how quickly the CEO can bring the board around to their position. Considering the baked-in conservative nature of most nonprofit boards as described earlier, this could take some time.

One good way to gain board support for a strategic risk is, again, to lead with ideas, not plans. This is one of the reasons why good strategies, as opposed to strategic “plans,” are not filled with details such as assignments, dates, and activities. Most boards go through three stages of reaction when confronting new ideas for the first time: learning, analysis, and acceptance. Committing to details too soon disrupts this flow and can waste time.

Leading with ideas also makes it possible to work through various scenarios without committing resources. If the dialog is genuinely open it enables the board to safely explore the risks abstractly before encountering them in real time. Note that all parties must be sincere about this process. It can lead to long board meetings, but the offset is that board members will be more committed and will usually report greater satisfaction in their roles.

Another way to avoid getting too far out front is for the CEO to anticipate and cope with real risk as a regular practice. Dealing with a board’s fear of risk is a different problem. This should happen anyway, but doing it routinely helps the CEO establish their conservative bona fides.

The first commandment of CEO survival is to never to get too far out in front of the board of directors because they too have a responsibility to shape the future. But the CEO doesn’t want to be behind the board, because their job is to lead. It’s a structural dilemma, but most of the pathways to success are based on the second commandment of CEO survival: Lead with ideas, then talk about plans.

See also:

The Practitioner’s Guide to Governance as Leadership: Building High-Performing Nonprofit Boards

The Ultimate Board Member’s Book

Super Boards: How Inspired Governance Transforms Your Organization

Reprinted with permission by The Nonprofit Times and Thomas McLaughlin.

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Evaluate the true costs of a merger in three phases

“The benefits of mergers are what motivate organizations to consider this option, but the costs are not always clear at the outset,” explains Thomas McLaughlin, author of Nonprofit Mergers & Alliances and director of consulting services for the Nonprofit Finance Fund.

Unfortunately, many nonprofits struggle to overcome internal nuances that make organizations susceptible to external economic factors. That’s why mergers and alliances have become a popular alternative to consider for many stumbling nonprofits.

Three areas where you can scrutinize potential costs

McLaughlin cautions you to thoroughly evaluate the weighty task of mergers. Fortunately, unlike the corporate world, nonprofits can openly examine the pros and cons without the legal risks of leaking publicly-held company information.

He recommends analyzing the true costs of a nonprofit merger in three phases:

Feasibility determination

Implementation planning

Integration

Cost considerations in Phase One, Two and Three

In McLaughlin’s article, “The Cost of a Merger,” he explains anticipated expenses and typical areas of change in each of the three stages.

In Phase One, leaders learn as much as they can about the other organization—especially quantifiable considerations. Costs associated with this phase come from facilitation and research. Nonprofits that attempt to do this in-house or on their own risk spotty results. Outside help is advisable.

Costs during Phase Two are greater but manageable. This phase is still greatly dependent on staff and board time. At this point, consultants who facilitate and support the process are the largest expenditure.

Phase Three, or integration, represents the biggest expense area. You will find expenses and revenue dramatically change during this time.

McLaughlin identifies the most typical areas of the greatest financial change:

Common grants and federal funding (funders can unknowingly undercut mergers by combining two grants into one smaller one)

Government contracts (newly merged organizations may have to re-bid)

Employee compensation (mergers can prompt turnover in management)

Employee benefits (mergers can combine two benefit levels)

Occupancy costs (mergers generally reduce space and sell off surplus)

Information technology (opportunities exist to reduce costs here)

Contractual services (mergers present the chance to re-examine and/or reduce contracts).

Be sure to enlist expertise in forecasting thorough and expertly produced financial scenarios for potential mergers. Use the board and staff collectively to weigh in on all the monetary nuances. Make a commitment to understand every budget line and financial aspect of your own organization and your potential partner. Discuss with your partner how each of you envisions blending costs and efficiencies. Most importantly, consider worst and best case scenarios for integration.

As many reports and articles on this merger topic indicate, nonprofit alliances don’t generally produce immediate savings. Mergers generally cost more in the beginning but promise greater savings in the long run. Mergers are not for the faint of heart—though nonprofits willing to make the leap have far greater long-term potential than they do alone.

See also:

Nonprofit Mergers & Alliances

The Power of Collaborative Solutions

The Zone of Insolvency

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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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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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