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Thinking about sharing services? Don’t assume it will save you money!

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Editor's Note: 

This is the first article in a multi-part content series that explores the shifting landscape and the move towards greater collaboration and shared services in the nonprofit sector. The series continues with a follow up article entilted Evolve or Die: Why and how nonprofits are thinking differently about our organizations

Paid CharityVillage Members have access to a special report on the topic entilted Friendship, Courtship, Partnership: Why Canadian Nonprofits need to think about working together differently. In addition, Members will have the opportunity to take part in an interactive one-hour webinar with Patricia Evans and Barbara Grantham on Wednesday, September 19. 


For the nonprofit sector, the last decade has been characterized by changes and challenges: public-sector restructuring, shifting approaches to funding by government, more constrained resources – most notably a shift from core operational funding in favour of project contracts, increased calls for accountability, the rising presence of global philanthropy and the ease with which donors can support this, an aging population affecting staff, board and volunteer recruitment and retention, rapidly changing technology, and shifting employee expectations.

These and other factors have left many organizations looking for innovative ways to do more (or the same) with less. And as managers and governors look for innovations, many are pondering common questions:

Should we consider sharing services and/or joining forces with peers and partners who face similar issues? Can we work differently together and collaborate to use resources more efficiently?

Research indicates the answer is a cautious maybe. Initiatives such as shared services, group purchasing, pooled infrastructure and other partnerships may generate considerable value for participant organizations. A recent Canadian project adds to the research, indicating that these activities are generally not guaranteed – or even likely – to save the collaborators money.

In 2011, a study was commissioned by a group of Canadian nonprofit organizations with similar activities, values and missions. Working in a common geographic area, these organizations have a lot in common, while focusing on slightly different areas of service. Together they asked: Can we save money by joining forces? Can we do so without losing our respective individual organizational identities and mission foci?

These questions arise from multiple sources, including thoughtful donors and funders, creative nonprofit leaders, and board members with complementary perspectives. But after looking at the North American academic and grey literature on this topic, and speaking to a number of organizations with experience in joint ventures designed to save costs by sharing activities, the project found such efforts had typically achieved many benefits – but almost no cost savings.

There are a number of options to consider. Potential collaboration opportunities exist in event planning, finance and bookkeeping, grantwriting, human resources and payroll, information technology, marketing and communications, purchasing, audit, data management, security, telecommunications, web hosting, and office space/infrastructure.

Many ways to collaborate were identified too. The study looked at a range of options for joint activity, with varying degrees of complexity and risk:

  • Administrative Collaboration: least formal, low risk, lowest financial impact – for example, achieving economies of scale by collaborating for a one-time event or short-term project;
  • Administrative Consolidation/Alliance: more formal, typically longer term contractual provision of services by one partner to others to achieve savings by cutting costs – usually staff, as this is the single largest cost for nonprofit organizations;
  • External Service Provider(s): group purchasing to achieve economies of scale, volume discounts, quality improvements or other benefits that arise from contracting with a third party common provider;
  • Management Service Organization: cooperative investment in and/or commitment to purchasing through a specialized provider organization created by the partners to serve them, with the goal of decreasing costs and/or enhancing service delivery; and
  • Merger: most formal, highest complexity, potential impacts on mission and branding; offers the greatest opportunity for positive financial impact over the long term.

In general, the research found that the benefits of nonprofit partners working more closely together are seen to be:

  • Gaining access to expertise and talent that single organizations couldn’t afford on their own;
  • Increased revenue potential that results in greater net earnings for partners and their affiliated programs; and
  • Realignment of human resources from administration to core activities, resulting in improved quality of service to (in this case) donors and other key stakeholders.

Despite these gains, most partnership pioneers find that the experience does not save them money. In fact, particularly in the early stages, they experienced an added burden of time and cost associated with project management and due diligence.

Beliefs about potential savings are often based on the assumption that consolidating services to a shared provider can lead to payroll savings for collaborating organizations. This model is often based on thinking grounded in the well-resourced private sector, and assumes that multiple full FTEs are being employed in the area under consideration for collaboration. Ironically, it may be the frugal and lean nature of many nonprofits that gets in the way of saving money through collaboration. The bulk of operating costs for most nonprofits are related to people – salaries and benefits – but the staffing model can be much more complex than in larger organizations.

In small nonprofits it’s common for one staff member to fulfil a number of partial roles, such as the receptionist who also looks after accounts payable at times throughout her day when the phones and reception desk are quiet. If that a/p work is shifted to another service provider, time may be freed up for the receptionist to do other work, but it’s unlikely an entire FTE will be eliminated. Alternately, if the receptionist’s organization takes on additional a/p work for a partner, she may have more work than she can handle, and her ability to deliver quality service in either role may be compromised.

The other potential consideration for nonprofits is the potential damage to essential relationships that can follow personnel change. Delivery of human services and associated philanthropy are activities firmly founded in personal relationships, often stewarded over years. Shifting and re-establishing relationships has its own costs, some of which may be much more expensive and further reaching than any short-term cash savings.

A 2011 report from a US survey of partnership-based innovation across the community foundation field reached similar conclusions. The US review found that savings are unlikely to be achieved and, in contrast to the private sector, collaboration should not be pursued as a means to reduce overhead.

“The guiding principle for collaboration should be ‘more for the same’, not ‘the same for less’” said the authors. “Collaboration can make existing organizations more efficient and effective, and can deliver better programs and services that benefit clients, through shared resources. ...Collaboration should be seen as a means to improve effectiveness and efficiency starting, at a minimum, with existing resources. To be blunt, collaboration cannot be seen as a code word for ‘cost-cutting.’” The US report also notes that collaboration is more likely to add costs, since it requires appropriate expertise, structure and must be properly resourced, including the allocation of adequate staff time.

One key factor that appears to often be overlooked (or at least under-estimated) is the impact of inter-agency and interpersonal relationships. The more complex and concentrated the integration of activity, the more intense the quality of relationships required to successfully support integration. Communicating and cooperating informally are typically a lot less touchy for all concerned. And while informal cooperation still requires careful attention to partner needs, it offers many fewer opportunities for misunderstandings and serious issues arising compared to complex collaborations and consolidation of activity.

As part of the recent research project, conversations were conducted with a number of charities that have been down the partnership road in pursuit of savings or other benefits. These interviews provided a number of specific and instructive lessons:

  • Opportunities for cost savings may be minimal and in a few cases costs may increase, at least in the short term, in order to maintain service quality, depending on the organizational and business models in place.
  • Early anecdotal evidence points to opportunities for improved donor/stakeholder engagement and service. Properly managed, these opportunities can lead to increased revenue, as human resources can be redeployed to stewardship functions that bring in a greater return on investment.
  • The nonprofit sector struggles with back office services. Whether it’s gift processing and databases or web content, the technology tends to be limited by a small number of service providers with a very intensive (i.e., customer focused) business model that requires constant vigilance and support from a service perspective. Third parties are not always able to provide the level of service quality and personalization provided by existing staff.
  • Issues of organizational culture are seen as less of a challenge as compared to differences in organizational lifecycle, with more mature agencies having different expectations, needs and capacity compared to newer, smaller peers.
  • Crucial to partnership success is spending time doing due diligence and ensuring that there is a process in place for resolving issues and problems well before they arise.
  • Boards of directors, many comprised at least in part of people from the corporate sector, may be quicker to accept or adopt the new business model. It may be more challenging for staff to embrace a new way of working together. Those with collaboration experience counsel the need to be engaged with all staff in all the agencies involved, so that everyone understands how the collaboration will work and how it will impact (or not) what they do. Such efforts are key to ensure the greatest possible levels of team support early on.

Overall, experience indicates that there are potential benefits to be pursued, and exploring possible collaboration will likely lead to identification of ways to proceed on a shared basis that will improve service and/or provide access to new resources. So what is the advice for those who are thinking about pursuing these rewards by finding ways to work together differently? Look before you leap: spend time up-front clarifying expectations, assumptions and non-negotiables before committing to shared activities.

The voices of experience also suggest that, at some point, the quantitative number-crunching must take a back seat to the qualitative human-factors assessment of “whether or not we want this to happen and can make it work.” Assuming that careful due diligence indicates potential for success, in the end the outcomes of these new ways of working together will depend on developing relationships built on trust, commitment and strong leadership, and on the shared understanding that success will take time.

The overall and emerging consensus? To varying degrees, success will depend on changes in current practice and established ways of operating. That means letting go of comfortable habits, attending to the business of change management, putting solid processes in place to ensure success, and trusting that positive results will ensue.

Don’t expect significant financial benefits in the short term – odds are you’ll be disappointed. And finally, remember that strong positive returns are likely to be a long term outcome when they’re based on the partners taking shorter term steps. These will undoubtedly be steps that entail some risk but they’re essential to build confidence in the potential for shared success.

 

Companion Resource: Collaboration 101: An Annotated Bibliography (PDF)

Thinking about collaborating with other nonprofit organizations, and want to avoid “reinventing the wheel”? Here’s a selection of resources you may want to consult. They range from anecdotes to formal studies, all published before 2011. Most are from US sources, but the list reflects best efforts to find information from Canada.

 

Barbara Grantham has been the Principal of Barbara Grantham Consulting Services Inc. for the past several years. As of July 2012, she is joining the VGH/UBC Hospital Foundation in Vancouver as Senior Vice President, Strategic Initiatives and Philanthropy. In addition to her solo practice, from time to time Barbara has provided services in collaboration with Patricia Evans. Patricia is Principal Consultant with Patricia Evans & Associates Inc. in Vancouver, providing strategic planning and facilitation services to clients in the social profit and public sectors. To learn more about her work to enhance clients’ ability to achieve great things for their communities, connect with Pat on LinkedIn.

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