A partnership contiuum: from simple alliances to complex mergers, partnerships can promote organizational effectiveness.

THE COUNTRY'S ECONOMIC RECESSION HAS HIT THE NONPROFIT SECTOR hard. Across the board, funding sources are on the decline. For associations that depend largely on memebership fees, the economic downturn may pose a particular tough threar ro financial stability. Combine this with the explosion in the number of associations in recent years--estimated at as many as 1,000 new associations per year--and the result a highly competitive environment where survival may depend on being open to different ways of operating. One strategy that nonprofits are increasingly considering is partnership.

Clearly, collaboration an dpartnership have been a part of non-profit culture. However, a more recent phenomenon is the increasing openness of nonprofits to partnerships that go beyond conferences, joint programming, or shared administrative services. Associations inreasingly are undertaking partnerships that involve more formal and long-term integration of operations and corporate structure, such as joint ventures and mergers. We use the term strategic restructuring to refer to these types of partnership.

This increased activity, which we have studied during the past several years, has been driven more by the potencial for increases organizational effectiveness than by economic crisis. However, in the past year, we have seen an upsurge in the number of nonprofit organizations turning to partnerships as a means of addresing serious economic threats.

In this article, we discuss the potential of these partnerships to help associations survive--and even become more effective--in tough times and provide helpful tips to those interested in exploring these options.

Goals, benefits, and outcomes

First, it is important to set realistic expectations for potential joint activities. Often organizations turn to strategic restructuring as a way to save money in times of financial hardship. While such plans frequently yield savings in reduced staff and administrative costs, organizations with the primary goal of saving money may be disappointed. A more realistic goal of strategic restructuring is to achieve greater organizational effectiveness and an increased ability to advance the mission.

While some organizations experience less-than-ideal results and others negotiate at length before halting the process, the potential benefits of strategic restructuring are numerous, including a greater ability to pursue mission, increased stability, reduced duplication, and less competition. These can translate into measurable, positive outcomes, such as increases in services, administrative capacity, and market share. When the necessary readiness and success factors are in evidence and a sound process is used, out comes such as these are more likely to be realized.

For associations, the primary result of the improved ability to serve members may be achieved by offering valueadded benefits, such as increased networking and enhanced seminar, conference, and trade show opportunities. For the San Francisco Chapter of the International Association of Business Communicators (SF/IABC), the partnering experience was as simple as agreeing with the Printing Industries of Northern California, San Francisco, on cross marketing of and mutual participation in member programming. Benefits for PINC's membership of 1,000 printers and 300 designers, print buyers, and marketing communication professionals include access to a range of classes and seminars offered through the Graphic Arts Institute, San Francisco. To expand the reach of its programs, PINC looked to the more than 250 communication professionals who are members of SF/IABC. Through the partnership agreement, the two organizations market meetings, classes, and seminars to their respective members at discounted rates and link to each other's Web sites. Diane Fraser, board president of the all-volunteerrun SF/IABC at the time the partnership developed in 2002, says, "PINC offers classes that we don't but that are useful to our members. In addition, the partnership has been good for marketing. For example, PINC let us have a booth at its annual trade show. We met potential members, and it was great for networking."

Costs and risks

Costs associated with joint activities vary by each of the three phases of the process: prencgotiations or readiness assessment, negotiations, and integration. The costs also vary by type of partnership and are typically higher for those involving corporate integration, such as mergers. Readiness assessments take many forms, are generally less structured than the other phases, and do not involve significant costs. The negotiation process almost always involves costs, including the diversion of staff and board member time from other functions. It may also entail travel and meeting expenses, attorney fees, and facilitator costs. Cost savings may result if and when the organizations are integrated, hut these most be balanced against the costs of the integration process itself. The latter may include marketing costs, such as rebranding and creating new materials, moving expenses, severance, and costs related to integrating programs and services.

For CoreNet Global, Atlanta, the organization resulting from the 2002 merger of the International Association of Real Estate Executives and the International Development Research Council, merger costs have been offset by significant reductions in administrative expenses. The two separate organizations had a combined staff of 66 people; the new entity employs 41 people. These cost savings have helped the new group redirect resources to support member benefits, including improved educational services, a new research program, and a new Web site with e-commerce capabilities. Additionally, a plan is in the works for a new information technology system. According to CoreNet President and CEO Peggy Binzel, the "two separate organizations could never have afforded the new Web site...or the new IT system that we have planned."

Strategic restructuring is not right for every organization or situation. Risks may arise for organizations that truly are not ready to engage in the negotiation process. Moreover, those that do not have the necessary structure and processes in place to undertake integration are less likely to achieve the outcomes they desire. A strategic restructuring effort that is undertaken for the wrong reasons or that is poorly designed and executed can have devastating outcomes, including negative publicity, lost time and money, and damaged relationships.

Partnership options

The partnership matrix (see Figure 1), which resulted from our study of nearly 200 partnerships, depicts the continuum of possible options for organizational involvement. From left to right, the horizontal axis represents a continuum ranging from greater autonomy to greater integration. The vertical axis represents the degree to which a partnership focuses on programmatic services (the organization's direct services), administration (office and management functions that support operations), or both.

[FIGURE 1 OMITTED]

Within the matrix are examples of structures that may result when moving from greater to lesser autonomy and from program-based to administrationbased activities. The points in the matrix will dictate some of the elements of the various interactions.

As shown on the left side of the matrix, collaboration allows for the greatest autonomy. It tends to be short term or sporadic in nature and typically is only bound by verbal agreements. The informal agreement by the printing industries and business communicators represents this type of arrangement. No permanent organizational commitment has been made, decision-making power remains with the individual organizations, and no change to corporate control or structure is necessary.

The partnership options that fall in the middle and right portions of the matrix full under the umbrella of strategic restructuring. These include strategic alliances and corporate integrations. These partnerships are more formal and long term and typically involve written agreements. Figure 2 describes these options in detail. In corporate integration, as the name implies, changes to corporate control or structure occur, including creation or dissolution of one or more participating organizations. In most cases, strategic restructuring evolves through a series of steps similar to the ones that follow.

[FIGURE 2 OMITTED]

Evaluation criteria

Before you enter into negotiations, it is important to determine whether strategic restructuring is best for your organization, and if so, which of the many options best suits your needs. You also need to decide with which organization you would like to partner. For Southwest Drycleaners Association, San Antonio--the result of a merger of three multistate affiliates of the Internationa, Fabricare Institute, Silver Spring, Maryland--the prenegotiation process was largely focused on obtaining input from the membership and ensuring that the merger would bring value to members. "From the very beginning," advises Andrew Stanley, CAE, executive director, Southwest Drycleaners Association, "give members every piece of information. Give them every opportunity to have input."

The prenegotiation phase has two parts:

1. Readiness assessment. We have identified a handful of criteria indicating readiness to engage in strategic restructuring, If an organization finds that it does not meet some of the criteria, more work in the identified areas must be done prior to negotiations. Otherwise, the process is less likely to yield success and the eventual partnership will be more difficult to implement. Obviously, these criteria are particularly important for organizations involved in corporate integration, as it involves the most significant change in organizational structure and takes the most time to negotiate and implement.

Key readiness criteria include

* a definite mission or focus;

* a strong relationship between the board and the executive team, especially between the board and the chief staff officer;

* a deliberate growth and risk-taking orientation;

* flexibility in the way the mission is pursued--that is, an understanding that the mission is more than a specific program or service;

* a history of successfully collaborating in some fashion or an understanding of the value of strategic restructuring;

* an undrstanding that the process is long, arduous, and time-consunming; and

* an understanding that the outcome of strategic restructuring is not necessarily to save money, but rather to make the organization more effeclive and able to provide increased value to members.

2. Self-assessment and partner assessment. Before negotiations you'll also need to determine how a partnership might help address your organization's weaknesses, better advance your mission, and achieve your goals. Outlining such outcomes ties in to the selection of a potential partner--a critical decision. Consider what your potential partner brings to the table. Does the organization bring needed strengths or value? Will the partnership allow you to better serve your members?

The eventual 2002 merger of the Hearth Product Association and the Barbecue Industry Association (BIA) into the Hearth, Patio, and Barbecue Association, Arlington, Virginia, had its seeds in the recognition by HPA that its trade show increasingly was attracting exhibitors from the barbecue and patio industrics. These dealers viewed the show as good counterseason business. Hence, HPA proposed a loose partnership with BIA with the goal of providing greater member value. Nearly two years into what later developed into a complete merger, signs are pointing to accomplishments strongly supporting that goal.

Other important questions: Can you effectively work with the organization identified as a possible partner? Do the organizations share similar missions and values? Unfortunately, it is not possible to know in advance what it will be like to work with another organization. However, before you embark on negotiations, you should ask yourself whether you've had at least some history of working succcssfully with the potential partner and whether thai experience inspires the kind of trust necessary for a workable partnership.

When the idea of a merger was proposed for BIA and HPA, the former's leadership had some apprehension given that it was a significantly smaller organization. To ease the concern, a reserve fund was created with BIA assets and set aside for two years. In January 2004, a decision will be made either to continue as one organization or to split up. According to Carter Keithley, president and CEO of the merged entity, the merger is not without challenges. But because it is meeting its primary objective of" adding member value, he believes "that a split is unlikely to happen."

The negotiation process

Three stages generally comprise the negotiation process fur any strategic restructoring:

1. Commit to negotiations. Formal negotiations begin when the boards of the organization commit to negotiations and assemble a negotiations committee. Each board must vote to proceed and should approve a brief, written resolution to engage in good-faith negotiations. The committee is typically a joint body, made up of a subset of each organization's board members.

2. Plan and conduct negotiations. This involves a series of committee meetings, generally spanning a four-to-six-month period, during which issues are raised anti resolved. During this phase, the organizations must communicate with their members, explaining the reasons fur considering the strategic restructuring, gathering input, and responding to issues and concerns. Additionally, each organization conducts a due diligence review of the other organization's legal and financial situation to identify any problems that may affect the decision.

The greatest challenge in the merger creating CureNet Global was finding the time to meet and conduct negotiations. This was in part because of the different locations of the organizations, one in suburban Atlanta and the other in Palm Beach, Florida. In addition, volunteer board members found it difficult to meet and work through the details while operating their own organizations. Peggy Binzel, president and CEO of CoreNet Global, provides a realistic analogy: "It's like building a road while you're driving on it." Despite the challenges and a soft economy, the merger has proven effective with strong membership growth, including a 15 percent increase in international membership.

3. Write and present the proposed agreement to the boards and memberships for a vote. Each organization must conduct a formal vote of its board and, if required, its membership.

Integration survival

As consuming as the negotiation process is--in terms of time, costs, and energy--it is only the precursor to the integration process, particularly in the event of a merger. Organizations should enter this phase well aware of the challenges that they'll face and of the tools and resources that can help them succeed. The main challenges involve systems and board integration and cultural integration or people issues.

FIGURE 2: TYPES OF STRATEGIC RESTRUCTING

A. Strategic Alliance           Involves a commitment to continue, for
                                the foreseeable future, shared or
                                transferred decision-making power and
                                a formal agreement. There is no change
                                to the corporate structure
                                of any of the organizations involved.

Types of Strategic Alliances    What is involved?

Administrative consolidation    The sharing, exchanging, or
                                contracting
                                of administrative functions
                                to increase the
                                administrative efficiency of
                                one or more
                                of the organizations.

Joint programming               The joint launching and managing
                                of one or
                                more programs to further the
                                programmatic
                                mission of the participating
                                organizations.

B. Corporate Integration        Involves changes to corporate control
                                or structure, including the creation or
                                dissolution of one or more
                                organizations.

Types or Corporate              What is involved?
Integrations

Management services             The sharing, exchanging, or
                                contracting
organization                    of administrative functions to
                                increase the
                                administrative efficiency of
                                one or more
                                of the organizations.

Joint-venture corporation       The joint launching and managing
                                of one or
                                more programs to further the
                                programmatic
                                mission of the participating
                                organizations.

Parent-subsidiary               The integration of some administrative
relationship                    functions
                                and programmatic services to increase
                                the administrative efficiency and
                                program
                                quality of one or more organizations
                                through
                                the creation of a new organization or
                                designation
                                of a preexisting organization to oversee
                                the administrative functions and
                                programmatic
                                services of one or more other
                                organizations.

Merger                          The integration of all programmatic and
                                administrative functions to increase
                                administrative
                                efficiency and program quality of one
                                or more organizations through the
                                dissolution
                                of one or more organizations or the
                                creation
                                of a new merged organization.

A. Strategic Alliance

Types of Strategic Alliances    When is this the best choice?
                                When your objective is ...

Administrative consolidation    To reduce administrative costs and
                                increase administrative efficiency;
                                when the organizetions
                                want to remain independent and
                                achieve these ends by working within
                                existing organizations.

Joint programming               To achieve specific, significant,
                                but limited programmatic ends;
                                when the organizations want to
                                remain independent and to achieve
                                these ends by working within existing
                                organizations.

B. Corporate Integration

Types or Corporate              When is this the best choice?
Integrations                    When your objective is ...

Management services             To increase administrative efficiency
organization                    on a large scale by creating a
                                separate business that can provide
                                services to multiple organizations.

Joint-venture corporation       To achieve specific and significant
                                programmatic ends by creating a
                                separate entity to fulfill a
                                programmatic purpose.

Parent-subsidiary
relationship
                                To achieve synergistic gains in
                                ability to achieve mission
                                by integrating organizations
                                and corporate structures.
Merger