Working Together.

Mergers make very good sense

The economic forces pushing businesses to merge are encircling our nation's charities as well. But before a one-size-fits-all model is adopted, it's time to ask: Is what's good for the for-profit goose necessarily good for the nonprofit gander?

The past two decades have seen an unprecedented consolidation of business organizations, driven in large part through the desire to expand market share, take advantage of emerging technologies, create economies of scale, and increase profits. In pursuit of oneness, businesses are assimilating, standardizing, and strengthening operations.

What lessons do these new business models offer nonprofits? And, how does this move toward uniformity transfer to a sector of American society steeped in pluralism -- where multiple entrepreneurial and spontaneous solutions to social problems have taken shape since our nation's founding? Where the largest share of our resources -- individual donations -- spring not from the desire to make a profit, but rather to champion a cause, tackle an issue from a new direction, and extend one's own values?

The challenge in attempting to adopt business templates for nonprofits lies in the tension between valuing the pluralism that stands at the heart of our democracy and sustaining our charitable institutions in a manner that garners the confidence of donors, trustees, volunteers, and the public. How does the nonprofit sector, facing pressures to economize and eliminate unnecessary duplication, preserve the entrepreneurial spirit that spurs us to solve problems, free to choose alternative solutions and challenge standard approaches?

It's this pluralistic approach to philanthropy that distinguishes the nation's nonprofit sector from charitable movements in other societies. This country's heritage of giving and serving was born of the necessity of caring for ourselves and each other when pioneers first settled in an unstructured world. More than 160 years ago, de Tocqueville wrote: "These Americans are the most peculiar people in the world ... In a local community in their country a citizen may conceive of some need which is not being met. What does he do? He goes across the street and discusses it with his neighbor. Then what happens? A committee comes into existence and then the committee begins functioning on behalf of that need, and you won't believe this but it's true. All of this is done without reference to any bureaucrat. All of this is done by private citizens on their own initiative."

Americans are still forming associations to meet local needs, still experimenting with different approaches, still following their hearts to find new and inventive solutions to our most intractable problems. It's this richness of pluralism that has provided a strong foundation on which to build our charitable communities. The question, given the current push to be more effective in our charitable acts, is: At what cost to pluralism do we achieve greater efficiencies?

Cast in the same light that's driving business to minimize operational costs and maximize profits, nonprofits are under unprecedented scrutiny. The phenomenal growth in the sector alone is drawing attention. It's estimated that close' to 30,000 nonprofits are formed each year. Critics contend that there are too many organizations providing similar or identical services to too few clients at growing costs.

Board members -- many of whom are experiencing downsizing and consolidation in their own professions -- are pushing nonprofits toward seeking the same economies of scale. Deluged with an ever increasing number of solicitations, donors are asking how their dollars are being used and to what measurable end. Institutional funders, historically the source of seed monies that have helped fuel new charitable programs, are today interested in organizational effectiveness and gaining efficiencies across the sector.

Individual donors, especially those of the Baby Boom generation and younger, value collaboration among organizations for its usefulness in leveraging resources. This new group of donors is hands-on and results-oriented.

Other pressures are driving nonprofits toward collaboration and consolidation. One is competition from for-profits seeking a share of the funding traditionally available for charitable activities in health, social services, and education.

New information technologies are also affecting how nonprofits operate. Access to information via the Internet is making charitable organizations more transparent. A growing number of Web sites, including those posted by charities, are providing information about nonprofit finances, activities, and achievements to prospective donors and collaborators, and giving nonprofits access to data management on a large scale basis.

It's this kind of competition for resources and the availability of expertise and technology that is inducing charities to cut administrative costs, improve efficiency, expand services, and form productive collaborations.

As frightening as the word "merger" is to nonprofit leadership, the act of joining like-minded missions can have its benefits. Nonprofit consultant, professor, and contributing editor to The Nonprofit Times Thomas McLaughlin enumerates several positives of consolidations and collaborations:

* Acquiring intangible assets (e.g. a prized board member)

* Acquiring tangible assets (e.g. a building)

* Creating more varied career options for employees

* Creating operational efficiencies

* Gaining greater visibility in the community

* Gaining market share

* Improving fundraising

* Improving prospects for a new service

* Increasing political clout

* Rejuvenating the organization

* Reorganizing more easily

Recent high profile nonprofit mergers reflect the perceived benefits that accrue to consolidating organizations. Plans are underway to merge two of the biggest organizations that monitor charities: the National Charities Information Bureau and the Philanthropic Advisory Service of the Council of Better Business Bureaus. The new collaboration will join together agencies with similar roles and considerable overlap. In the new structure, say organization leaders, they will be able to evaluate more charities and reach more donors.

The merger is not without its opponents, however, who claim that combining the two organizations will reduce the diversity of views available to donors who want to decide where their gifts will do the most good.

Another significant consolidation occurred last April between Second Harvest, the nation's largest network of food banks, and Foodchain, with its nationwide infrastructure for distributing prepared, perishable food to social service charities. Combined under the new name America's Second Harvest, the organization expects to increase food donations and expand its services to include job training in food service.

A precedent for these and other recent mergers was established in 1998 when Family Service America joined forces with the National Association of Homes and Services for Children to strengthen and expand programs for at-risk children and families. At the merger's announcement Peter Goldberg, chief executive officer of Family Service America, cited the new opportunities to offer member agencies a broader spectrum of services such as conferences, networking, and training seminars. The merger also added clout to the organization's role as a national advocate for children's needs.

Despite the financial and expansion pressures impinging on nonprofits to band together, organizations have been slow to respond to the merger drumbeat. A report from the National Center for Nonprofit Boards (NCNB) suggested the roadblocks to restructuring are loss of independence, fear of the unknown, problems of turf and ego, costs and time, loss of organizational identity, and staff concerns about job security.

But the reluctance of nonprofit leaders to embrace the for-profit model of consolidation is based on concerns larger than those cited above. For all the fears that exist there are also deep commitments to powerful causes. As consultant David La Piana noted in the NCNB report, mergers may produce large nonprofits with solid administrations, but in doing so, they undermine the strengths that diverse, grassroots approaches bring to complex issues.

Short of wholesale consolidation, what other options are available to charities that achieve shared efficiencies while preserving the individual missions of the collaborating organizations?

In his guidebook Nonprofit Mergers and Alliances, McLaughlin, offered a model that encompasses a range of opportunities for agencies to work together. Titled C.O.R.E., the concept embraces four aspects:

Corporate -- the legal structure of an organization, including its board, with whom rests governance and financial responsibilities;

Operations -- the program level or the heart of the nonprofit's reason for being;

Responsibility -- administrative tasks within an organization;

Economic -- the costs of doing business.

McLaughlin suggested that most discussions of forming strategic alliances are prompted by economic considerations and move up through the other components of the model in stages. Alliances formed around the bottom components of Economics and Responsibility usually involve "back office" functions such as sharing information on purchasing practices, joint purchasing, sharing management and administrative tasks, designing compatible information systems, and shared training. These process-oriented alliances are ongoing as long as they prove useful to all parties.

An example of a process-oriented alliance is the collaboration among six Minnesota nonprofits serving people with disabilities. Among them, the organizations manage budgets of $64 million and 2,200 staff. With their individual identities intact, the agencies nonetheless share economic and administrative functions under the banner of Partners in Community Support. PCS purchases cell phone services, computer training, information systems support, bonding, and fleet vans for its collaborators.

Another example of nonprofits collaborating on support functions comes from a group of Sacramento, Calif., organizations which address child abuse issues. These government and private agencies have chosen to locate their offices in the same building to more efficiently meet the needs of families, children, police, and others who interact with their programs.

Their plan to consolidate administrative functions is also changing the paradigm of service delivery by giving their clients better access to the range of services offered and fostering better communication among the participating agencies.

Nonprofits will often come together around shared activities that are shorter term in nature than those cited above. These task-oriented alliances have a beginning, middle, and end. There is no expectation that the alliance will last beyond the task at hand. Examples include arts organizations launching a joint orchestra/choral performance series or local hospitals banding together to sponsor a community-wide immunization campaign.

McLaughlin noted that alliances offer many advantages to nonprofits seeking the benefits of collaboration without giving up control. An alliance can be flexible. It can bring to bear the combined weight of similar organizations in finding solutions to common problems. It's also a means of involving staff at all levels in productive, non-threatening partnerships. And, it can act as a precursor to a future, permanent consolidation of organizational operations.

The best nonprofit collaborations start with a shared organic need, when working together allows organizations to accomplish things they couldn't do on their own. Other important components include using the partners' strengths to the project's advantage, open and regular communication, which builds strong relationships and trust, a commitment to interdependence and a willingness to compromise, and a shared vision with concrete and attainable goals.

The advantages that for-profits find in collaborating include cost sharing, economy and efficiency, and the ability to build on and share each other's strengths and expertise, all aimed at producing higher profits. In collaborating, they just might also produce a better product or service for their customers.

Businesses, with their profit motive and concerns for corporate secrets, competitive advantages, and the company brand can learn to work together for the good of all partners in a joint project. Surely, the nonprofit sector, where purpose is neither money nor power but to serve the common good, can come together as well in ways that will preserve and foster the entrepreneurial spirit which makes the American form of philanthropy a model world wide.

Eugene R. Tempel is executive director of the Center on Philanthropy at Indiana University in Indianapolis, Ind.