Administrative Collaborations_ Consolidations_ and MSOs by Levone


									Administrative Collaborations, Consolidations, and MSOs
                                                           Bill Coy and Vance Yoshida, Senior Associates

A        t La Piana Associates, an important
         component of our work is helping
         nonprofits develop partnerships,
         collaborations, and mergers. Over the
years we have seen an increasing interest among
                                                        DEFINING NONPROFIT ADMINISTRATION

                                                        F      or our purposes here, nonprofit
                                                               administration includes:
                                                               Human Resources: Recruiting, orientation,
nonprofits in one type of partnership: sharing          personnel policies, performance management,
administrative services. As nonprofits experience       compensation, benefits, transition management,
the benefits of programmatic collaboration, they        training and development, employee relations,
are more willing to try administrative                  risk management, and workplace safety issues.
collaboration, and even the creation of a new                Finance: Accounts payable, accounts
organization for shared functions: a management         receivable, budgeting, planning, reporting,
service organization (MSO). The functions               forecasting, grants management, payroll, cash
nonprofits most frequently share include human          management, and meeting public accountability
resources management (HR), finance, and                 expectations.
information technology (IT). Some of the forces              Information Technology: Hardware,
driving this interest include:                          software, networking, database administration,
                                                        training, Help Desk, technology planning, and
    Increasing costs for administrative services,
    both functionally and to meet compliance            website management.
    requirements                                             Other Areas: Marketing and communications,
                                                        grant-writing, purchasing, security, office space,
    Increasing importance—and cost—of IT                telecommunications, and furniture and equipment.
    Increasing interest in risk management
                                                        THREE LEVELS OF FOCUS
    Expansion of all areas beyond the transactional
    functions they are often limited to
    A need for greater administrative
     We have helped a number of organizations
                                                        H       uman resources, finance, and information
                                                                technology functions all exist at three
                                                                levels: the transactional, the managerial,
                                                                and the strategic. The latter elements are
                                                        built upon the former.
explore models of administrative collaboration              The Transactional: Tasks at this level include
and consolidation. Given the success that               the baseline paperwork for personnel processing,
nonprofits have had in forming and implementing         benefits administration, payroll, bookkeeping, file
mergers and alliances (although not without a           management, and maintenance of IT systems.
significant amount of time and effort), we initially    The focus is on current day-to-day operations.
believed that many nonprofits could—without
great difficulty—gain administrative and cost                The Managerial: Tasks at this level include
efficiencies by sharing costs for “back-office”         employee relations, management development,
functions, such as human resources, finance,            training, financial reporting and analysis, and
information technology, and marketing.                  network and database administration. The focus
                                                        is on short-term future decisions and direction.
     On the surface, these types of partnerships
seem to be less complex than mergers and other              The Strategic: At this level, administration
alliances. Our experience, however, has shown           entails connecting multiple functions and
that they often struggle in the early stages, if they   increasing cohesion and effectiveness. The focus
get implemented at all; many do not. Thus, we           is on longer-term future decisions and direction.
began to look more closely at the factors and               Administrative collaboration or consolidation
processes most conducive to successful                  can occur at any of the three levels, but it most
administrative collaborations and consolidations.       often starts at the transactional level. Sharing or
This paper reports on what we have learned.             consolidating the processing of personnel,
                                                        paperwork, and data often requires less stress and
                                   FIGURE 1: TYPES OF ADMINISTRATIVE PARTNERSHIPS
Option            Human Resources                     Finance                 Information Technology                  Other
Collaboration       Sharing policies,              Sharing policies,              Sharing policies,            Sharing governance
                procedures, best practices    procedures, best practices      procedures, best practices             models
                   Cross-training (e.g.,       Joint finance training for      Coordinated IT analysis       Coordinated long-range
                  spending time in each            staff and board                and assessment                    planning
                     other’s offices)                                          Joint training of staff on      Joint marketing of
                Shared recruiting, training                                         new software                   programs
Consolidation          Mentoring                 Shared accounting              Shared database and           Advocacy training for
                    Standardized HR                   systems                           server                      boards
                   practices, training        Shared CFO or other key          Shared IT professional           Shared marketing/
                Development of a common          finance staff (e.g.,            and other key staff        development staff, such as
                     recruiting pool                bookkeeper)               One organization provides           a grant writer
                 Shared HR professional       One organization provides        IT services for another           Bulk purchasing
                                               accounting services for                                         Translation services
MSO                Shared employment           Centralized finance staff              Intranet                 Centralized facilities
                     Co-employment              and systems, report              Common Help Desk                management
                                                  generation, cash                                             Coordinated grants
                 Single benefits program        management, billing              Shared accounting
                                                                                     software                   management and
                 Benefits administration                                                                            reporting
                                                                                 Centralized servers

   change than would be the case at a deeper level of                      Figure 1 presents examples of how
   involvement.                                                       organizations might share or consolidate their
                                                                      various administrative functions, and of when an
   OPTIONS FOR SHARING OR CONSOLIDATING                               MSO is most beneficial. Our focus is on the first
   ADMINISTRATIVE FUNCTIONS                                           three options.

  T       here are four options for organizations that
          want to share or consolidate functions:                     THE RUBRIC FOR DECISION-MAKING
          An administrative collaboration is an
   informal, and not necessarily enduring,
   arrangement wherein nonprofits share services or
   expertise. It can include the sharing of best
                                                                      W            e use the rubric shown in Figure 2 as a
                                                                                   guide when advising a client whether or
                                                                                   not an administrative collaboration or
                                                                      consolidation is worth pursuing. Given the cost
   practices, underused resources, or staff time.                     and effort required, there must be a real gain to
         An administrative consolidation is a more                    justify its pursuit. The main goal is to provide
   formal agreement that involves the sharing of                      better support for programs. Designing a
   specific functions to increase administrative                      partnership that merely enables shared delivery of
   efficiency. It includes a commitment to continue,                  the same level of service the parties experienced
   for the foreseeable future, shared decision-making                 separately for the same cost, is not desirable. The
   power. However, it does not involve any change                     outcome must fall into one of three categories for
   to the corporate structure of the participating                    it to be worth pursuing: produce the same or a
   organizations.                                                     higher level of service for a lower cost, or a higher
         A management service organization                            level of service for the same cost. A fourth
   (MSO) is a new organization created to integrate                   option—a partnership yielding a higher level of
   administrative functions, and thereby to increase                  service, but at a higher cost, must yield
   the participating organizations’ efficiency.                       worthwhile gains in the level and/or quality of
   Governance of the MSO is typically shared                          service and be financially bearable to all parties.
   among the founding nonprofits.
         The fourth option is to outsource elements of                              FIGURE 2: ANALYZING OUTCOMES
   administration by using external service
                                                                                                       Level of Service
   providers such as a Professional Employment                                  Cost
   Organization, bookkeeping service, or contract IT                                         Lower          Same          Higher
   provider.                                                                Higher cost                                       X
                                                                            Same cost                                         X
                                                                            Lower cost                        X               X
RESEARCH FINDINGS                                                          Provide a standard menu of services for a set
                                                                           fee, plus optional services priced separately

    n exploring models of administrative
    partnerships, we found that most are between
                                                                           Do not provide customized services; they
    organizations that have similar programs
                                                                           achieve economies of scale as a result of
    and/or serve similar populations. They
typically involve one larger organization (usually
$2 million or more in revenues) and one or more                            Have clients whose annual revenues are
smaller organizations (that is, with less than                             less than $500,000 and whose back-office
$500,000 in revenues). Most of the partnerships                            needs are fairly straightforward
that we examined only consolidated select
common functions, leaving out those that were                    STEPS TO EXPLORING ADMINISTRATIVE
more specialized or idiosyncratic. Figure 3                      PARTNERSHIPS

presents a summary of our findings.                                  f your nonprofit is considering some form of
     While management service organizations                          administrative collaboration or consolidation,
(MSOs) appear to hold great opportunity for                          or the creation of an MSO, the following
administrative efficiencies, they are not very                       process may help you move forward:
common. To determine why, we interviewed                              Step 1: Identify and create a flow chart of the
leaders of ten MSOs across the country to find out               systems in your current administrative structure.
what factors are associated with success. We                     Most administrative systems evolve organically,
learned that successful MSOs typically have a                    based upon the skills, demands, personnel, and
mission related to serving a specific community                  requirements present at a given point in time. In
and assisting in the capacity-building efforts of                order to determine where you might create
organizations in that community.                                 efficiencies, you must begin by documenting your
    Additionally, MSOs usually:                                  existing administrative structure.
                                                                      Step 2: Define a desired state for your
         Use one set of systems and procedures to                organization’s administration. What improvements
         provide their services                                  would you like to make? For example, what would

Option                 Best Used When                           Advantages                            Disadvantages
Collaboration       Scalability is not possible         No need for outside resources,          Solutions are limited by the
                    Autonomy needs are high              a new entity, or new systems             organizations’ resources
                     Systems are too unique              Can be implemented quickly          Limited ability to increase capacity
                        for consolidation             Flexible; no long-term commitments       Potential synergies of a deeper
                                                           No radical adjustments or            partnership are not realized
                                                            Low cost to implement
Consolidation   Nonprofits operate similar programs    Consolidating simple functions is     Possibility of taking resources and
                     in the same or adjacent               often inexpensive and               focus away from the mission
                            communities                      yields quick results                    Time to administer
                       Good relations exist                                                    Serving two (or more) masters
                         among the parties
                                                                                             Costs of building/migrating systems
                    Expansion is not necessary
MSO                  This will be the entity’s          An opportunity to create new            Need to create new systems
                         sole business                       systems from scratch                      from scratch
                     Existing systems need                  to meet service needs                  Expensive to create
                        minimal migration                     Shared ownership                     There may be significant
                   Systems are easily scalable        More easily identified as a separate             migration issues
                   Funders will support start-up         organization with expansion                 Requires initial large
                                                                  possibilities                       investment of time
                                                         An integrated service model            Potential loss of control over
                                                         Mission focus is on providing         operations in core areas; that is,
                                                           administrative services,          loss of ability to customize services
                                                                not programs
an upgraded HR function look like? Would it                           Step 5: Begin to develop models and
provide more analysis of recruitment and retention               solutions. Your end result should:
trends? Would it do more management training and                     Further the mission and vision of each partner
development? Go through the same process for your
finance and IT functions.                                            Be cost effective
                                                                     Be sustainable
    Step 3: Explore potential partners. Who in
your community might have some of the same                           Not be so time-consuming that it would divert
needs and desires as you? A good potential                           the organizations from service delivery
partner would be an organization that:                               Have a measurable and positive return on
    Has a mission that has is consistent with yours                  investment
    Has similar types of programs and funding                    CONCLUSION
    You respect and trust, and that has a good

                                                                            hile at first glance the benefits of
    reputation and is not currently in crisis
                                                                            administrative collaboration and
    Has an interest in improving its services                               consolidation seem evident, before
     Step 4: Begin to explore potential                          embarking on this path organizations need to
partnerships. Approach the process as an                         conduct a sound analysis of their current functions
opportunity to learn from one another and work                   and needs. Costs and benefits must be carefully
together to explore opportunities. Each potential                researched and understood before the potential
partner should describe the administrative systems               partners move forward with any type of
and structures currently in place, and what they                 partnership. With a clear eye toward maximizing
would like to have. Figure 4 presents an example                 efficiencies, making improvements, achieving
of this type of assessment. This step might                      sustainability, and supporting their mission,
involve a feasibility study, joint planning sessions,            nonprofits can and will make smart choices about
and/or meetings of the administrative staffs to                  the next generation of administrative services in
share information, challenges, and ideas.                        their organization.

                                                                 More information on these and other types of
                                                                 partnerships is found on our website at

                              FIGURE 4: EXAMPLES OF PARTNERSHIP ASSESSMENT
                                     What we have                                        What we want
Human Resources                Integrated HR, payroll software                   A stronger employee/volunteer
                                  In-house training program                    recruitment and screening system
                                                                          Expertise and knowledge in HR policies, laws
                                                                          Human Resources Information System (HRIS)
Finance                             Accounting package                          Better management of contracts
                           Experience in controlling and managing              Fundraising/accounting integration
                                 diverse sources of revenue                            Software updates
                                                                                  Strategic financial planning
Information                           Great website                                 Intranet for board and staff
Technology                        Experienced IT Director                 Better systems coordination and maintenance
                                                                                Integrated client tracking software
Office Management/                Fund development staff                          Improved facility with parking
Other                               Adequate facilities                              Marketing staff/support
                                                                                 Automated purchasing process

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