Who’s afraid of the big bad charity? Part 2
[Continued from yesterday’s Part 1.]
Why are non-profit mergers so rare here in the
The complexity-scale tension
Just as form follows function, the structure of a successful economic organization is a function of its need to address two distinct dimensions of its business lines:
· Complexity. Some tasks (such as developing affordable housing properties) have very high complexity and high stakes.
· Scale. Some tasks (like collecting rents and paying bills) have very high volume and low complexity.
Complexity implies small; scale implies large.
The organizations or teams that internalize both capacities win big (in an economic-evolutionary sense) because they deliver excellent outcomes, thereby attracting resources, and fueling their growth.
Specifically, as ecosystems become more complex, high-complexity tasks (like development) require ever-smaller teams of very high-caliber people and high-scale tasks (like property management and financial control) require ever-larger internal infrastructure. This is superficially an organizational paradox — how can you be both big and small at the same time?
Each of us has something to offer
Sometimes you accomplish this by joint ventures (little partnering with big), or the Japanese keiretsu, or by merger:
”When you have lots and lots of organizations with overlapping missions, it can just make a lot of sense and result in a more efficient use of dollars,” Paul Grogan, the Boston Foundation’s president, said. ”It’s just something that the nonprofit sector needs to be on the lookout for.”
Mr. Grogan should know — he was the visionary CEO of LISC, the Local Initiatives Support Corporation, one of the three established assistance providers in affordable housing, that sponsored the formation and growth of hundreds of (usually very small) community development corporations (CDCs).
Some of the
Affordable housing non-profits are particularly suitable for these strategic collaborations and mergers and the resulting administrative savings:
As in a corporate merger, they will take a new name — The Crittenton Women’s
Consolidation and merger also bring another strength: fundraising synergy.
For some nonprofits, merging has brought far more success than either organization could have achieved as a separate organization. The two after-school initiatives, Mayor Thomas M. Menino’s 2:00-to-6:00 After-School Initiative and Boston’s After-School for All Partnership, combined in 2004 to form a public-private partnership called Boston After School & Beyond.
Funders liked the new model so much that millions have poured in: Before the merger, the two initiatives had a combined operating budget of $500,000. Now, it stands at $3.5 million.
Keys to merger compatibility include the following:
“Now, non-profit number one, which core business lines do you dominate?”
Keys to a successful non-profit merger
1.
2. Compatibility of values. The two have to value the same things and have the same rough priority of values.
3. Viability of each non-profit on its own. When one is viable and the other flailing, an acquisition or absorption is better than a merger.
4. Complementarity of business lines. Each should have one or more core business lines in which it is clearly superior to the other; otherwise the stronger should simply absorb the weaker.
5. Consolidatability of headquarters. The two organizations must be able to co-locate management staff.
6. Cultural harmony at both directorial and managerial levels. If the in-laws don’t like one another, the marriage is doomed.
7. Synergistic new business line. Ideally, the combined non-profit should be able to do together some new business line that could not be accomplished simply via a joint venture or friendly independence.
The combination should be more than simply additive: impact increase and infrastructural optimization.
Business imperatives overruling egos is a mark of organizational maturity:
”This feels right, even though you have two very proud organizations,” Pendergast said.
I’m too good for you
As the non-profit sector matures, expect many more such mergers:
Interest in mergers and alliances among nonprofits has become so hot nationally that a California firm specializing in the issue, La Piana Associates, Inc., has seen inquiries on the topic increase more than 50% over the last two years, said Bob Harrington, a senior manager who specializes in strategic restructuring.
“You’ll come to realize, Ricky, that this is the beginning of a beautiful friendship.”
