Many pundits believe that the nonprofit sector is in the most serious trouble in its history. The sector in both the US and Canada has known only growth in its history, and, since 1977, expansion in numbers of nonprofits and in revenues have far exceeded the growth in business revenue in that same time period. The recession is predicted by some to put 100,000 nonprofits out of business over the next two years. Certainly there are very few nonprofits who are not struggling to keep their budgets balanced, and there are many who are failing to do so, dipping into reserves to stay open or laying off staff in large numbers, slashing salaries and benefits or closing altogether. In my 25 years of consulting in the sector, I have never been asked to teach retrenchment planning, until now.
As we look to the next couple of years, the economy may continue to turn around but there are structural problems that indicate that the climb out for the nonprofit sector will not parallel the private sector. Those factors are: the anticipated decline in foundation payouts due to the major losses in equity funding (according to some estimates the sector could lose up to 40% of foundation revenue); and, the serious, if not desperate, condition of state budgets across the country. Clearly this will most seriously impact those nonprofits who contract with state government.
As I work in various locations across the US, I am distressed that there is so little rational planning at the systems level going on at this juncture. Most states are cutting budgets and nonprofit contracts across the board. There is really very little thought given to how human services can be re-engineered to ensure services to the most vulnerable clients or to bring about efficiency. Adequate retrenchment planning at the systems level should involve protecting those aspects of the system that will be most difficult to rebuild after the downturn, targeting core competencies that must be protected, making choices about whose supports are needed most. Are these easy decision? No, but they are necessary ones if our human service systems are to making any sense when things turn around.
The recently completed study of the Safety Net in RI by United Way and RIPEC is a great example. The problems and the opportunities for addressing those problems are apparent but there is no political will to act. Instead, changes in human service systems are happening but they are happening serendipitously as each organization makes decisions largely based on economics, about which programs stay open and which close. It is impossible to envision what our human service systems will look like in a couple of years if this continues.
So, in the absence of rational planning at the systems level, what should nonprofit organizations do? I am fortunate to work with larger, rather than smaller, nonprofits who provide human services. All of them will, almost undoubtedly, survive this difficult period and live to grow again when things get better. But none of them operate in isolation from a larger community of services. In my work, particularly around strategic management, I encourage them to not just think of their own organizational survival in these times. I encourage my clients to think about the organizations that support the populations they serve and to consciously construct a relational map, if you will. Then monitor that map to understand the effects on the organizations in their arena. Who are the organizations that refer clients to you? Who do you refer to for ancillary or supportive services? If your clients need housing supports, or basic needs supports, who is providing them? Who are your competitors and what shape are they in? What are their plans…which programs will they close or cut back on? If you have partnerships with other organizations, how are they doing? Will they be able to maintain their contribution to your joint work?
This is a different kind of environmental scanning than we are used to doing….searching out the vulnerable organizations and programs to determine the potential impact on the clients we serve. This is information that large nonprofits need to have for two reasons: first, if a competitor is closing a program, those clients may come to you for help. How will you handle the increase in volume? Or, if what has been a dependable source of help for your clients will no longer be there, then the lack of that resource (food or shelter, for instance) could easily undermine or destabilize what your organization is trying to do.
Once an organization's leadership understands what is happening around them, they need to learn to use the tools that the for profit sector uses in difficult times, to use models of consolidation: joint ventures, management service organizations, networks, parent corporations and mergers. They need to build a floor of strategic alliances under the service array that their clients need so they can continue to be successful. Large organizations have a very distinct competitive advantage in this climate and that is the internal infrastructure and systems that they have built over time. Most management systems have built in excess capacity…an MIS system that can track two or three separate subsidiaries can probably accommodate more. Supporting the back office of a small agency is not more difficult than adding a program. Working in partnership with organizations providing similar or duplicative programs, can spread overhead and reduce costs for both partners. There is economy in jointly negotiating contracts for commonly purchased items. There are ways to use corporate restructuring to collapse back office expenditures but still maintain the identity and special relationship with community that small organizations have. There are even ways to make these relationships temporary; if a small organization is able to go back out on its own when times are better, they can. Mergers are a very useful way to save a set of unique competencies, or a special relationship with a particular community, that would simply disappear if the current entity in which it is housed must go out of business.
We need an explosion of understanding in the sector about these tools, about how useful they are, about how important they are as strategic alternatives for large and small organizations alike. And we must remember, for large organizations to think this way and seek the learning that is necessary, is not about being altruistic…it is about building understanding of what it takes for their clients to succeed and then moving strategically to ensure those supports are still there (though helping a struggling arts or environmental group is also a good thing). The profit sector has used these tools to build market share and dominate, but that does not mean that we, in the nonprofit sector, need to behave in the same way. This is not about developing "power over," it is about developing "power with.'' It is about approaching these issues with a spirit of partnership and a strong focus on the ultimate bottom line…the long term health of our community.
Jane will be submitting this entry to the Providence Journal as an editorial.
Photo Credit: USAsearch.gov Public Domain Images
. Written for for profit businesses, I have taken his list of what he calls "facilitating factors," and done some translation for nonprofits and this particular time in the sector's history.
