Are you exploring consolidation? Which segment are you?by Jane Arsenault on November 29, 2010
I attended a meeting recently about a local United Way conference that potentially will deal with exposing nonprofits to models and ideas concerning consolidation. As the discussion proceeded, the complexity of the issue kept coming up. One of the conclusions was that there might actually be different market segments of organizations, and that, perhaps, the segments are distinct enough to actually provide programming for them differently….maybe.
So this conversation has been niggling at the back of my brain and I thought I would attempt to define the segmentation. In some ways all of these groups are early adopters of the technologies of consolidation.
The Innovators: These are organizations that are pushing the cutting edge of their fields or the sector. Think social innovation. These organizations are mostly new, young, and flexible. They don't have entrenched boards or lots of money to spend, or lose. They do have ideas, lots of them. Because they are young, they are not hung up on structural change or working collaboratively. This segment also includes some older and more established organizations who are market/client driven and are intent on capturing larger market share or just serving people better, and are not afraid to change their structure, either through alliances, networks, subsidiaries, or mergers in order to accomplish their aims. I include in this group some of our larger clients who are beginning to articulate an acquisition plan as part of their strategic management work…a completely new phenomenon in the sector.
The Cost reducers/Back office enhancers/Group purchasers: These organizations are experiencing declines in revenue but not so much decline that their organizational lives are threatened. They are interested in either reduced back office costs or enhancing their back office supports. By sharing space and/or back office services such as finance, human resources and information management, these organizations are seeking a better return on their investment on infrastructure expense and/or the ability to shift funds spent on administration to programming to meet increased demand. This segment is very broad and includes arts organizations, environmental groups, and health and human service entities.
Negotiators of Systems Level Change: There are a number of human service systems that are affected by significant field changes that would have happened anyway, even without the recession. Examples include the movement of the child welfare field away from long term residential placements for kids and changes in adult education that more clearly link adult education programming to workforce development efforts. The recession has picked up the pace on these initiatives but did not cause them. There are also systems changes that directly relate to the recession, e.g. the nursing home industry, where threatened programming cuts in state contracts are so severe that there is a need to completely rethink how the system will operate with greatly reduced funding.
The Nearly Bankrupt: These are organizations that have cut staff, reduced programming, cut benefits, exhausted their reserves, and are running out of options. These are merge or die situations in which the goal should be to salvage that unique program that no one else has, preserve jobs for particularly talented staff, pass on unique tacit knowledge that would other-wise disappear, or ensure that the nonprofit's assets are appropriately reinvested in services with a similar mission. This group also includes organizations who are being pressured by funders to close due to quality issues, either to close specific programs or to shut down completely.
The Vast Majority: Those who are either not feeling economic pressure or prefer to shrink to a smaller size than share resources or give up autonomy.
I can already see some overlap in these groups and some "combos" that share attributes of more than one segment, e.g. organizations facing system level changes may simultaneously consider back office consolidation. The question for capacity builders is whether we actually need different educational programs or support services for these groups. What do you think? For nonprofits, which segment do you see your organization in? What types of programs or support services would be most helpful to you?