Shared Services Alliances

Nonprofits creatively combining the back office.

Part I: Interview with John Weiser, The Opportunities Exchange

There has been so much discussion about the push to merge nonprofits, that I thought it be good to shift the focus to another form of strategic integration: Shared Service Alliances, or what some people refer to as management service organizations. In last month’s Stanford Social Innovation Review, there was a great article by David LaPiana called “Merging Wisely”, which makes the case that there are lots of ways to partially integrate two or more nonprofits and get great results without merging. David explains that mergers are not always the correct strategic choice, and he is right.

For the next few months I would like to share with you a series of interviews I have done with some nonprofit professionals who have found a way to add a lot of value to the mission of their nonprofits, and in some cases businesses with social purposes, by creating back office alliances. This work was identified to me by John Weiser, a principal with the nonprofit technical assistance organization Opportunities Exchange which works with childcare facilities, education centers, and family group homes to form what he calls Shared Service Alliances, that provide efficiencies, lower operating expenses, expand the quality of back office functions and stabilize small bands of nonprofits in this part of the nonprofit market.  I talked to John about his work. John makes the argument that there are lots of community-based institutions for whom being local, and keeping their community identity is critical to their ability to deliver their services. These institutions include childcare agencies, youth programs, community theaters, etc. Local control and local support are critical to their missions and their identity, and therefore there is a lot of pressure to keep their autonomy. Yet we know based on the recession and the changing business model for the nonprofit sector that these small nonprofit businesses need to find ways to be more efficient and to deliver more sophisticated business services like outcome evaluation at the same time. How to do both—maintain strong grassroots identity and create a viable business model that covers costs?

John is arguing that the solution is Shared Services Alliances, or partial integration or sharing of business functions between two or more nonprofit organizations. There are lots of ways this can happen: one organization with excess capacity can provide these services for other organizations on a fee-for-service basis; organizations can band together to create a cooperative to provide back office services to all its members, or an intermediary serving a group of nonprofits can provide or organize the services on behalf of their members. The team at Opportunities Exchange has helped create a variety of approaches for Shared Services that begin with the experience in the community, the needs of the nonprofits, and their preferences.

Opportunities Exchange was formed by John and his colleague Louise Stoney, a 30-year veteran of the childcare industry.  Louise came to the idea of Shared Services through her work in childcare finance.  While getting additional funding for childcare agencies is important, Louise realized that getting childcare agencies to use the limited money they had more efficiently was even more important. Much of the childcare industry is very small businesses which don’t have extensive skills or staffing and can’t scale up to become more efficient in their administrative functions. Louise and John believed they should focus on assisting child care providers to share services, such as:

  • Insurance
  • Group purchasing of supplies, food
  • HR hiring, benefits management,
  • Facilities management
  • Quality
  • Teaching
  • Mentors

One of the leading examples of a successful Shared Service Alliance is the Children’s Home and Chambliss Shelter in Chattanooga, TN, which provides management services to several childcare agencies on a contractual basis. The Children’s Home provides complete back-office services for the contracted agencies and its Executive Director, Phil Acord, in effect fulfills the role of executive director for each one. Each organization remains independent, and Children’s Home contracts with the nonprofit to provide strong business services; this has strengthened each childcare agency tremendously. It’s a great way to grow for all involved.

Opportunities Exchange consulted with Quality Care for Children in Atlanta, Georgia. This nonprofit serves both parents and childcare providers. Quality Care for Children (QCC) decided to go in a different direction for their Shared Services Alliance and created a menu of services for their members including joint purchasing, web-enabled training, web development, and other web-based services. The daycare providers are also working collaboratively to deliver services to each other. This Shared Service Alliance launched this spring and has an evaluation component in place to measure their results.

I was curious about some of the organizational aspects of putting Shared Alliances together.  John said that the agencies typically have a funder at the table to help pay for the facilitation because these agencies can’t afford to pay for this work themselves. The pay-off on the back office integration takes two-to-three years time, and it’s important to the donors to prove-out the savings by having an evaluation component in the project. I was also curious about how the work is divided up and John related that usually one or two of the stronger nonprofits take on more of the heavy work because they have a stronger infrastructure and therefore have the capacity to do so. But don’t even start the effort, John cautioned, unless the group collectively has about 500 children in the pool; the efficiencies just won’t be there.

In the weeks to come, I will tell each of the Shared Alliance stories briefly mentioned here: The Children’s Home and Chambliss Shelter, Quality Care for Children, and also the story of the David and Laura Merage Foundation based in Denver, Colorado. An incredible family foundation which is working to revolutionize the childcare sector in their state through geographically-based Early Learning Venture Child Nursery Centers, providing shared services in a hub-fashion to childcare businesses, and other supports to the industry.

Note: The Lodestar Foundation has announced the launch of its 2011 Collaboration Prize,  a national award to highlight and recognize notable nonprofit partnerships among nonprofit organizations. A total of $250,000 in prizes are awarded, with $150,000 award going to the winner. Go here to learn more about it.