Shared Services Alliances

Nonprofits creatively combining the back office.

I announced in May 2010 that I would be writing a series on nonprofit back-office integrations or what these organizations refer to as Shared Service Alliances. In my first posting on this topic I explained that shared service alliances are partial integrations of nonprofit back office services for a group of agencies, provided on a fee-for-service basis, in order to achieve economic and program efficiencies. For organizations which are community-based and their autonomy is arguably an important aspect of their service delivery (daycare programs, for instance), mergers are really not an option. Shared service alliances are a good strategic choice.

One example that I’d like to share with you in this posting is the Children’s Home/Chambliss Shelter based in Chattanooga, Tennessee.  I recently interviewed their President and CEO Phil Acord, who told me about their shared services business model. Today, his agency provides contract administrative services to five nonprofit agencies. How they developed this portfolio is an interesting story. In 1983, Phil’s organization was just The Children’s Home (serving 200 children in a daycare program) and had a reputation for being well-managed; that was why the local government came to them to ask if they would take over the struggling Chambliss Shelter. The Board agreed, and the nonprofit became The Children’s Home/Chambliss Shelter. This lesson was not lost on the local United Way agency which called in 1986 regarding another struggling nonprofit, this one an early childhood program. Phil agreed to manage the program and created a boilerplate contract. In exchange for $25,000 a year, The Children’s Home/Chambliss Shelter would meet all licensing and financial requirements, manage the staff, do the admissions, and report to the Board.

Pretty soon, Phil was getting more calls like these regarding other daycare agencies. Over time, the Children’s Home/Chambliss Shelter took on administrative services for six nonprofit daycare agencies serving a total of 700 children. Outside of Headstart, The Children’s Home is now the largest daycare provider in Chattanooga. In every case, the nonprofit agencies have remained autonomous corporations with their own 501(c)3 status, board of directors, and staff. What they don’t have is an executive director; The Children’s Home/Chambliss Shelter functions as the executive director for each nonprofit they contract with. In each case, the contracted fees seem ridiculously low for the extent of the services provided – they range from between $22,500 to $28,000 a year. That’s about 50 percent of what it costs Phil to provide his services, the rest of the costs he covers through his own fundraising.

When I asked Phil how he could afford to charge his clients so little, he laughed. This is a conversation he frequently has with his board. But Phil sees his shared alliance services as a very affordable growth strategy for his agency. He and his board want to serve more children, but instead of having to raise 100 percent of the capital operating revenues for all the facilities, he only has to subsidize his services for a much smaller amount.

Of course Phil has instituted some across-the-board business practices in order to achieve efficiencies.  He has set in place one employee benefits package, one salary scale, one financial software system, one set of operating procedures, joint purchasing, etc. In addition to the board of Children’s Home/Chambliss Shelter, Phil meets with five boards of directors each month who he reports to regarding their daycare programs, as they would with any executive director.

There has been some pressure from local donors to consider merging the entities, now that they have gotten this far, but Phil disagrees with that strategy. Phil believes that the daycare agencies should be as independent as possible because each one is unique. Each agency is located in a unique community with a unique history, has unique people, and volunteers are unique to each program. “I’m of the belief that the more people know about you and understand you, the broader the base of your support. The community resents that taking over; we let them retain their identity,” says Phil.

This Shared Services Alliance model is a great example of what can be done to preserve small, community-based nonprofits through a unique business model. It’s creative, affordable, and serves the missions of the nonprofits involved. Does it require the nonprofits to compromise? Yes, but at the end of the day the most important aspects of the mission, I believe, are protected.

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