On occasion I cite consolidation of administrative functions as a method by which arts organizations in a community can cut costs by cooperating with one another. However, if pressed, I would have to admit that I wasn’t aware of any examples of such a thing working in practice.
So I was extremely pleased to see that the Nonprofit Law Blog has been running a series on this very subject. They cite four options that can be pursued, “an administrative collaboration, administrative consolidation, MSO (Management Service Organization), or external service provider.” The most recent entry gave an impression the series was finished but it hadn’t covered external service providers. If it does continue, I will post an update link here.
The first entry, Administrative Consolidations and Management Service Organizations covers those structures and outlines what situations they work best in.
The second entry, Joining Forces in the Back Office – Administrative Collaboration and Consolidation, talks about the collaboration and consolidation formats and presents some case studies. This is also the entry in which they define the different structures.
“According to La Piana Associates, Inc., an administrative collaboration is an informal, not necessarily enduring, arrangement to share services or expertise while each organization retains its individual decision-making power; an administrative consolidation is a more formal agreement that involves shared decision making (without changing the corporate structure) and the sharing of specific functions; an MSO is a newly created organization for the purpose of integrating administrative functions; and an external service providerinvolves the outsourcing of certain administrative elements.”
One thing I found interesting about the case study presenting in this entry was that the organization, Chattanooga Museums Collaboration achieved things you might expect- cut costs, leveraged their purchasing power, improved productivity and increased unearned income through joint fund raising activities. But the partnership also made them more competitive in the larger business landscape.
“Although the “immediate reaction is that it’s the smaller guys who are getting the benefit,” Kret corrects this misconception stating that through CMC, the Tennessee Aquarium benefits as well by generating revenue from typically nonrevenue places like accounting, increasing retention by offering key employees a higher level of compensation, and offering their employees a much more rewarding and challenging work environment.”
The third entry, Joining Forces in the Back Office – Management Service Organizations, contained a case study of an MSO formed by five social service organizations which now serves 13 groups. While MSOs are separate organizations formed to provide these services, unlike commercial payroll and human resource companies, MSOs are formed for the benefit of specific entities.
The MSO in the case study, MACC CommonWealth, has an auditor appointed by multiple boards. If that sounds like a recipe for disaster, you will want to read the case study which acknowledges that serving the interests of multiple boards and CEOs is potentially fraught with peril. So far, it seems to be working.
The most recent entry notes there are many successful collaborations among non-profits across the country. The main thrust of the entry are observations of why a cooperative effort funded by the The Lodestar Foundation, was unsuccessful.
The Lodestar Foundation provides grants for collaborative efforts and their website can give you a sense of the scope of the efforts being made in this direction.
Emily Chan who wrote the series on Nonprofit Law Blog cites a number of studies and books on the subject so the entries themselves provide a good starting place for exploring the possibilities offered by one of these avenues.