Though it may not always feel like it, the Great Recession officially ended in June 2009–three years ago. Nonprofits have been hit hard with increased demand for services and a shifting funding landscape in the years since the economic crisis began, and predictably there has been much talk of a resulting spike in collaborations and mergers. But the notion that collaborations are somehow linked with recessions leads to the false assumption that nonprofits should collaborate because of financial motivations.
Organizing strategic collaborations solely to reduce costs does not set up collaborating partners for success, and it ignores a fundamental function: to do a better job of accomplishing the mission.
So why do we associate tough economic times with collaborations and mergers? Because of money. When resources are scarce, competition for those resources increases, and the financial stresses drive nonprofits to explore collaborations or mergers—particularly groups in a financially precarious position.
As manager of the Catalyst Fund for Nonprofits, which supports collaborations in Boston, I hear this argument time and again. But in reality, the cost savings can be elusive or won’t be realized for years. The notion that nonprofit mergers lead to improved economics comes from businesses, whose mergers and acquisitions result in cost savings mostly through mass layoffs. But mass layoffs are often absent from nonprofit collaborations and mergers.
In a 2010 piece for the Stanford Social Innovation Review, David La Piana describes the challenge of reducing expenses by sharing back-office resources, creating a joint venture, or merging two nonprofits. To implement each can necessitate higher expenses, which can offset any savings that may have been achieved.
While a recession can lift the curtain on outdated nonprofit business models, nonprofits would be better off shifting their focus from money to mission as the primary reason to collaborate or merge. Keeping strategy and mission at the heart of collaborative ventures changes the conversation from fearful (recession, competition, cost-cutting) to hopeful (strategic, mission-focused, greater impact).
Fostering this shift toward collaboration as a strategic option is just one of the goals of the Catalyst Fund for Nonprofits, a five-year funding collaborative managed by Nonprofit Finance Fund that includes the Boston Foundation, Boston LISC, the Hyams Foundation, the Kresge Foundation, and United Way of Massachusetts Bay and the Merrimack Valley. After a year and a half of operations, the Catalyst Fund has supported nine collaborations and mergers and provided $340,000 for technical assistance. We have seen real-world examples of the importance of keeping mission and strategy at the heart of collaborative ventures.
One such example is a nascent joint venture of diverse organizations—human-service providers, community-development corporations, education nonprofits, and even a credit union. These partners are aligning and co-locating their services to create a more seamless system that helps individuals and families in the greater Boston area build financial resilience. If you asked any of the partner organizations why they’re taking part in this collaboration, cost savings wouldn’t appear on anyone’s list. (In fact, they’re adding expenses.) At the top of their lists would be doing a better job of achieving their mission.
Collaborations and mergers are a strategic option to be deployed for the right reasons when times are tough—and when times are good. For every headline of economic recovery, let’s hope to see one (or two!) more headlines championing mission-driven collaborations.
Peter Kramer is a member of the Nonprofit Finance Fund's national consulting team and also manages the Catalyst Fund for Nonprofits in the greater Boston area.