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Mergers & Partnerships

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Consolidating Organizations to Serve the Community
How One Plus Two Can Actually Become Four
Outsourcing to Focus on What You Do Best
Recognizing the Opportunity: A Continuum of Services for Clients
Transforming a Program to Better Serve the Community
When Outsourcing Makes Good Sense

Consolidating Organizations to Serve the Community, or Maintaining Programs and Neighborhood Vitality

The executive director of a large settlement house already had his hands full. Besides running a large, complex set of programs at multiple locations, he was renovating a fully-occupied housing complex for seniors and multi-program neighborhood center. Then a board member of a neighborhood center a few blocks away approached him to take over its 5 programs, a move that would ensure their continuation. "We have decent programs," the trustee told him, "but frankly our board is worn out from the pressure of constantly worrying about sustainability."

The executive director of the larger organization was interested: the two agencies had similar programs, a similar mission, and served adjacent neighborhoods. Explaining the situation during our initial meeting, he asked whether he really needed our help. Couldn't he handle a merger by himself? His board was already willing, and the other party had approached him. While he could do it alone, we pointed out that we could provide him with additional resources to assess the opportunity, freeing him and his staff to concentrate on existing projects and ongoing programs. As outsiders, we could ask the thorny questions during due diligence without risking damaging ill will, represent him, as appropriate, to distance himself, and provide critical quality control to the decision-making process and partner integration, based on our range of experience in forming alliances.

He was also concerned -- he knew the agency had financial problems. So we provided the additional skills and resources the executive director and board wanted. We conducted due diligence of the potential acquiree, assessing its operational strength, financial health, funding sources, management capabilities, and cultural fit. We supported both nonprofit heads as they worked through the unexpected challenges of fiscal improprieties and staff turnover at the smaller organization. We worked with the acquiring agency's executive director and board to analyze options and risks before recommending the best strategy for combining the two agencies. And we acted as mediator in negotiating lease agreements and myriad other acquisition details.

The two leaders decided to keep the programs separate initially, partly because they wanted to make sure the program quality was maintained and the neighborhood well served, partly because they didn't want to take on the integration effort at that time. Two years later, they were ready to bring the programs together into a more cohesive whole.

The boards of the two agencies agreed to join and completed the transition to a combined entity. The merged organization had the operational and financial strength to continue to deliver quality programs to the entire, larger community. The board and staff became even more engaged by the opportunities created by the combined entity. Funders supported the combination because it preserved good programs and provided a respectful resolution for a weakened agency. And the organizationís reputation grew; it had acted decisively to maintain good programs, aid a sister and serve its community, all while staying true to its mission.

"The real benefit provided was that they had the same strategic perspective as the board and I did."

Executive Director, Goddard Riverside Community Center

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How One Plus Two Can Actually Become Four, or Combining to Create a New Entity to Expand Services & Serve More

At a key funder's urging, two long-standing childcare organizations and a third, new initiative, came to us for help. The funder wanted them join together to form a new, fourth entity that would be "larger than the sum of its parts".

"We believe that the combined organization can offer new and expanded services that will better meet the needs of the changing client population," the funder said. There were three goals: first, help the leaders and their boards understand their community's unmet needs and why a new organization was the solution; second, create a vision for the new organization that could be embraced by all three parties; and last, develop a combined program array, staffing and organizational structure, multi-year budget, and transition plan.

We began our work by analyzing the current situation: the programs, people served, key strengths, financial condition, and organizational structure and staffing of each agency. We researched the impact of the childcare industryís changing demographics and funding to learn about the challenges that confronted our clients. We explored other service delivery models to identify new approaches that might be applicable. In talking with the executives and their boards, we surfaced and debunked critical myths that each held about the other, raised their awareness of the issues they were facing and communicated funder concerns.

We worked closely with the leaders of each nonprofit, singly and together, to help them define the goals and work of the new organization. We elicited their and their boards? concerns, particularly around leadership, staffing, and program continuity. We worked with the executive directors to address the concerns they had voiced and to design the new entity -- its program array, each executive's new leadership role, organizational and governance structures, etc. Together we developed a three-year budget, including the start-up investment required, as part of an overall business plan. Finally, we attended a joint board meeting where one of the executives presented the results of her colleagues? work for review and discussion. Ultimately, each of the boards approved the concept and committed to moving forward.

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Outsourcing to Focus on What You Do Best

As the number of loans it made grew, a national lender to community development organizations found itself mired in paperwork: billing and collecting payments, adjusting repayment schedules, following up on overdue payments, etc. It didn't have the quality of staff and supervision it needed to handle the loan administration.

We compared the potential cost of using an outside administrator to the nonprofit's projected expenses, then interviewed and selected a company to take over the processing of the organization's loans. The transition was challenging: each loan amount outstanding, terms and payment schedule had to be verified before the handover, and then reconfirmed to make sure that the servicing company had recorded the information correctly. Both entities continued to administer the loans in parallel until all the problems were eliminated.

Outsourcing the loan administration worked. As loan volume grew, the administrative costs dropped below what the nonprofit would have had to spend. The organization could shift its attention to developing new services to expand its loan program. Outsourcing also encouraged greater standardization of loan terms, reduced the time it took to complete a loan and freed up lenders' time to offer loans to more nonprofits.

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Recognizing the Opportunity: A Continuum of Services for Clients

"I want to merge," the executive director of an HIV/AIDS organization told us when we first met with him. "I've stabilized this agency now and we could continue as is, but over the long term our clients would be better served if we had more resources."

A few months later, the director called to ask us to meet again, this time with the executive director of the agency that was to be his merger partner. The two leaders shared a strategic vision: together they could offer a broader continuum of services to meet the needs of their clients in more areas of the city. Equally critical their agencies shared important values, similar mission, dedication to quality service, and an unwavering focus on their clients.

Knowing they wanted to partner, they now wanted to move quickly and complete the merger within six months, so the transition could occur at the beginning of their new fiscal year.

We worked closely with the two executives to create a transition team with representatives from both agencies and develop a work plan to meet the shortened timeframe. We completed the due diligence already underway and helped the team design an integrated organization and service array. We worked hard to ensure that boards, staffs, and funders from both agencies were kept informed throughout the process, critical during this period of uncertainty and change.

Together we established a new inter-locking governance configuration and an enhanced management structure to support the larger, combined organization. To meet funders' contractual requirements, the two leaders decided to keep the acquiree's name and some programs separate, but strengthened them by linking them to resources and services the acquirer could provide. Within this framework the transition team worked hard to combine both entity's programs, leveraging their strengths to provide even better services to their clients.

At the end of the fiscal year, both boards approved the merger. Completed on time, the real integration had begun, and staff from both organizations began to think of themselves as one. The two boards and staffs celebrated their accomplishment. They had worked hard to create a combined entity within a very short timeframe. More importantly, staff and leadership from both organizations were excited about the new resources that they could provide their clients and how their services could continue to improve their clients' lives.

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Transforming a Program to Better Serve the Community

An umbrella organization for community services agencies was under fire from its funders to improve its capital grant-making program. It turned to a national nonprofit lender for help.

The two leaders met over several months, encouraged by leading area foundations. Together we worked to design a joint program that combined each organization's capital programs into a cohesive whole. We drafted a memorandum of understanding to establish the program and outline each partner's responsibilities. We developed a business plan for the new venture including a multi-year budget with each partner's contribution, staff requirements, timeline, and annual goals for the services to be delivered. Once agreed to, we coordinated the hiring of the first director, preparation of information brochures, and the needed technology links between the two organizations.

The partnership proved to be a win for everyone: The agencies served received technical assistance to prepare better capital project plans and had access to grants, loans, and matching grants to carry out their projects. The umbrella organization had stronger funder support and was highlighted as an innovator in its field. The national lender expanded its array of services to more nonprofits without having to bear all of the start-up costs of a new location.

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When Outsourcing Makes Good Sense

The incoming executive director of a social services organization came to us for help with her fiscal department. The CFO had left and the controller was trying to hold the department together. Government funders' reporting was inaccurate and late. The agency's financial and cash situation was unclear. And it had become impossible for the executive to get her arms around the problems. Meanwhile, other critical issues demanded the executive?s time and attention.

As we began to analyze the nonprofit's cash position, we found that indeed the fiscal department was in bad shape. For a host of reasons, it was almost impossible to keep up with the agency's day-to-day operations, let alone reduce the backlog, establish a strong team and a develop a well-run operation with the right controls and procedures, at least in the near-term.

We suggested two possible solutions to address the fiscal department's needs: we could lead a team of additional, external resources to rebuild it over the coming year, or outsource the entire function to a skilled provider at least for the next year or two. Ultimately, we recommended the latter: outsourcing would be cost-effective, given the additional resources required. The executive would get reliable, timely reports much more quickly, and could comfortably devote her attention and expertise to delivering quality programs, furthering the organization's mission and goals.

KrasnePlows really has the client's best interest at heart -- why else would they recommend using another provider and not them?

President, social services organization

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