Strategy Design

Creating Wins & Community Success Through Mergers

By Anne B. Colwell, CEO
Cape Cod Child Development

“Merger” and “Acquisition” seem to be scary words in the nonprofit world, but invigorating words in the for-profit arena.  Could it be the mission-driven nonprofit world is more focused on a smaller, targeted service?  How about the theory that a for-profit organization is just simply more competitive and wants to grow revenue?  Nonprofits are seen as softer, kinder entities, and acquisitions give the impression of negativity and loss.  For-profits may be viewed more as a business model that acts in a manner that drives profit, sometimes at the expense of human capital.  Perhaps the types of professionals that lead organizations tend to fall into two general motivational categories—intrinsically and extrinsically valued.  There, of course, is no actual clear answer—only the remaining question about why the concept of creating more greatness by combining resources has not taken hold in the nonprofit world in the same way as in the for-profit world.

As the CEO of a nonprofit on a 70 mile peninsula with two small islands (good guess—Cape Cod!) and over 1,000 nonprofit agencies, it is clear we can see the opportunities for (nonprofit) mergers and acquisitions.  Our agency is one of the largest nonprofits in the region, especially within the child and family services sector.  Roughly two-thirds of the Cape’s nonprofits provide services to children and families with significant overlap of services and missions.  All of these hundreds of nonprofits have CEOs/Executive Directors and most have financial/human resources management, marketing, development, and administrative support staff—all functioning outside the direct services provided to clients.  Many of these agencies have outstanding leadership and staff but, conversely, many do not.  Many are utilizing effective technologies, evidence-based practices, and good operational excellence processes but, in reality, many probably are not.  There is only one fair reality when we look from afar and in general terms—the total amount of money available is not being spent in the most effective ways.  We know this by just simply looking at the administrative costs of running so many nonprofits in a relatively small geographical footprint.

Let’s take a closer look at the nonprofit world.  In any given year, there will be a dollar figure that accounts for all the financial resources and funding opportunities for nonprofit entities.  It is a sizable figure, relatively speaking, whether it is international, national, regional, or community-based.  At the end of every year (fiscal or calendar), it represents the total investment in the nonprofit service-based sector—regardless of the source of revenue.  If one considers the holistic approach, it is very logical to want to combine all nonprofit revenue streams into one number and understand the value of what that revenue truly means to a community or larger scope, as appropriate.

When we think about potential mergers and acquisitions, we must first consider a collective impact mindset.  If we merge, will it create more services, better quality, enhanced employee satisfaction, improved productivity, or an enriched customer experience?  We seek a win, win, win situation (triple wins), meaning it is a win for all agencies, a win for our agency, and, most importantly, a win for our children and families.  We know we can create more operational efficiency and lower administrative costs but there also must be a mission-driven connection to helping the same demographic.

Not all mergers and acquisitions are losing propositions for human capital—people!  In fact, many mergers and acquisitions provide far greater opportunities for growth and intellectual stimulation.  Although there may or may not be some transition of leaders and staff, in my experience, the newly merged entities realize new outcomes, different challenges, and professional growth that could never have occurred in the previous agency.

As nonprofit agencies struggle with Executive Director Transitions, reduced funding/revenue, and increasing administrative burdens, the answer may well lie in a merger or acquisition.  Yes, it is daunting, scary, and unfamiliar to navigate a nonprofit merger, but the benefits can be dramatic for a community.  The greater ability to provide much-needed food, housing, health, education, clothing, referrals, and all types of services to children, adults, and families can dramatically outweigh the doubt to move forward.

If mergers are not possible, another great option to consider is strengthening strategic partnerships, shared services, and collaborations.  Why not combine efforts, space, and talent if you serve the same demographic in the same area?  Identify the cross-over points of services, how each agency brings unique products/services to the community need and work together to provide more that is similarly missioned.  There may be nothing more impressive to donors, funders, and foundations than to see nonprofit agencies working smarter together.

In the nonprofit world, we are definitely “better together” and “stronger united”—let’s all consider an approach going forward, whether a merger, an acquisition, a strategic partnership, or a simple collaboration, that can change our communities … the world is waiting!

Business Model of Higher Education: The Differentiated and Integrated Strategy

The landscape of higher education is rapidly changing. One thing that is becoming vital to competitive positioning is the ability to build partnerships and collaborations with businesses, nonprofits, government agencies, military, K-12 schools, and foreign entities for the purpose of designing an integrated education model. 

The business model of higher education is shifting and to remain relevant in the future will require, redefining the value proposition of todays education model and the leadership to challenge archaic thinking. The model of the future will be centered on two core elements: 

  1. The ability to differentiate based on an area(s) of specialty or niche programming
  2. The ability to integrate niche programming by restructuring internal operations (academics, careers, and development offices) and building strategic relationships with external partners and employers.

Differentiation
Colleges and Universities will differentiate on their brand or their program niche in the market. Harvard University has a premier brand name, but will that be enough in the future? Is the value proposition of higher education shifting to career readiness and ability to secure employment? If that is the case, then is it more valuable to enroll in a university that has a world-class reputation for an industry specific focus or program. 

For example, can a small university in Vermont compete with Harvard on brand? No! But can they differentiate themselves in a way that allows them to have the #1 cyber security program in the country? Yes! This is an example of how schools that do not have a marquee name must compete to survive and grow.

Determining how and where to compete in this global education market is going to mean the difference between being relevant in 10 years or going extinct. Small to mid-size colleges and universities can not compete with the Harvard, Yale, and Stanford brands. However, given the shift in the markets, the future will base the value of education on career readiness or job preparation within a niche area, which allows room to compete based on niche market focus.

Integration
What is the strategic relevance of your careers department? Where is it positioned in your strategic plan in terms of importance and budget allocation? We want colleges and universities to become too integrated to fail. Integration means entrenching your school with employers and external partners around your niche programming to build a model that adds value in multiple areas.

If the value proposition is moving away from a degree and more towards career readiness, that will impact the way universities are organized and structured. Careers departments become strategic partnership departments bringing jobs, internships, externships, curriculum changes, corporate training, and multiple levels of relationships. The challenge will be to bridge all external relationships to internal departments. Even the development office will benefit, as a school becomes more of an integrated partner with outside organizations, the level of corporate giving and philanthropy should increase in parallel with the value of the programming and relationship.

The business model of higher education is ready to transform and will require strong leadership to drive those changes. Strategic planning is a great way to move a university towards the future, but part of that process must be designing strategy for differentiation and integration.

TOP 3 STRATEGY LESSONS

Our firm has had the privilege of working with over 100 nonprofits organizations; from universities to homeless shelters, and everything in-between. There are three common lessons we repeatedly see in working with clients that we would like to share.

#1: BOARDS ARE NOT EXEMPT FROM STRATEGY
The board is the group that approves the strategic direction of the organization and then holds the CEO accountable for fulfilling the plan. Boards must also develop a plan for themselves to ensure they have the capabilities, resources, expertise, and talent to achieve future strategy. If the CEO is held accountable for executing the strategic plan, the board chair and board members must be held accountable for having the right people to best support the strategic direction. If both board and staff are not moving forward together, then the board could hold operations back because they can't keep up with the pace of change. Make sure the board has a plan to evolve too!

#2: BUSINESS MODELS NEED A REBOOT
Technology has been a major disruptor to big business and has recently started to chip away at nonprofits of all shapes and sizes. Higher education is under attack from rising costs and deepening discount rates, while students ability to pay is declining. Other nonprofit sectors are experiencing major disruption too. Soon human service organizations will be under attack from: sharing technology & automation, shrinking federal & state funding, and massive overhead. Many nonprofit sectors are about go through dramatic shifts in their service models. The way and manner in which services are delivered is changing now and organizations need to be proactive in designing viable business models.

#3: BOARD CHAIRS & CEOS MUST BE ALIGNED
The most important relationship in any nonprofit organization is the one that exists between the Board Chair and CEO. The most effective and powerful nonprofit organizations are the ones that have this power team sharing one-mind and one-mission. There are important questions to ask in developing this critical relationship: Does the Chair understand their role and how to move & develop the board? Does the CEO understand how to manage and lead strategic change? This team of two needs to ensure three things are happening to be effective:

  1. Both need to be candid about expectations for each other. Each must know their role and have defined boundaries together. 
  2. Both must define the current situation (reality) of the organization to make sure they are operating on the same playing field. This means facing the brutal facts when making decisions for the organization.
  3. Both have to establish a clear way to communicate on a frequent and consistent basis. Speaking one week before the board meeting to create an agenda is not enough. Boards must be forward thinking, constantly planning, and continuously focused on developing governance. In order to achieve this alignment the CEO and Chair must always work together to organize their actions. Each has a different role to play in the partnership for ensuring a viable organization, and communication is a must.

We have learned many lessons from our clients and the three principles above are the most important factors for ensuring success, viability, and a healthy organization. 

Are Customers redefining your business model?

Are Customers redefining your business model without your knowledge? Non-profit business models are in the midst of a massive shift and most organizations are not prepared for the imminent changes to come. Higher Ed is an excellent example.

Higher Ed has been focused on producing degrees in a liberal arts setting because that is what academia has always done to prepare students. That historical mindset does not satisfy current demand from customers who have more power than ever before.

  • Students want to graduate with good paying jobs in their fields of interest
  • Parents want their kids to obtain jobs that will launch their professional careers.
  • Employers want to hire graduates with good skills, character, and the ability to hit the ground running.

All three customers have one thing in common - they are career focused.

Historically, we could argue that students and parents were degree focused; and that it mattered more for a student to earn a degree verses obtain a job but those days are over. In response, the business model of higher education is shifting its focus to fulfilling career objectives.

This seemingly small shift in end-results drastically challenges the current business model, culture, and philosophy of higher education. Many college majors could be misaligned with the future, which is why we are starting to see a rise in “centers of excellence.” These centers are ways to build educational programming geared towards career placement and employer partnerships. But the evolution of the Higher Ed business model is happening too slowly and many schools in their race to relevancy will fail because they were not able to change quickly enough to meet this new type of demand.

Bottom line – shifts in customer demands/expectations are forcing shifts in business models across all nonprofit sectors, not just higher education. Crafting strategic plans, evolving business models, and successfully implementing changes will be the key to future relevance and viability. 

Designing Transformational Strategy

Last month, our Nonprofit Strategy Report focused on the importance of developing engaged trustees for the board. In this month's report we are going to look at how to design transformational strategy. These are the three major levers that nonprofit CEO's need to be focused on consistently to break the status quo:

  • Developing Engaged Trustees
  • Designing Transformative Strategy
  • Developing Staff

Transformation is about creating a future that does not exist. It is about thinking differently and outside the scope of the existing business model. Designing Transformative Strategy is to look beyond what the organization is currently doing, and determining new ways of achieving the mission and goals.

There is a great saying, "If you do what you have always done, you will get what you have always gotten." This means that breaking the status quo requires bold thinking and action. It also requires strong leadership! 

There are three key steps to designing transformational strategy:

Step 1 - Assess

Gain a deep understanding of the business model of the organization. It is critical to know what drives the economic engine, who the real customer is, the value proposition to those customers, and the partnerships that support success.

This assessment will allow leaders to better understand their organization and how new ideas will impact operations. This will increase the ability to implement change with the staff in a pragmatic way.

Step 2 - Engage

Identify stakeholders internally and externally to the organization that will be engaged in the strategy design process. Stakeholders can include: Trustees, staff, donors, foundations, "customers", local or state government, other nonprofits, partners, vendors, and other important individuals or organizations. 

We engage stakeholders to understand where they see opportunities and threats for the organization. This is similar to crowd sourcing ideas from large audiences. The CEO should not sit in a room and try to think up a strategy or vision. This should be done through the feedback and insights of the stakeholders interviewed.

When we engage stakeholders to be part of the strategy design journey, we are enrolling them in the future success of the nonprofit organization. By doing this, we will have created ownership and buy-in to the future direction. The strategy design is co-created with multiple viewpoints, ideas, opinions, and different ways of thinking.

Here is an example of why engaging stakeholders is so important: Did you ever have a job performance evaluation? Performance evaluations can be done by a supervisor, which is the feedback and evaluation from just one individual. Now compare that to the different levels of perspective you would receive with a 360 degree feedback from your supervisor, peers, colleagues, and subordinates. The benefit of the 360 degree evaluation is going to be far more valuable because it is from multiple levels of perspective and from more than one source.

The same value can be attributed by engaging multiple levels of stakeholders during the strategy design process. This allows ideas to be shared that may become the organizations next strategic area of focus. It also generates a significant amount of momentum when transitioning from plan design to implementation. That momentum can help drive the change and transformation needed for ensure success.

Step 3 - Assemble

Once the assessment of the business model has been done and the stakeholders have been engaged, now it is time to put the data and ideas together. What we are looking for during this step is the ideas and opportunities that align and corroborate from all the interviews and data points. The more the feedback corroborates the more relevant and applicable the idea(s) becomes to the strategic direction of the organization. 

The future strategy design of the organization should be generated through the stakeholder feedback. This creates transformational ideas to assemble into a plan for the leadership team to implement and achieve.

Next Steps

Having a transformative strategy will inspire the staff towards new thinking, but there must be a solid staffing team to deliver the results. Developing a Staff Team is the #3 lever to success, and will be the subject of our July 2015 Nonprofit Strategy Report.