Strategic Restructuring:
Partnership Options for Nonprofits

A Partnership Continuum
A Partnership Continuum

From simple alliances to complex mergers, partnerships can promote organizational effectiveness.

	Printable Versions of the Partnership Matrix Diagram and Partnership Options Diagram. The two figures mentioned in the text -- the Partnership Matrix and the partnership options diagram -- are available in Adove Acrobat (PDF) format on this site. Click the links below to download them. The Partnership Matrix Partnership Options Diagram

by David La Piana and Michaela Hayes

The country's economic recession has hit the nonprofit sector hard. Across the board, funding sources are on the decline. For associations that depend largely on membership fees, the economic downturn may pose a particularly tough threat to financial stability. Combine this with the explosion in the number of associations in recent years—estimated at as many as 1,000 new associations per year—and the result is a highly competitive environment where survival may depend on being open to different ways of operating. One strategy that nonprofits are increasingly considering is partnerships.

Clearly, collaboration and partnership have long been a part of nonprofit culture. However, a more recent phenomenon is the increasing openness of nonprofits to partnerships that go beyond conferences, joint programming, or shared administrative services. Associations increasingly are undertaking partnerships that involve more formal and long-term integration of operations and corporate structure, such as joint ventures and mergers. We use the term strategic restructuring to refer to these types of partnerships.

This increased activity, which we have studied during the past several years, has been driven more by the potential for increased organizational effectiveness than by economic crisis. However, in the past year, we have seen an upsurge in the number of nonprofit organizations turning to partnerships as a means of addressing serious economic threats.

In this article, we discuss the potential of these partnerships to help associations survive—and even become more effective—in tough times, and provide helpful tips to those interested in exploring these options.

Goals, benefits, and outcomes

First, it is important to set realistic expectations for potential joint activities. Often organizations turn to strategic restructuring as a way to save money in times of financial hardship. While such plans frequently yield savings in reduced staff and administrative costs, organizations with the primary goal of saving money may be disappointed. A more realistic goal of strategic restructuring is to achieve greater organizational effectiveness and an increased ability to advance the mission.

	Related Case Studies CoreNet Global SF/IABC and PINC Hearth, Patio, and Barbecue Association

While some organizations experience less-than-ideal results and others negotiate at length before halting the process, the potential benefits of strategic restructuring are numerous, including a greater ability to pursue mission, increased stability, reduced duplication, and less competition. These can translate into measurable, positive outcomes, such as increases in services, administrative capacity, and market share. When the necessary readiness and success factors are in evidence and a sound process is used, outcomes such as these are more likely to be realized.

For associations, the primary result of the improved ability to serve members may be achieved by offering value-added benefits, such as increased networking and enhanced seminar, conference, and trade show opportunities.

For the San Francisco Chapter of the International Association of Business Communicators (SF/IABC), the partnering experience was as simple as agreeing with the Printing Industries of Northern California, San Francisco , on cross marketing of and mutual participation in member programming. Benefits for PINC's membership of 1,000 printers and 300 designers, print buyers, and marketing communication professionals include access to a range of classes and seminars offered through the Graphic Arts Institute, San Francisco . To expand the reach of its programs, PINC looked to the more than 250 communication professionals who are members of SF/IABC. Through the partnership agreement, the two organizations market meetings, classes, and seminars to their respective members at discounted rates and link to each other's Web sites. Diane Fraser, board president of the all-volunteer-run SF/IABC at the time the partnership developed in 2002, says, “PINC offers classes that we don't but that are useful to our members. In addition, the partnership has been good for marketing. For example, PINC let us have a booth at its annual trade show. We met potential members, and it was great for networking.”

Costs and risks

Costs associated with joint activities vary by each of the three phases of the process: prenegotiations or readiness assessment, negotiations, and integration. The costs also vary by type of partnership and are typically higher for those involving corporate integration, such as mergers. Readiness assessments take many forms, are generally less structured than the other phases, and do not involve significant costs. The negotiation process almost always involves costs, including the diversion of staff and board member time from other functions. It may also entail travel and meeting expenses, attorney fees, and facilitator costs. Cost savings may result if and when the organizations are integrated, but these must be balanced against the costs of the integration process itself. The latter may include marketing costs, such as rebranding and creating new materials, moving expenses, severance, and costs related to integrating programs and services.

For CoreNet Global, Atlanta , the organization resulting from the 2002 merger of the International Association of Real Estate Executives and the International Development Research Council, merger costs have been offset by significant reductions in administrative expenses. The two separate organizations had a combined staff of 66 people; the new entity employs 41 people. These cost savings have helped the new group redirect resources to support member benefits, including improved educational services, a new research program, and a new Web site with e-commerce capabilities. Additionally, a plan is in the works for a new information technology system. According to CoreNet President and CEO Peggy Binzel, the “two separate organizations could never have afforded the new Web site . . . or the new IT system that we have planned.”

Strategic restructuring is not right for every organization or situation. Risks may arise for organizations that truly are not ready to engage in the negotiation process. Moreover, those that do not have the necessary structure and processes in place to undertake integration are less likely to achieve the outcomes they desire. A strategic restructuring effort that is undertaken for the wrong reasons or that is poorly designed and executed can have devastating outcomes, including negative publicity, lost time and money, and damaged relationships.

Partnership options

The partnership matrix (available as a PDF document here), which resulted from our study of nearly 200 partnerships, depicts the continuum of possible options for organizational involvement. From left to right, the horizontal axis represents a continuum ranging from greater autonomy to greater integration. The vertical axis represents the degree to which a partnership focuses on programmatic services (the organization's direct services), administration (office and management functions that support operations), or both.

Within the matrix are examples of structures that may result when moving from greater to lesser autonomy and from program-based to administration-based activities. The points in the matrix will dictate some of the elements of the various interactions. As shown on the left side of the matrix, collaboration allows for the greatest autonomy. It tends to be short term or sporadic in nature and typically is only bound by verbal agreements. The informal agreement by the printing industries and business communicators represents this type of arrangement. No permanent organizational commitment has been made, decision-making power remains with the individual organizations, and no change to corporate control or structure is necessary. The partnership options that fall in the middle and right portions of the matrix fall under the umbrella of strategic restructuring. These include strategic alliances and corporate integrations. These partnerships are more formal and long term and typically involve written agreements.

Figure 2 (available as a PDF document here) describes these options in detail. In corporate integration, as the name implies, changes to corporate control or structure occur, including creation or dissolution of one or more participating organizations.

In most cases, strategic restructuring evolves through a series of steps similar to the ones that follow.

Evaluation criteria

Before you enter into negotiations, it is important to determine whether strategic restructuring is best for your organization, and if so, which of the many options best suits your needs. You also need to decide with which organization you would like to partner. For Southwest Drycleaners Association, San Antonio—the result of a merger of three multistate affiliates of the International Fabricare Institute, Silver Spring, Maryland—the prenegotiation process was largely focused on obtaining input from the membership and ensuring that the merger would bring value to members. “From the very beginning,” advises Andrew Stanley, CAE, executive director, Southwest Drycleaners Association, “give members every piece of information. Give them every opportunity to have input.”

The prenegotiation phase has two parts:

1. Readiness assessment. We have identified a handful of criteria indicating readiness to engage in strategic restructuring. If an organization finds that it does not meet some of the criteria, more work in the identified areas must be done prior to negotiations. Otherwise, the process is less likely to yield success and the eventual partnership will be more difficult to implement. Obviously, these criteria are particularly important for organizations involved in corporate integration, as it involves the most significant change in organizational structure and takes the most time to negotiate and implement.

Key readiness criteria include

• A definite mission or focus;
• A strong relationship between the board and the executive team, especially between the board and the chief staff officer;
• A deliberate growth and risk-taking orientation;
• Flexibility in the way the mission is pursued—that is, an understanding that the mission is more than a specific program or service;
• A history of successfully collaborating in some fashion or an understanding of the value of strategic restructuring;
• An understanding that the process is long, arduous, and time-consuming; and
• An understanding that the outcome of strategic restructuring is not necessarily to save money, but rather to make the organization more effective and able to provide increased value to members.

2. Self-assessment and partner assessment. Before negotiations you'll also need to determine how a partnership might help address your organization's weaknesses, better advance your mission, and achieve your goals. Outlining such outcomes ties in to the selection of a potential partner—a critical decision. Consider what your potential partner brings to the table. Does the organization bring needed strengths or value? Will the partnership allow you to better serve your members?

The eventual 2002 merger of the Hearth Product Association and the Barbecue Industry Association (BIA) into the Hearth, Patio, and Barbecue Association, Arlington , Virginia , had its seeds in the recognition by HPA that its trade show increasingly was attracting exhibitors from the barbecue and patio industries. These dealers viewed the show as good counter-season business. Hence, HPA proposed a loose partnership with BIA with the goal of providing greater member value. Nearly two years into what later developed into a complete merger, signs are pointing to accomplishments strongly supporting that goal.

Other important questions include: Can you effectively work with the organization identified as a possible partner? Do the organizations share similar missions and values? Unfortunately, it is not possible to know in advance what it will be like to work with another organization. However, before you embark on negotiations, you should ask yourself whether you've had at least some history of working successfully with the potential partner and whether that experience inspires the kind of trust necessary for a workable partnership.

When the idea of a merger was proposed for BIA and HPA, the former's leadership had some apprehension given that it was a significantly smaller organization. To ease the concern, a reserve fund was created with BIA assets and set aside for two years. In January 2004, a decision will be made either to continue as one organization or to split up. According to Carter Keithley, president and CEO of the merged entity, the merger is not without challenges. But because it is meeting its primary objective of adding member value, he believes “that a split is unlikely to happen.”

The negotiation process

Three stages generally comprise the negotiation process for any strategic restructuring:

1. Commit to negotiations. Formal negotiations begin when the boards of the organizations commit to negotiations and assemble a negotiations committee. Each board must vote to proceed and should approve a brief, written resolution to engage in good-faith negotiations. The committee is typically a joint body, made up of a subset of each organization's board members.

2. Plan and conduct negotiations. This involves a series of committee meetings, generally spanning a four-to-six-month period, during which issues are raised and resolved. During this phase, the organizations must communicate with their members, explaining the reasons for considering the strategic restructuring, gathering input, and responding to issues and concerns. Additionally, each organization conducts a due diligence review of the other organization's legal and financial situation to identify any problems that may affect the decision.

The greatest challenge in the merger creating CoreNet Global was finding the time to meet and conduct negotiations. This was in part because of the different locations of the organizations, one in suburban Atlanta and the other in Palm Beach , Florida . In addition, volunteer board members found it difficult to meet and work through the details while operating their own organizations. Peggy Binzel, president and CEO of CoreNet Global, provides a realistic analogy: “It's like building a road while you're driving on it.” Despite the challenges and a soft economy, the merger has proven effective with strong membership growth, including a 15 percent increase in international membership.

3. Write and present the proposed agreement to the boards and memberships for a vote. Each organization must conduct a formal vote of its board and, if required, its membership.

Integration survival

As consuming as the negotiation process is—in terms of time, costs, and energy—it is only the precursor to the integration process, particularly in the event of a merger. Organizations should enter this phase well aware of the challenges that they'll face and of the tools and resources that can help them succeed. The main challenges involve systems and board integration and cultural integration or people issues.

The cultural issues are often the most challenging. Strategic restructuring involves significant change. Regardless of positive or negative outcomes, change causes fear and anxiety. The leadership of the partnering organizations or new organization, in the case of a merger, should take time to address and resolve the people issues. Otherwise, these issues will detract from the organizations' ability to move forward.

In our work, we have observed a number of predictors of a smooth integration process:

• The presence of a champion, whether a staff or board member, who is a cheerleader for the process and helps motivate others.
• Leadership that is able to move quickly, making difficult decisions and keeping up the forward momentum.
• A focus on creating a new organization—honoring the past histories and cultures of the organizations and creating a new shared culture.
• Clear, honest, open, frequent, respectful, and two-way communication throughout the participating organizations.
• Celebration of success early on and on an ongoing basis.
• The presence of a facilitator to keep things on track.
• A comprehensive plan and an integration team to put things in place.

For the Hearth, Patio, and Barbecue Association (HPBA), the most challenging part of the merger process was indeed the integration of cultures. BIA came to the merger with 85 members, a budget of $500,000, and no staff. In contrast, HPA had 2,500 members, a $5 million budget, and a 24-person staff. The lack of BIA staff did make the integration into HPA offices relatively easy; and former HPA staffers are adjusting to the expanded roles and responsibilities and are excited to learn about a new industry. More difficult was the integration of the two boards. Used to having an independent board and full control of the agenda, BIA had to adjust to having only two board positions. To accommodate the need for the former BIA board members to have “something of their own,” a separate Barbecue Manufacturers Caucus was established. While having its merits, this may have slowed down the integration process, because it reduced the need to actively participate on the merged board. Nearly two years into the merger process, Keithley sees former BIA leaders increasingly recognizing the need to more actively participate in the new board, join committees, and seek greater influence over the direction of the association—developments that he views as quite positive.

Outcomes assessment

Although the jury is still out on the results of the relatively recent mergers described in this article, early results are promising.

Southwest Drycleaners Association, a year into the integration of the three affiliates, reports that this year's convention had the highest attendance ever and received high satisfaction marks from participants. The merged association now offers additional educational classes and seminars in a greater number of locations. In addition, SDA's executive director notes that although he predicted a steep drop in membership because of the economy, membership has remained relatively stable.

HPBA's Keithley cites attendance at this year's trade show as a measure of success. It hit what he calls “a high-water mark” of 11,200 participants—a 15 percent increase over the previous year.

CoreNet Global's membership has shown a net increase. While the two merging organizations each had approximately 4,000 members, with 20 percent of them belonging to both organizations, the current combined membership totals 7,500. Binzel, CoreNet's president, attributes much of that to increased member benefits funded by significant reductions in administrative costs.

In sum, strategic restructuring offers an effective means for increasing organizational effectiveness. The gains, particularly when it comes to mergers, however, do not come easily. Says Binzel, “However hard you think it's going to be, it will be three times harder. There are thousands of details. Deal with them, but always keep the bigger picture in mind—and know that in the end there is a new organization, one that is stronger and better able to serve members.”

Reprinted with permission, copyright November 2003, American Society of Association Executives, Washington D.C.